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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, 2003                                          

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.YesXNo______

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).Yes______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 2, 2003             
|                                       |  |                         
|Common Stock, par value $.01 per share |  |                          | 18,131,685 | 



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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    March 31,
2003 and June 30, 2002                              |    |      | 3 | 
|                                            |                                                                                               |                                                                                               |    |     
|                                            |                                                                                               | Consolidated Statements of Operations    Three
and nine months ended March 31, 2003 and 2002 |    |      | 4 | 
|                                            |                                                                                               |                                                                                               |    |     
|                                            |                                                                                               | Consolidated Statements of Cash Flows    Nine
months ended March 31, 2003 and 2002           |    |      | 5 | 
|                                            |                                                                                               |                                                                                               |    |     
|                                            |                                                                                               | Notes to Consolidated Financial Statements                                                    |    |      | 6 | 
|                                            |                                                                                               |                                                                                               |    |     
|                                            | Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations |                                                                                               |    | 10   |  
|                                            |                                                                                               |                                                                                               |    |     
|                                            | Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                               |    | 18   |  
|                                            |                                                                                               |                                                                                               |    |     
|                                            | Item 4. Controls and Procedures                                                               |                                                                                               |    | 18   |  
|                                            |                                                                                               |                                                                                               |    |     
|Part II. Other Information:                 |                                                                                               |                                                                                               |    |     
|                                            |                                                                                               |                                                                                               |    |     
|                                            | Item 1. Legal Proceedings                                                                     |                                                                                               |    | 19   |  
|                                            |                                                                                               |                                                                                               |    |     
|                                            | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                               |    | 20   |  
|                                            |                                                                                               |                                                                                               |    |     
|Signatures                                  |                                                                                               |                                                                                               | 21 |     
|                                            |                                                                                               |                                                                                               |    |     
|Exhibit Index                               |                                                                                               |                                                                                               | 24 |     





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PART I. Consolidated Financial Information

Item 1. Consolidated Financial Statements

DIGENE CORPORATION
CONSOLIDATED BALANCE SHEETS

|                                           |                                                                                                                                                                        |   |            |             |             |   |            |             |   |  | 
|------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | ----------- | ----------- | - | ---------- | ----------- | - |  | 
|                                           |                                                                                                                                                                        |   |            |             | March 31,   |   | June 30,  
|                                           |                                                                                                                                                                        |   |            |             | 2003        |   | 2002      
|                                           |                                                                                                                                                                        |   |            |             |             |   |           
|                                           |                                                                                                                                                                        |   |            |             | (Unaudited) |   |            |             |  
|ASSETS                                     |                                                                                                                                                                        |   |            |             |             |   |            |            
|Current assets:                            |                                                                                                                                                                        |   |            |             |             |   |            |            
|                                           | Cash and cash equivalents                                                                                                                                              |   | $          | 8,414,410   |             |   | $          | 9,453,125   |  
|                                           | Short-term investments                                                                                                                                                 |   |            | 22,564,477  |             |   |            | 30,140,114  |  
|                                           | Accounts receivable, less allowance of approximately $395,000 and
$684,000 at March 31, 2003 and June 30, 2002, respectively                                           |   |            | 9,100,749   |             |   |            | 9,001,584   |  
|                                           | Inventories                                                                                                                                                            |   |            | 7,415,263   |             |   |            | 5,980,386   |  
|                                           | Prepaid expenses and other current assets                                                                                                                              |   |            | 1,894,486   |             |   |            | 2,195,264   |  
|                                           |                                                                                                                                                                        |   |            |             |             |   |            |            
|Total current assets                       |                                                                                                                                                                        |   | 49,389,385 |             |             |   | 56,770,473 |            
|                                           |                                                                                                                                                                        |   |            |             |             |   |            |            
|Property and equipment, net                |                                                                                                                                                                        |   | 6,715,298  |             |             |   | 7,398,637  |            
|Deferred costs, net                        |                                                                                                                                                                        |   |           |             |             |   | 1,345,763  |            
|Intangible assets, net                     |                                                                                                                                                                        |   | 900,515    |             |             |   | 900,515    |            
|Deposits                                   |                                                                                                                                                                        |   | 956,528    |             |             |   | 825,941    |            
|                                           |                                                                                                                                                                        |   |            |             |             |   |            |            
|Total assets                               |                                                                                                                                                                        | $ | 57,961,726 |             |             | $ | 67,241,329 |            
|                                           |                                                                                                                                                                        |   |            |             |             |   |            |            
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                                                                                        |   |            |             |             |   |            |            
|Current liabilities:                       |                                                                                                                                                                        |   |            |             |             |   |            |            
|                                           | Accounts payable                                                                                                                                                       |   | $          | 5,802,138   |             |   | $          | 6,496,406   |  
|                                           | Accrued expenses                                                                                                                                                       |   |            | 3,207,277   |             |   |            | 5,628,706   |  
|                                           | Accrued payroll                                                                                                                                                        |   |            | 3,189,577   |             |   |            | 2,864,436   |  
|                                           | Current portion of long-term debt                                                                                                                                      |   |            | 2,690,291   |             |   |            | 1,377,856   |  
|                                           | Current portion of deferred revenues                                                                                                                                   |   |            |            |             |   |            | 575,091     |  
|                                           |                                                                                                                                                                        |   |            |             |             |   |            |            
|Total current liabilities                  |                                                                                                                                                                        |   | 14,889,283 |             |             |   | 16,942,495 |            
|                                           |                                                                                                                                                                        |   |            |             |             |   |            |            
|Deferred rent                              |                                                                                                                                                                        |   | 419,099    |             |             |   | 353,076    |            
|Deferred revenue, less current portion     |                                                                                                                                                                        |   |           |             |             |   | 1,616,478  |            
|Long-term debt                             |                                                                                                                                                                        |   | 2,518,751  |             |             |   | 3,690,496  |            
|Deferred liability                         |                                                                                                                                                                        |   |           |             |             |   | 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, 18,120,785
and 17,972,728 shares issued and outstanding at March 31, 2003
and June 30, 2002, respectively |   |            | 181,208     |             |   |            | 179,727     |  
|                                           | Additional paid-in capital                                                                                                                                             |   |            | 115,909,625 |             |   |            | 110,856,010 |  
|                                           | Deferred stock compensation                                                                                                                                            |   |            | (8,035      | )           |   |            | (32,137     | )
|                                           | Accumulated deficit                                                                                                                                                    |   |            | (75,948,205 | )           |   |            | (71,364,816 | )
|                                           |                                                                                                                                                                        |   |            |             |             |   |            |            
|Total stockholders equity                 |                                                                                                                                                                        |   | 40,134,593 |             |             |   | 39,638,784 |            
|                                           |                                                                                                                                                                        |   |            |             |             |   |            |            
|Total liabilities and stockholders equity |                                                                                                                                                                        | $ | 57,961,726 |             |             | $ | 67,241,329 |            
|                                           |                                                                                                                                                                        |   |            |             |             |   |            |            

See accompanying notes.

3



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DIGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

|                                          |                                   |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |            |  
|----------------------------------------- | --------------------------------- | - | ------------------ | ---------- | ----------------- | - | ---------- | ---------- | ---- | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                          |                                   |   | Three Months Ended |            | Nine Months Ended
|                                          |                                   |   | March 31,          |            | March 31,        
|                                          |                                   |   |                    |            |                  
|                                          |                                   |   | 2003               |            | 2002              |   | 2003       |            | 2002
|                                          |                                   |   |                    |            |                   |   |            |            |     
|                                          |                                   |   | (Unaudited)        |            | (Unaudited)      
|Revenues:                                 |                                   |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|                                          | Product sales                     |   | $                  | 16,900,922 |                   |   | $          | 11,682,569 |      |   | $          | 43,505,215 |   |   | $          | 32,770,702 |  
|                                          | Distribution contract             |   |                    |           |                   |   |            | 2,348,576  |      |   |            |           |   |   |            | 2,951,318  |  
|                                          | Other                             |   |                    | 80,958     |                   |   |            | 181,885    |      |   |            | 542,720    |   |   |            | 456,860    |  
|                                          |                                   |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|Total revenues                            |                                   |   | 16,981,880         |            |                   |   | 14,213,030 |            |      |   | 44,047,935 |            |   |   | 36,178,880 |           
|                                          |                                   |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|Costs and expenses:                       |                                   |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|                                          | Cost of product sales             |   |                    | 3,812,189  |                   |   |            | 3,824,655  |      |   |            | 9,999,579  |   |   |            | 9,790,243  |  
|                                          | Research and development          |   |                    | 2,481,681  |                   |   |            | 2,238,902  |      |   |            | 6,647,962  |   |   |            | 6,654,938  |  
|                                          | Selling and marketing             |   |                    | 7,427,101  |                   |   |            | 5,700,216  |      |   |            | 20,146,755 |   |   |            | 14,139,428 |  
|                                          | General and administrative        |   |                    | 4,076,798  |                   |   |            | 3,461,735  |      |   |            | 12,342,245 |   |   |            | 8,348,807  |  
|                                          | Amortization of intangible assets |   |                    |           |                   |   |            | 37,522     |      |   |            |           |   |   |            | 112,564    |  
|                                          | Abbott termination fee            |   |                    |           |                   |   |            | 2,500,000  |      |   |            |           |   |   |            | 2,500,000  |  
|                                          |                                   |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|Loss from operations                      |                                   |   | (815,889           | )          |                   |   | (3,550,000 | )          |      |   | (5,088,606 | )          |   |   | (5,367,100 | )         
|                                          |                                   |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|Other income (expense):                   |                                   |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|                                          | Other income                      |   |                    | 196,026    |                   |   |            | 71,837     |      |   |            | 307,004    |   |   |            | 84,441     |  
|                                          | Interest income                   |   |                    | 136,404    |                   |   |            | 141,117    |      |   |            | 478,839    |   |   |            | 533,019    |  
|                                          | Interest expense                  |   |                    | (72,307    | )                 |   |            | (5,824     | )    |   |            | (201,899   | ) |   |            | (10,909    | )
|                                          |                                   |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|Loss from operations before income
taxes  |                                   |   | (555,766           | )          |                   |   | (3,342,870 | )          |      |   | (4,504,662 | )          |   |   | (4,760,549 | )         
|                                         
|Provision for (benefit from) income
taxes |                                   |   | 63,615             |            |                   |   | (23,594    | )          |      |   | 78,727     |            |   |   | 167,716    |           
|                                          |                                   |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|Net loss                                  |                                   | $ | (619,381           | )          |                   | $ | (3,319,276 | )          |      | $ | (4,583,389 | )          |   | $ | (4,928,265 | )         
|                                          |                                   |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|Basic and diluted net loss per share      |                                   | $ | (0.03              | )          |                   | $ | (0.19      | )          |      | $ | (0.25      | )          |   | $ | (0.29      | )         
|                                          |                                   |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|Weighted average shares outstanding       |                                   |   | 18,118,253         |            |                   |   | 17,683,415 |            |      |   | 18,116,461 |            |   |   | 17,161,810 |           
|                                          |                                   |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           

See accompanying notes.

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DIGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                    |                                                                             |                                                         |                                           |             |                   |            |             |             |           |            |  
|--------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------- | ----------------------------------------- | ----------- | ----------------- | ---------- | ----------- | ----------- | --------- | ---------- | -
|                                                    |                                                                             |                                                         |                                           |             | Nine Months Ended
|                                                    |                                                                             |                                                         |                                           |             | March 31,        
|                                                    |                                                                             |                                                         |                                           |             |                  
|                                                    |                                                                             |                                                         |                                           |             | 2003              |            | 2002       
|                                                    |                                                                             |                                                         |                                           |             |                   |            |            
|                                                    |                                                                             |                                                         |                                           |             | (Unaudited)      
|Operating activities                                |                                                                             |                                                         |                                           |             |                   |            |             |            
|                                                    | Net loss                                                                    |                                                         | $                                         | (4,583,389  | )                 |            | $           | (4,928,265  | )        
|                                                    | Adjustments to reconcile net loss to net cash used in operating activities: |                                                         |                                           |             |                   |            |             |             |          
|                                                    |                                                                             | Depreciation and amortization of property and equipment |                                           |             | 2,448,423         |            |             |             | 1,185,947 |           
|                                                    |                                                                             | Amortization of intangible assets                       |                                           |             |                  |            |             |             | 112,564   |           
|                                                    |                                                                             | Compensation expense related to stock options           |                                           |             | 24,102            |            |             |             | 24,102    |           
|                                                    |                                                                             | Abbott termination fee                                  |                                           |             |                  |            |             |             | 2,500,000 |           
|                                                    |                                                                             | Changes in operating assets and liabilities:            |                                           |             |                   |            |             |             |           |           
|                                                    |                                                                             |                                                         | Accounts receivable                       |             |                   | (99,165    | )           |             |           | (3,779,720 | )
|                                                    |                                                                             |                                                         | Inventories                               |             |                   | 122,067    |             |             |           | (480,814   | )
|                                                    |                                                                             |                                                         | Prepaid expenses and other current assets |             |                   | 300,778    |             |             |           | 237,673    |  
|                                                    |                                                                             |                                                         | Deposits                                  |             |                   | (130,587   | )           |             |           | 8,729      |  
|                                                    |                                                                             |                                                         | Accounts payable                          |             |                   | (694,268   | )           |             |           | 3,085,028  |  
|                                                    |                                                                             |                                                         | Accrued expenses                          |             |                   | (2,421,429 | )           |             |           | 2,119,135  |  
|                                                    |                                                                             |                                                         | Accrued payroll                           |             |                   | 325,141    |             |             |           | 89,039     |  
|                                                    |                                                                             |                                                         | Deferred revenues                         |             |                   |           |             |             |           | (3,088,000 | )
|                                                    |                                                                             |                                                         | Deferred rent                             |             |                   | 66,023     |             |             |           | 94,385     |  
|                                                    |                                                                             |                                                         |                                           |             |                   |            |             |            
|Net cash used in operating activities               |                                                                             |                                                         | (4,642,304                                | )           |                   |            | (2,820,197  | )          
|                                                    |                                                                             |                                                         |                                           |             |                   |            |             |            
|Investing activities                                |                                                                             |                                                         |                                           |             |                   |            |             |            
|                                                    | Purchases of short-term investments                                         |                                                         |                                           | (15,201,254 | )                 |            |             | (26,457,329 | )        
|                                                    | Maturities of short-term investments                                        |                                                         |                                           | 22,776,891  |                   |            |             | 8,934,628   |          
|                                                    | Capital expenditures                                                        |                                                         |                                           | (2,946,260  | )                 |            |             | (1,783,426  | )        
|                                                    |                                                                             |                                                         |                                           |             |                   |            |             |            
|Net cash provided by (used in) investing activities |                                                                             |                                                         | 4,629,377                                 |             |                   |            | (19,306,127 | )          
|                                                    |                                                                             |                                                         |                                           |             |                   |            |             |            
|Financing activities                                |                                                                             |                                                         |                                           |             |                   |            |             |            
|                                                    | Net proceeds from issuance of common stock                                  |                                                         |                                           |            |                   |            |             | 14,948,250  |          
|                                                    | Exercise of common stock options                                            |                                                         |                                           | 55,096      |                   |            |             | 4,999,644   |          
|                                                    | Principal repayments of long-term debt                                      |                                                         |                                           | (1,080,884  | )                 |            |             |            |          
|                                                    |                                                                             |                                                         |                                           |             |                   |            |             |            
|Net cash provided by financing activities           |                                                                             |                                                         | (1,025,788                                | )           |                   |            | 19,947,894  |            
|                                                    |                                                                             |                                                         |                                           |             |                   |            |             |            
|Net decrease in cash and cash equivalents           |                                                                             |                                                         | (1,038,715                                | )           |                   |            | (2,178,430  | )          
|Cash and cash equivalents at beginning of period    |                                                                             |                                                         | 9,453,125                                 |             |                   |            | 20,626,252  |            
|                                                    |                                                                             |                                                         |                                           |             |                   |            |             |            
|Cash and cash equivalents at end of period          |                                                                             | $                                                       | 8,414,410                                 |             |                   | $          | 18,447,822  |            
|                                                    |                                                                             |                                                         |                                           |             |                   |            |             |            

See accompanying notes.

5



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DIGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Basis of Presentation

The consolidated financial statements of Digene Corporation (Digene) for the
three- and nine-month periods ended March 31, 2003 and 2002 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, 2002 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 standard cost basis,
which approximates average cost.

Inventories consist of the following:

|                |  |             |            |          |  |   |            |  
|--------------- |  | ----------- | ---------- | -------- |  | - | ---------- | -
|                |  | March 31,   |            | June 30,
|                |  | 2003        |            | 2002    
|                |  |            
|                |  | (Unaudited) |            |          |  |  
|Finished goods  |  | $           | 5,218,260  |          |  | $ | 2,388,153  |  
|Work in process |  |             | 3,038,825  |          |  |   | 3,460,359  |  
|Raw materials   |  |             | 1,588,059  |          |  |   | 1,339,470  |  
|                |  |             |            |         
|                |  |             | 9,845,144  |          |  |   | 7,187,982  |  
|Reserves        |  |             | (2,429,881 | )        |  |   | (1,207,596 | )
|                |  |             |            |         
|                |  | $           | 7,415,263  |          |  | $ | 5,980,386  |  
|                |  |             |            |         

The increase in Finished goods is due largely to the repurchase of equipment
inventory from Roche Molecular Systems and the conversion into inventory of
equipment which was produced by a vendor and had previously been recorded as
Deposits in Digenes financial statements. Digene took possession of this
equipment inventory from both sources during the third quarter of fiscal 2003.
Please see Distribution Agreement below for a description of the Roche
Distribution Contract. Inventory reserves as a percent of gross inventory have
increased from almost 17% at June 30, 2002 to over 24% at March 31, 2003,
primarily as a result of increased scrap reserves which were established based
on recent experience.

6



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##### 



3.     Distribution Agreement

On April 29, 2001, Digene entered into a letter agreement with Roche Molecular
Systems (the Roche Distribution Contract), which established Roche Molecular
Systems (Roche) as the co-exclusive distributor of Digenes human
papillomavirus (HPV) products in Europe, Africa and the Middle East from May
1, 2001 through June 30, 2002. In June 2002, Digene adopted as its sole
strategy for the distribution of its HPV products in Europe, Africa and the
Middle East, a combination of direct distribution through its European
infrastructure and the use of local distributors and agents.

Commencing in the fourth quarter of fiscal 2002, Digene deferred recognition of
revenue from HPV equipment sold to Roche under the Roche Distribution Contract.
Equipment sold to Roche during the fourth quarter of fiscal 2002 had a sales
price of $2.3 million and a cost of $1.4 million, which amounts were recorded
as deferred revenue and deferred costs, respectively, during that quarter. The
deferred revenue and deferred costs were being amortized over a four-year
period beginning in April 2002 to other revenue (as equipment rental) and
selling and marketing expenses, respectively.

On June 30, 2002, the term of the Roche Distribution Contract expired, subject
to a non-exclusive wind-down period. On December 20, 2002, Roche and Digene
amended the Roche Distribution Contract to terminate the wind-down period on
December 31, 2002 and to establish the procedures for Digenes repurchase from
Roche of HPV-related testing equipment purchased from Digene by Roche under the
Roche Distribution Contract. The repurchase price of the equipment in use for
HPV testing in customers laboratories is the equipments December 31, 2002
depreciated value, which is the net selling price less any amounts Roche
recorded as depreciation based on a straight-line basis over a four-year
period. The repurchase price for the equipment in inventory is a discount from
the transfer price paid by Roche under the Roche Distribution Contract. The
parties consummated the HPV equipment repurchase on January 6, 2003, subject to
reconciliation. In January 2003 Digene and its affiliates paid Roche an
aggregate of approximately $2.6 million for the HPV equipment in inventory and
in use at customers laboratories in Europe. Digene has estimated that the
reconciliation will reduce the total payments to an aggregate of approximately
$2.3 million, of which approximately $1.6 million is for the repurchase of HPV
equipment in inventory and the remainder for HPV equipment in use at customer
locations. A portion of the purchase price was paid by the issuance of a note
payable, the principal of which will be adjusted based on the reconciliation.
This reconciliation is expected to be completed in the fourth quarter of fiscal
2003. As of March 31, 2003, Digene has recorded the purchase of such assets
based upon its estimated results of the reconciliation with Roche. Digene
reduced the cost basis of the equipment located in customers laboratories by
approximately $734,000, which was the excess of the deferred revenues in excess
of the deferred costs remaining when the equipment was repurchased.

4.     Intangible Assets

In July 2002, Digene adopted Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets(SFAS 142), which requires companies
to stop amortizing goodwill and certain intangible assets with an indefinite
useful life. Instead, SFAS 142 requires that goodwill and intangible assets
deemed to have an indefinite useful life be reviewed for impairment upon
adoption of SFAS 142 (January 1, 2002) and annually thereafter. Digene will
perform its annual
impairment review during the fourth quarter of each year, commencing with the
fourth quarter of fiscal 2003.

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Under SFAS 142, goodwill impairment is deemed to exist if the net book value of
a reporting unit (i.e., the level of the consolidated business at which
goodwill impairment is measured) exceeds its estimated fair value. This
methodology differs from Digenes previous policy, as permitted under
accounting standards existing at that time, of using discounted and
undiscounted future cash flows as a basis to determine if goodwill is
recoverable. There was no impact on the carrying value of Digenes intangible
assets upon adoption of SFAS 142. Digene does not have any intangible assets,
other than goodwill, which had a net book value of $900,515 at March 31, 2003.

The historical results of operations for the three- and nine- months ended
March 31, 2002 do not reflect the provisions of SFAS 142. Had Digene adopted
SFAS 142 on July 1, 2001, the historical net loss would have been changed to
the adjusted amounts indicated below (in thousands):

|                               |  |                    |            |                    |  |                   |       |                    |  |   |            |                   |  |   |       |  
|------------------------------ |  | ------------------ | ---------- | ------------------ |  | ----------------- | ----- | ------------------ |  | - | ---------- | ----------------- |  | - | ----- | -
|                               |  | Three Months Ended |            | Nine Months Ended 
|                               |  | March 31, 2002     |            | March 31, 2002    
|                               |  |                    |            |                   
|                               |  |                    |            |                    |  | Basic and diluted |       |                    |  |   |            | Basic and diluted
|                               |  | Net Loss           |            | net loss per share |  | Net Loss          |       | net loss per share
|                               |  |                    |            |                    |  |                   |       |                   
|As reported  historical basis |  | $                  | (3,319,276 | )                  |  | $                 | (0.19 | )                  |  | $ | (4,928,265 | )                 |  | $ | (0.29 | )
|Add: Goodwill amortization     |  |                    | 37,522     |                    |  |                   | 0.00  |                    |  |   | 112,564    |                   |  |   | 0.01  |  
|                               |  |                    |            |                    |  |                   |       |                    |  |   |            |                   |  |   |       |  
|Adjusted                       |  | $                  | (3,281,754 | )                  |  | $                 | (0.19 | )                  |  | $ | (4,815,701 | )                 |  | $ | (0.28 | )
|                               |  |                    |            |                    |  |                   |       |                    |  |   |            |                   |  |   |       |  

5.     Stock-Based Compensation

The Company recognizes expense for stock-based compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations.
Accordingly, compensation cost is recognized for the excess of the estimated
fair value of the stock at the grant date over the exercise price, if any. The
Company accounts for equity instruments issued to non-employees in accordance
with EITF 96-18, Accounting for Equity Instruments that are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods, or
Services.

In accordance with Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure, the effect
on net loss and net loss per share if the Company had applied the fair value
recognition provisions of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation
is as follows:

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|                                                                                                       |                                 |   |                              |       |                             |   |            |       |      |   |             |       |   |   |             |       |  
|------------------------------------------------------------------------------------------------------ | ------------------------------- | - | ---------------------------- | ----- | --------------------------- | - | ---------- | ----- | ---- | - | ----------- | ----- | - | - | ----------- | ----- | -
|                                                                                                       |                                 |   | Three Months Ended March 31, |       | Nine Months Ended March 31,
|                                                                                                       |                                 |   | 2003                         |       | 2002                        |   | 2003       |       | 2002
|                                                                                                       |                                 |   |                              |       |                             |   |            |       |     
|Net loss, as reported                                                                                  |                                 | $ | (619,381                     | )     |                             | $ | (3,319,276 | )     |      | $ | (4,583,389  | )     |   | $ | (4,928,265  | )    
|Deduct: Total stock-based compensation
expense determined under fair value based method
for all awards |                                 |   | (2,681,405                   | )     |                             |   | (3,859,402 | )     |      |   | (10,550,781 | )     |   |   | (10,734,190 | )    
|Pro forma net loss                                                                                     |                                 | $ | (3,300,786                   | )     |                             | $ | (7,178,678 | )     |      | $ | (15,134,170 | )     |   | $ | (15,662,455 | )    
|                                                                                                      
|Net loss per share:                                                                                    |                                 |   |                              |       |                             |   |            |       |      |   |             |       |   |   |             |      
|                                                                                                       | Basic and diluted  as reported |   | $                            | (0.03 | )                           |   | $          | (0.19 | )    |   | $           | (0.25 | ) |   | $           | (0.29 | )
|                                                                                                       | Basic and diluted  pro forma   |   | $                            | (0.18 | )                           |   | $          | (0.41 | )    |   | $           | (0.84 | ) |   | $           | (0.91 | )

These pro forma amounts are not necessarily indicative of future effects of
applying the fair value-based method due to, among other things, the vesting
period of the stock options and the fair value of the additional stock options
issued in future years.

6.     Reclassifications

Certain prior year amounts have been reclassified to conform to current year
presentation.

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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, 2002. 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; our limited sales and
marketing experience; the extent of future expenditures for sales and marketing
programs; dependence on third-party reimbursement from government entities,
managed care organizations and private insurance plans; our ability to scale up
our manufacturing to the extent product sales increase; our ability to obtain
requisite additional financing to fund our operations beyond fiscal 2004; delay
in or failure to obtain regulatory approvals for our products in development;
failure to comply with various regulatory requirements; uncertainty regarding
patents and proprietary rights in connection with our products and products in
development; risk that other companies may develop and market HPV tests
competitive with our own; risks inherent in international transactions,
including those relating to our expansion in Europe and elsewhere; uncertainty
of clinical trial results for our products in development; 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, 2002.

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 Tests, which, for fiscal year 2002, accounted for 74% of total revenues
and, for the nine months ended March 31, 2003, accounted for almost 79% of
total revenues. We expect that the growing acceptance of our HPV Tests in both
the United States and abroad will continue to drive the growth in revenues from
our HPV Tests and testing services in the future.

In fiscal 2002, our gross margins improved substantially over the prior fiscal
year. In the current fiscal year, we believe that we will be able to sustain
gross margins consistent with, or better than,
fiscal 2002 as we continue to scale up our manufacturing operations and realize
expanded margins as a result of our direct distribution efforts in Europe.

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We believe that increasing our investment in sales and marketing and focusing
our investment in research and development is essential to allow us to
capitalize more fully on the potential of our HPV Tests and our core
technology. We have invested heavily in our direct European distribution
operation during fiscal 2003, and also expanded our direct sales organization
in the United States. We expect to moderately increase our expenditures in the
development of our next-generation Hybrid Capture platforms and clinical trial
activities for human papillomavirus screening in fiscal 2003 as compared to
fiscal 2002.

Our sales and marketing expenditures have been and will continue to be focused
on accelerating the adoption of human papillomavirus testing worldwide. We
intend to capitalize on the growing acceptance of our HPV Tests in the United
States and internationally by physicians, laboratories and health insurance
providers by materially increasing expenditures on sales and marketing over the
next several quarters. The increase in such expenditures will be primarily
directed at expanded direct sales and marketing efforts in Europe and the
United States.

We expect our general and administrative expenses will increase to provide
adequate infrastructure to support greater sales and marketing activities and
more focused research and development activities, to pay the anticipated
expenses associated with our ongoing litigation matters and to support the
overall growth of our business.

As a result of these anticipated increases in expenditures, we expect our
operating losses to continue through fiscal 2003 with a turn to profitability
near the end of fiscal 2003. There can be no assurance that we will meet this
goal.

Results of Operations

Product sales increased 45% to approximately $16,901,000 for the three-month
period ended March 31, 2003 from approximately $11,683,000 for the
corresponding period in fiscal 2002. The increase was due primarily to a 57%
growth in sales of our HPV Tests and testing services over such sales in the
corresponding period in 2002, partially offset by decreases in sales of
equipment and non-core products. The majority of the growth in HPV products
sales was in the United States (43% over such sales in the corresponding period
in 2002), which was partially offset primarily by a decrease in equipment sales
to distributors in Europe, Africa and the Middle East.

Product sales increased 33% to approximately $43,505,000 for the nine-month
period ended March 31, 2003 from approximately $32,771,000 for the
corresponding period in fiscal 2002. The increase was due primarily to a 31%
growth in sales of our HPV Tests and testing services over such sales in the
corresponding period in fiscal 2002, partially offset by decreases in sales of
equipment and non-core products. The majority of the growth in HPV product
sales was derived from the United States (60% over such sales in the
corresponding period in fiscal 2002), which was partially offset by a decrease
in equipment sales to distributors in Europe as we transitioned to our
direct-European distribution.

During the third quarter and first nine months of fiscal 2002 we recognized revenue of
approximately $2,348,000 and $2,951,000, respectively, related to minimum purchase guarantees under the Roche
Distribution Contract. Under the Roche Distribution Contract, Roche has no
further minimum purchase obligations after June 30, 2002.

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Please see
Liquidity and Capital Resources below for a description of the Roche
Distribution Contract.

Other revenues include research and development contract revenues, equipment
rental revenues and licensing revenues. Other revenues decreased to
approximately $81,000 for the three-month period ended March 31, 2003 from
approximately $182,000 for the corresponding period in 2002. The decrease in
Other revenues for this period is due primarily to a decrease of research and
development services revenues. Other revenues increased to approximately
$543,000 for the nine-month period ended March 31, 2003 from approximately
$457,000 for the corresponding period in fiscal 2002. The increase for this
period was due primarily to the partial recognition of equipment sales to Roche
in Europe, which were initially deferred in the fourth quarter of fiscal 2002.

Cost of product sales decreased less than 1% to approximately $3,812,000 for
the three-month period ended March 31, 2003 from approximately $3,825,000 for
the corresponding period in 2002 and increased 2% to approximately $10,000,000
for the nine-month period ended March 31, 2003 from approximately $9,790,000
for the corresponding period in 2002. Gross margin on product sales increased
to 77% for the three-month period ended March 31, 2003 from 67% for the
corresponding period in 2002 and increased to 77% for the nine-month period
ended March 31, 2003 from 70% for the corresponding period in fiscal 2002. The
increase in gross margin percentage was due primarily to increased sales of our
test products, particularly HPV Tests, principally in the United States. In
addition, European margins increased due to substantially lower sales of
equipment, which have lower margins than our test products, and pricing
increases which arise from our ability to sell directly to lab customers as a
result of our change primarily to a direct sales approach in the region. Cost
of product sales was also negatively impacted for the three months ended March
31, 2003 because of a voluntary product recall during February 2003, resulting
in a charge to Cost of product sales of approximately $425,000.

During February 2003, we initiated a voluntary recall of the Companys Hybrid
Capture 2 HPV DNA and Chlamydia Trachomatis (CT) Tests. This recall was
limited to certain product lots which were manufactured using a specific lot of
raw material that had the potential to cause false positive patient specimen
results. We informed the FDA of the recall. An investigation into the root
cause of this product performance issue for the Hybrid
Capture 2 product line, and related corrective action, has been ongoing for the last three months and may lead
to the addition of an incoming raw material quality control procedure that
requires further FDA notification. Because this voluntary recall was limited
to a certain identified lot of raw material, we have been able to supply our
customers with product manufactured from acceptable raw material lots. In
addition, we have expanded our ongoing quality improvement program to ensure
continued reliability as manufacturing volume increases to meet anticipated
growth in demand for our HPV Tests. We do not expect any additional
costs related to this voluntary recall, and related corrective
action, to be material.

Research and development expenses increased 11% to approximately $2,482,000 for
the three-month period ended March 31, 2003 from approximately $2,239,000 for
the corresponding period in 2002 and decreased less than 1% to approximately
$6,648,000 for the nine-month period ended March 31, 2003 from approximately
$6,655,000 for the corresponding period in fiscal 2002. The
increase for the three-month period was due primarily to a 477% increase in
outside professional services to approximately $739,000 in fiscal 2003 from
$128,000 for the same period in fiscal 2002, partially offset by a 17% decrease
in personnel costs to approximately $1,023,000 and a 42% decrease in costs of
laboratory supplies to approximately $157,000. The increase in professional

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services is due largely to costs incurred in preparation for compliance with
the European Union In Vitro Diagnostic Directive (IVDD) regulations. During
the nine-month period a significant portion of our research and development
expenses (approximately $1,158,000) were related to outside professional
services, compared to reduced expenditures related to personnel costs (by
approximately $333,000) and laboratory supply costs (approximately $323,000).
Our research and development activities focus on our platform technology,
including different or modified uses of such technology, and improvements to
our diagnostic test and equipment products. Because our research and
development expenditures tend to benefit multiple product offerings, we do not
account for research and development expenses on a per-product or per-disease
target basis.

During the nine-month period ended March 31, 2003, we focused our research and
development activities on support and improvement of existing product lines and
the development of several new products. The LumiCheck plate (an improved
quality control tool to be used by our laboratory customers in the quality
control monitoring of luminometers used to measure results from Hybrid Capture
2 testing) was launched. Work is continuing on the development of a Hybrid
Capture HPV Test application for our automated sample handling Rapid Capture
System; the development of methods to improve specimen processing procedures
and throughput, including procedures for the improved processing of Cytycs
ThinPrep® (Cytyc Corporation) specimens for a high throughput application for
HPV, chlamydia (CT), and gonorrhea (GC) testing; improved equipment for
faster specimen processing; and the development of our Universal Collection
Medium (UCM®) that is expected to allow simultaneous testing for HPV, CT/GC
and of other genetic and cellular material from a single patient sample.
Verification of a method for converting specimens collected in TriPath
Imagings liquid cytology medium SurePath was completed. Clinical trials are
underway to validate the use of this SurePath media for HPV testing, CT/GC
testing from Cytycs ThinPrep specimens, an HPV application for the Rapid
Capture System, and a procedural modification to our Hybrid Capture 2 assay
designed to improve test robustness. Work was completed on an HPV ThinPrep
application using cervical specimens collected with a brush/spatula device and
the data has been submitted to the U.S. Food and Drug Administration (FDA).
Development is continuing on our next generation of Hybrid Capture technology,
initially for the improved detection of HPV and the evaluation of certain
molecular markers to complement our HPV Tests in cervical screening
applications. We are continuing several basic research programs with the goal
of developing improved molecular diagnostic assay systems for the detection of
HPV and other targets of interest in the area of womens cancers and infectious
diseases.

As part of our research and development activities, we submitted a PMA
Supplement Amendment to the FDA in September 2002 to obtain market approval for
the use of our Hybrid Capture 2 HPV Test in conjunction with the Pap test for
adjunctive screening for women aged 30 and older. We have worked closely with
the FDA during the third quarter of fiscal 2003 and received an approval on
March 31, 2003.

Selling and marketing expenses increased 30% to approximately $7,427,000 for
the three-month period ended March 31, 2003 from approximately $5,700,000 for
the corresponding period in 2002
and increased 42% to approximately $20,147,000 for the nine-month period ended
March 31, 2003 from approximately $14,139,000 for the corresponding period in
fiscal 2002. The increase for the three-month period was due primarily to
personnel costs, which increased approximately $840,000 (52%) and includes
payroll taxes on stock option exercises and royalty expenses, which increased
approximately $261,000 (56%). In addition, depreciation expense increased
approximately

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$345,000 (174%) for the three-month period due primarily to the
May 2002 repurchase of equipment placed with customers by Abbott Laboratories
(Abbott) upon expiration of the non-exclusive wind-down period of our
distribution agreement with Abbott (the Abbott Agreement). The increase for
the nine-month period ended March 31, 2003 was due primarily to personnel
costs, which increased approximately $2,279,000 (53%), depreciation expense,
which increased approximately $1,155,000 (187%) due primarily to the repurchase
of equipment from Abbott, marketing programs, which increased approximately
$703,000 (17%) and royalties, which increased $394,000 (26%) based on the
increase in product revenues. Geographically, the majority of the increase in
our selling and marketing expenses for the nine-month period, excluding
royalties, was incurred in Europe, which increased approximately $1,300,000
(87%) over the corresponding period in 2002 as we established subsidiaries,
hired employees and continued to develop a distribution infrastructure, and in
the United States, which increased approximately $369,000 (11%) over the
corresponding period in 2002. We expect our selling and marketing expenses to
continue to increase during fiscal 2003 as we establish direct sales and
marketing operations in Europe due to the expiration, on April 30, 2002, of
Abbotts non-exclusive distribution wind-down period under the Abbott Agreement
for our HPV and CT/GC products in Europe, Africa and the Middle East and the
expiration of the Roche Distribution Contract on June 30, 2002, and as we
expand our direct sales organization in the United States to increase HPV
product sales, including the new indication that will be marketed as DNA with
Pap, approved by the FDA on March 31, 2003, and commercialize our CT/GC
products. We also expect that compliance with the European Union IVDD
regulations will be capital intensive during the rest of calendar 2003.

General and administrative expenses increased 17% to approximately $4,077,000
for the three-month period ended March 31, 2003 from approximately $3,462,000
for the corresponding period in 2002 and increased 48% to approximately
$12,342,000 for the nine-month period ended March 31, 2003 from approximately
$8,349,000 for the corresponding period in fiscal 2002. The increase was due
primarily to professional fees, which increased approximately $224,000 (14%)
and approximately $2,950,000 (106%) for the three- and nine-month periods,
respectively, principally attributable to a $3,279,000 increase in legal fees
for the nine-month period primarily associated with various litigation matters,
and insurance expense, which increased approximately $308,000 (84%) for the
nine-month period, principally related to increased costs for directors and
officers insurance coverage. The increase in general and administrative
expenses was also attributable to an increase in personnel costs, which
increased approximately $415,000 (34%) and approximately $1,050,000 (29%) for
the three- and nine-month periods, respectively. Geographically, the majority
of the increase in general and administrative expenses for the nine-month
period was incurred in the United States, which increased approximately
$2,368,000 (30%), due primarily to the aforementioned litigation expenditures,
over the corresponding period in fiscal 2002, and Europe, which increased
approximately $1,643,000 (1,149%) over the corresponding period in fiscal 2002
due to our change to direct distribution.

Other income consists primarily of foreign exchange gains and losses. For the
three-month period ended March 31, 2003 other income increased to approximately
$196,000 from approximately $72,000 for the corresponding period in 2002. For
the nine-month period ended March 31, 2003 other income increased to
approximately $307,000 from approximately $84,000 for the corresponding period
in fiscal 2002.

Interest income decreased to approximately $136,000 for the three-month period
ended March 31,

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2003 from approximately $141,000 for the corresponding period
in 2002 and decreased to approximately $479,000 for the nine-month period ended
March 31, 2003 from approximately $533,000 for the corresponding period in
fiscal 2002. The decrease was due primarily to a decrease in average cash
balances in the fiscal 2003 periods compared to the corresponding periods in
fiscal 2002.

Liquidity and Capital Resources

Since inception, our expenses have significantly exceeded our revenues,
resulting in an accumulated deficit of approximately $75,948,000 at March 31,
2003. We have funded our operations primarily through the sale of equity
securities and revenues from product sales and research and development
contracts. At March 31, 2003, we had cash, cash equivalents and short-term
investments aggregating approximately $30,979,000. We had negative cash flows
from operations of approximately $4,642,000 for the nine months ending March
31, 2003 compared to negative cash flows from operations of approximately
$2,820,000 for the nine months ending March 31, 2002. The negative cash flow
for the nine months ending March 31, 2003 was primarily the result of
non-recurring payments to professionals related to our terminated merger
transaction with Cytyc Corporation, all of which were accrued during fiscal
2002 were addition to net loss for the period. Positive cash flows from
financing activities for the nine months ending March 31, 2002
were primarily the result of a private offering of 588,235 shares of common stock on January
30, 2002, the net proceeds of which, after expenses, were approximately
$14,950,000.

Capital expenditures increased to approximately
$2,946,000 for the nine months
ended March 31, 2003 from approximately $1,783,000 for the corresponding period
in fiscal 2002. The capital expenditures for the nine months ended March 31,
2003 do not reflect the application of the remaining deferred
revenues and deferred costs, which had been on the balance sheet related to the
fiscal year 2002 sale of equipment to Roche, more fully described below.

On April 29, 2001, Digene entered into a letter agreement with Roche Molecular
Systems (the Roche Distribution Contract), which established Roche Molecular
Systems (Roche) as the co-exclusive distributor of Digenes human
papillomavirus (HPV) products in Europe, Africa and the Middle East from May
1, 2001 through June 30, 2002. In June 2002, Digene adopted as its sole
strategy for the distribution of its HPV products in Europe, Africa and the
Middle East, a combination of direct distribution through its European
infrastructure and the use of local distributors and agents.

Commencing in the fourth quarter of fiscal 2002, Digene deferred recognition of
revenue from HPV equipment sold to Roche under the Roche Distribution Contract.
Equipment sold to Roche during the fourth quarter of fiscal 2002 had a sales
price of $2.3 million and a cost of $1.4 million, which amounts were recorded
as deferred revenue and deferred costs, respectively, during that
quarter. The deferred revenue and deferred costs were being amortized over a
four-year period beginning in April 2002 to other revenue (as equipment rental)
and selling and marketing expenses, respectively.

On June 30, 2002, the term of the Roche Distribution Contract expired, subject
to a non-exclusive wind-down period. On December 20, 2002, Roche and Digene
amended the Roche Distribution Contract to terminate the wind-down period on
December 31, 2002 and to establish the procedures for Digenes repurchase from
Roche of HPV-related testing equipment purchased from Digene by

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Roche under the
Roche Distribution Contract. The repurchase price for the equipment in use for
HPV testing in customers laboratories is the equipments December 31, 2002
depreciated value, which is the net selling price less any amounts Roche
recorded as depreciation based on a straight-line basis over a four-year
period. The repurchase price for the equipment in inventory is a discount from
the transfer price paid by Roche under the Roche Distribution Contract. The
parties consummated the HPV equipment repurchase on January 6, 2003, subject to
reconciliation. In January 2003 Digene and its affiliates paid Roche an
aggregate of approximately $2.6 million for the HPV equipment in inventory and
in use at customers laboratories in Europe. Digene has estimated that the
reconciliation will reduce the total payments to an aggregate of approximately
$2.3 million, of which approximately $1.6 million is for the repurchase of HPV
equipment in inventory and the remainder for HPV equipment in use at customer
locations. A portion of the purchase price was paid by the issuance of a note
payable, the principal of which will be adjusted based on the reconciliation.
This reconciliation is expected to be completed in the fourth quarter of fiscal
2003. As of March 31, 2003, Digene has recorded the purchase of such assets
based upon its estimated results of the reconciliation with Roche. Digene
reduced the cost basis of the equipment located in customers laboratories by
approximately $734,000, which was the excess of the deferred revenues in excess
of the deferred costs remaining when the equipment was repurchased.

We anticipate that working capital requirements will increase moderately for
the foreseeable future due to the investment necessary to support our European
direct distribution operations, including the January 2003 buy back from Roche
of equipment in Europe, as well as 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 2004. Our future capital
requirements and the adequacy of available funds may change, however, based on
numerous factors, including our degree of success in commercializing our
products, 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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We have summarized below our material contractual obligations as of March 31,
2003 (in thousands):

|                                   |  |       |        |          |  |             |       |            |  |         |        |            |  |   |       |  |  |   |       | 
|---------------------------------- |  | ----- | ------ | -------- |  | ----------- | ----- | ---------- |  | ------- | ------ | ---------- |  | - | ----- |  |  | - | ----- | 
|                                  
|                                   |  |       |        |          |  | Less Than   |       | One to     |  | Four to |        | After Five
|Contractual Obligations            |  | Total |        | One Year |  | Three Years |       | Five Years |  | Years  
|                                  
|Long-term debt                     |  | $     | 5,209  |          |  | $           | 2,690 |            |  | $       | 1,990  |            |  | $ | 206   |  |  | $ | 323   | 
|                                  
|Operating leases                   |  |       | 19,206 |          |  |             | 2,875 |            |  |         | 8,427  |            |  |   | 5,608 |  |  |   | 2,296 | 
|                                  
|Total contractual cash obligations |  | $     | 24,415 |          |  | $           | 5,565 |            |  | $       | 10,417 |            |  | $ | 5,814 |  |  | $ | 2,619 | 
|                                  

17



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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are subject to market risk associated with changes in foreign currency
exchange rates and interest rates. Our foreign currency 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, 2003 and 2002, respectively, however, we
will continue to assess the impact, if any, as we continue to implement the
distribution of our products in Europe through our direct infrastructure.
Interest rate exposure is primarily limited to the approximately $30,979,000 of
cash, cash equivalents and short-term investments owned by us. Such
investments are money market debt securities that generate interest income for
us on cash balances. We do not actively manage the risk of interest rate
fluctuations; however, such risk is mitigated by the relatively short-term,
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.

Item 4. Controls and Procedures

As of May 5, 2003, the principal executive officer and principal financial
officer evaluated Digenes controls and procedures related to its reporting and
disclosure obligations, as well as its internal controls. These officers have
concluded that Digenes disclosure controls and procedures are sufficient to
provide that (a) material information relating to Digene, including its
consolidated subsidiaries, is made known to these officers by other employees
of Digene and its consolidated subsidiaries, particularly material information
related to the period for which this periodic report is being prepared; and (b)
this information is recorded, processed, summarized, evaluated and reported, as
applicable, within the time periods specified in the rules and forms
promulgated by the Securities and Exchange Commission.

There have been no significant changes in Digenes internal controls or in
other factors that could significantly affect these internal controls
subsequent to the date of the evaluation.

18



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##### 



PART II. Other Information

Item 1. Legal Proceedings

On November 19, 2001, we filed an action for patent infringement against
Ventana Medical Systems, Inc. The action was filed in the United States
District Court for the District of Delaware. In the action, we allege that
Ventana Medical Systems, Inc. has made, used, sold and/or offered for sale
products embodying our patented inventions thereby infringing our United States
Patent No. 4,849,332 entitled Human Papilloma Virus 35 Nucleic Acid
Hybridization Probes and Methods for Employing the Same and our United States
Patent No. 4,849,331 entitled Human Papilloma Virus 44 Nucleic Acid
Hybridization Probes and Methods for Employing the Same. We are seeking a
permanent injunction and monetary damages for past infringement. On September
25, 2002, Ventana Medical Systems, Inc. publicly announced that it had acquired
Beckman Coulter, Inc.s human papillomavirus business and corresponding assets,
including the assignment of the human papillomavirus intellectual property
portfolio acquired by Beckman Coulter, Inc. from Institut Pasteur through a
1991 sublicense agreement. On October 18, 2002 we filed a motion to amend our
complaint to add Beckman Coulter, Inc. as a co-defendant, as well as additional
claims against Ventana. On March 5, 2003, the Court granted Digenes motion to
amend. No trial date has been set.

On March 15, 2002, we filed an action for declaratory judgment against Enzo
Biochem, Inc. The action was filed in the United States District Court for the
District of Delaware. We filed this action after having received direct
threats from Enzo Biochem of infringement of U.S. Patent No. 6,221,581 entitled
Processes for Detecting Polynucleotides, Determining Genetic Mutations or
Defects in Genetic Material, Separating or Isolating Nucleic Acid of Interest
from Samples, and Useful Compositions of Matter and Multihybrid Complex
Compositions. We are seeking a judgment that the patent is invalid and has
not been infringed by us. On March 20, 2002, in response to our complaint,
Enzo Biochem filed a motion to dismiss our complaint for lack of subject matter
jurisdiction, based on assertions that Enzo Diagnostics, Inc. (a wholly owned
subsidiary of Enzo Biochem), not Enzo Biochem, was the holder of the patent in
question. On the same day, Enzo Diagnostics, Inc. also filed a complaint for
patent infringement against us in the Delaware District Court. Enzo
Diagnostics, Inc. asserts in its complaint that we have infringed U.S. Patent
No. 6,221,581 through the manufacture, sale and offer for sale of our Hybrid
Capture products. The two cases have now been consolidated and discovery has
commenced. We have filed counterclaims against Enzo Biochem for various
business-related tortious conduct. The Court has denied Enzo Biochems motion
to dismiss Digenes counterclaims. We do not believe we are infringing such
patent and will go forward with the action for declaratory judgment and
continue vigorously defending against Enzos claim of patent infringement. No
trial date has been set.

19



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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. 3 to Letter Agreement, dated December 20, 2002, between
Digene and Roche Molecular Systems, Inc. (Incorporated by reference to
Exhibit 10.1 to Digenes Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 2002).
|10.2    |  | Form of Employment Agreement between Digene and each of Evan Jones and
Charles M. Fleischman.                                                                                                                                                         
|10.3    |  | Form of Employment Agreement between each of Digene and each of the
officers listed on Exhibit 10.3(a).                                                                                                                                               
|10.3(a) |  | Schedule of officers of Digene entering into Employment Agreements.                                                                                                                                                                                   
|10.4    |  | Form of Change in Control Employment Agreement between Digene and each of
Evan Jones and Charles M. Fleischman.                                                                                                                                       
|10.5    |  | Form of Change in Employment Agreement between Digene and each of the
officers listed on Exhibit 10.5(a).                                                                                                                                             
|10.5(a) |  | Schedule of officers of Digene entering into Change in Control
Employments.                                                                                                                                                                           
|99.1    |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350, by Chief Executive Officer.                                                                                                                          
|99.2    |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350, by Chief Financial Officer.                                                                                                                          
|(b)     |  | Reports on Form 8-K:                                                                                                                                                                                                                                  

We filed a Current Report on Form 8-K under Item 5 to report that on March 31,
2003, the FDA approved our premarket approval application supplement for our
Hybrid Capture 2 High-Risk HPV DNA Test for use with a Pap test to adjunctively
screen women age 30 and older to assess the presence or absence of high risk
human papillomavirus (HPV) types.

20



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##### 



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                 |  |                                                                                                                                                                             
|---------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 |  | DIGENE CORPORATION                                                                                                                                                          
|                
|Date:May 7, 2003 |  | By:/s/  Charles M. Fleischman
       Charles M. Fleischman
       President, Chief Operating Officer and
       Chief Financial Officer
       (Principal Financial Officer)
|                
|Date:May 7, 2003 |  | By:/s/  Joseph P. Slattery
       Joseph P. Slattery
       Senior Vice President, Finance and Information
       Systems
       (Principal Accounting Officer)             

CERTIFICATIONS
PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Evan Jones, Chief Executive Officer, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Digene
Corporation;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

21



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##### 





| |                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the Evaluation Date); and
|
| | (c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                      

5.     The registrants other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability
to record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
|
| | (b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 7, 2003



| | /s/ Evan Jones
Evan Jones
Chief Executive Officer
| | -------------------------------------------------

I, Charles M. Fleischman, Chief Financial Officer, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Digene
Corporation;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

22



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##### 





| |                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
|
| | (b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | (c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability
to record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
|
| | (b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 7, 2003



| | /s/ Charles M. Fleischman
Charles M. Fleischman
Chief Financial Officer
| | -----------------------------------------------------------------------

23



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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).                                                                                                       
|4.2         |  | 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. 3 to Letter Agreement, dated December 20, 2002, between
Digene and Roche Molecular Systems, Inc. (Incorporated by reference to
Exhibit 10.1 to Digenes Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 2002).
|10.2        |  | Form of Employment Agreement between Digene and each of Evan Jones and
Charles M. Fleischman.                                                                                                                                                         
|10.3        |  | Form of Employment Agreement between each of Digene and each of the
officers listed on Exhibit 10.3(a).                                                                                                                                               
|10.3(a)     |  | Schedule of officers of Digene entering into Employment Agreements.                                                                                                                                                                                   
|10.4        |  | Form of Change in Control Employment Agreement between Digene and each of
Evan Jones and Charles M. Fleischman.                                                                                                                                       
|10.5        |  | Form of Change in Employment Agreement between Digene and each of the
officers listed on Exhibit 10.5(a).                                                                                                                                             
|10.5(a)     |  | Schedule of officers of Digene entering into Change in Control
Employments.                                                                                                                                                                           
|99.1        |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350, by Chief Executive Officer.                                                                                                                          
|99.2        |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350, by Chief Financial Officer.                                                                                                                          

24