**EXHIBIT 99.1****TRIPATH IMAGING, INC.****FACTORS AFFECTING FUTURE OPERATING RESULTS****March 2005**     From time to time, TriPath Imaging, through its management, maymake forward-looking public statements, such as statementsconcerning then expected future revenues or earnings orconcerning projected plans, performance, product development andcommercialization as well as other estimates relating to futureoperations. Forward-looking statements may be in reports filedunder the Securities Exchange Act of 1934, as amended, in pressreleases or in oral statements made with the approval of anauthorized executive officer. The words or phrases “willlikely result,” “are expected to,” “willcontinue,” “is anticipated,”“estimate,” “project” or similar expressionsare intended to identify “forward-looking statements”within the meaning of Section 21E of the SecuritiesExchange Act of 1934 and Section 27A of the Securities Actof 1933, as enacted by the Private Securities Litigation ReformAct of 1995.     We caution you not to place undue reliance on theseforward-looking statements, which speak only as of the date onwhich they are made. In addition, we advise you that the factorslisted below, as well as other factors we have not currentlyidentified, could affect our financial or other performance andcould cause our actual results for future periods to differmaterially from any opinions or statements expressed withrespect to future periods or events in any forward-lookingstatement.     We will not undertake and specifically decline any obligation topublicly release revisions to these forward-looking statementsto reflect either circumstances after the date of the statementsor the occurrence of events which may cause us to re-evaluateour forward-looking statements, except as required by law.     In connection with the “safe harbor” provisions of thePrivate Securities Litigation Reform Act of 1995, we are herebyfiling cautionary statements identifying important factors thatcould cause our actual results to differ materially from thoseprojected in forward-looking statements made by us or on ourbehalf.**RISKS RELATED TO OUR BUSINESS****Our molecular diagnostic reagents and imaging systems are atan early stage of development and we cannot assure thesuccessful development or the commercial success of theseproducts.**     Our oncology products,****including our molecular diagnosticreagents and imaging systems, are in the early stages ofdevelopment and significant additional research, development,clinical studies, financial resources and personnel will berequired to develop them into commercially viable products andobtain regulatory approvals. We are developing andcommercializing molecular diagnostic reagents and imagingsystems for a variety of cancers that incorporate genomic orproteomic markers we received through our collaboration withBecton, Dickinson and Company, or BD, as part of the strategicalliance between BD and Millennium Pharmaceuticals, Inc., orMillennium as well as other genomic or proteomic markers thathave been or may be identified independently of that agreement.We may fail to successfully develop and commercialize ouroncology products if: •     clinical research shows our products to be ineffective;  •     they do not receive necessary regulatory approvals or otherwise    meet regulatory requirements; or  •     are less effective than current or alternative oncology    diagnostic methods.     If we fail to develop and commercialize our molecular oncologyproducts, our revenues could be adversely affected.

 
**Our products are subject to FDA review, approval andregulation and which may prevent us from commercializing any ofour products currently in development.**     The FDA extensively regulates the manufacture and sale ofmedical diagnostic devices for commercial use. For example, wemust comply with applicable FDA regulations, which can includeprospective FDA approval or clearance of products before we canmarket and sell them for their intended uses in the UnitedStates.     To obtain FDA approval or clearance of our device products, wemust submit a pre-market approval application, or PMA, ornotification for 510(k) clearance, depending on the controlsrequired by the FDA. This process can be expensive andtime-consuming and can take several years. Several factors mayaffect our ability to successfully obtain FDA approval orclearance for the commercialization of our products, includingthe following: •     failure of the product in pre-clinical studies;  •     insufficient clinical trial data to support the safety or    effectiveness of the product; or  •     unanticipated delays or significant unanticipated costs in our    efforts to secure FDA approval.     If we fail to obtain and maintain FDA approval or clearance forany of our future products, if FDA approval or clearance isdelayed, or if we receive FDA approval for our products butlabeling restrictions make the use of the products uneconomicalto our customers, our future product sales will be far less thanwe anticipate and may be insufficient to sustain our operations.We have no assurance that the FDA will ever approve or clear ourfuture products for their intended use. In addition to thepre-market approval or 510K clearance processes, we may facefurther difficulties in connection with FDA approval of ourproducts for the following reasons: •     FDA regulations require submission and approval of a pre-market    approval application supplement for certain changes to a product    if the changes affect the safety and effectiveness of the    product;  •     even if we obtain FDA approval of our pre-market approval    applications, that approval may still not allow us to make some    of the specific claims for which we sought FDA approval; and  •     any FDA approval may include significant limitations on the    indicated uses for which we may market our products, such as    warnings, precautions or contraindications, requests for    post-market studies, or additional regulatory requirements.     The FDA may not approve or clear our future products orcommercial enhancements to our existing products on a timelybasis, if at all. To the extent our molecular diagnosticproducts are intended for use as prognostic tests in selectingsubsets of patients most likely to benefit from drug therapies,development and approval of those products may be dependent uponinvestigation in drug clinical trials and obtaining approval toinclude the device in the labeling of the drug for which its useis intended. Our regulatory applications also may be delayed orrejected based on changes in regulatory policies or regulations.     Some of our molecular diagnostic reagents will be sold asanalyte specific reagents (ASRs). FDA defines ASRs asantibodies, specific receptor proteins, ligands, nucleic acidsequences, and similar reagents which through specific bindingor chemical reaction with substances in a specimen are intendedto use in a diagnostic application for identification andquantification of an individual chemical substance or ligand inbiological specimens. In simple terms, an ASR is the activeingredient of an in-house laboratory test that is used inconjunction with other general purpose reagents and generalpurpose instruments by a laboratory that is certified as highcomplexity under the Clinical Laboratory Improvement Act of 1998as amended (CLIA) to set up an in-house (“homebrew”) test or laboratory testing service. While specimenscan travel to the lab setting up this service, the test itselfcannot be marketed outside of the single lab setting up thisservice, nor can clinical claims be made outside of thosevalidated and communicated by the single lab performing the“home brew” test. It is the responsibility of thelaboratory using the ASR to develop a recipe for the test athand and to take responsibility for establishing and maintainingperformance. Our interactions with the laboratories thatpurchase our ASRs are limited and out interactions with theirreferring clinicians are
2

 
restricted, therefore, the onus is on the laboratory to develop,validate and promote the test as well as demonstrate itsclinical efficacy. If laboratories are unable to effectivelydevelop, validate and promote “home brew” tests, ourability to sell these ASRs will be limited.**Our products are subject to review, approval and regulationby foreign regulatory agencies which may prevent us fromcommercializing any of our products currently in development.**     Foreign regulatory agencies may regulate the manufacture andsale of medical diagnostic devices for commercial use incountries other than the U.S. We must comply with theseforeign regulations, which may vary from country to county andmay vary from those required by the FDA. These can includeprospective approval of products before we can market and sellthem for their principal intended uses in certain internationalmarkets.     Sales of our products in the EEA are subject to strictregulatory requirements and approval is never certain. EffectiveDecember 7, 2003, all of our products are required tocomply with the European *In Vitro* Diagnostics MedicalDevices Directive (IVDD) and bear the CE mark before beingimported for sale in the EEA. The CE mark is a symbol indicatingthat the device conforms to the essential requirements of theapplicable directive, and can be commercially distributedthroughout the EEA. The IVDD also subjects our manufacturingfacilities to compliance inspections, and requires design,manufacturing and quality process documentation and controls.Some of our products do not currently bear the CE mark. Wecannot be certain that the CE mark will be granted for all ourproducts, or that regulatory review will not involve delays thatwould adversely impact on our ability to market and sell ourproducts in the EEA.     The regulatory requirements outside the United States usuallyimpose pre-market review or approval requirements for ourproducts and considerations similar to those in the UnitedStates apply.**Government regulation imposes significant restrictions andcosts on the development and commercialization of ourproducts.**     Any products approved by the FDA or foreign regulatory agenciesare still subject to continual government review and regulation,so long as the product is being marketed. Our cervical cytologyproducts, PrepStain, FocalPoint and the use of PrepStain withFocalPoint, have received FDA approval, are CE marked and areapproved for sale in the EU under the IVDD. Although we havereceived regulatory approvals, we are still subject to continualregulatory review and regulation regarding the ongoingmarketing, sale and use of our cervical screening products.During this continual review process, any subsequent discoveryof previously unknown or unrecognized problems with the productor a failure of the Company or the product to comply with anyapplicable regulatory requirements can result in, among otherthings: •     fines or other civil penalties;  •     the refusal of the FDA to approve further pre-market approval or    510(k) applications;  •     suspension or withdrawal of our FDA approvals or clearances;  •     product recalls;  •     customer notification, or orders for repair, replacement or    refunds;  •     operating restrictions, including total or partial suspension of    production, distribution, sales and marketing of our products;  •     customer notification, or orders for repair, replacement, or    refunds;  •     injunctions; or  •     product seizures; and  •     criminal prosecution of us, our officers or our employees.Similar considerations apply outside the United States.
3

 
**If we are unable to keep up with technological change, ourproducts or services may become obsolete.**     Competition in the medical device industry is intense. Ourproducts could be rendered obsolete or uneconomical because of: •     technological advances by current or future competitors;  •     the introduction and market acceptance of competitors’    products; or  •     the introduction and market acceptance of new diagnostic methods    and/or treatments for cancer.     We may not be able to successfully compete against companiesmarketing products based on competing technologies. Certain ofour existing and potential competitors may have severalcompetitive advantages over us because they: •     possess greater financial, marketing, sales, distribution and    technological resources;  •     have more experience in research and development, clinical    trials, regulatory matters, customer support, manufacturing and    marketing;  •     have received third-party payor reimbursement for their    products; or  •     they may collaborate or merge with other competitors in our    industry and leverage their combined intellectual property and    resources against us.     These competitors may manufacture, market and sell theirproducts or services more successfully than us, which couldadversely affect our product sales.     Our products must remain competitive in clinical impact,accuracy and analytical performance, all-in cost, including ourmaterial charges to the laboratory as well as thelaboratory’s labor and overhead costs related to theadoption of our products, processing speed and reliability,convenience, and perception among consumers, influential opinionleaders, clinicians, laboratories, payors, regulatory agencies,patient advocacy groups and clinical governing bodies andassociations. To effectively compete, we must keep pace with theproduct development and technological change in our industry.Our products must demonstrate clinical efficacy, analyticalperformance and cost effectiveness that equals or exceeds thatof competing products and technologies. We cannot guarantee thatour products will be competitive in any of these areas.**We depend on a limited number of products and these productsmay never gain greater market acceptance.**     Sales of SurePath reagents and disposables and sales, rentals,and usage fess associated with PrepStain and FocalPointcurrently account for the substantial majority of our revenues.Market acceptance of SurePath, PrepStain and FocalPoint, as wellas their combined use, will depend on our ability to convinceclinical laboratories, physicians, third party payors, otherhealth care providers and consumers that our products canaddress the limitations of the conventional Pap smear processand demonstrate clinical efficacy, analytical performance andcost effectiveness that equals or exceeds that of competingproducts. We may not be able to successfully establish that ourproducts are better and more cost effective when compared to theconventional Pap smear or our competitors’ products and, asa result the market may not accept our cervical cytologyproducts as a replacement for the conventional Pap smear or asan alternative to our competitors’ products. Even ifSurePath, PrepStain, and FocalPoint do gain market acceptance ,their level of sales will still largely depend on theavailability and level of reimbursement from third-party payors,such as private insurance plans, managed care organizations,Medicare, and Medicaid and other government healthcareproviders. There can be no assurance that we will achievegreater market acceptance for SurePath, PrepStain, orFocalPoint, and the failure to do so would have a materialadverse effect on our business, financial condition and resultsof operations.     In addition, the market may not accept any of the moleculardiagnostic products or imaging systems that we develop. Whilevarious diagnostic methods for cancer are currently available,few tests offer an integrated solution for diagnosing cancer atthe earliest possible stage that provides individualizedpredictive and prognostic information, guides treatmentselection for patients with cancer, and predicts diseaserecurrence. Market demand for any molecular diagnostic productsthat we develop will depend primarily on acceptance by
4

 
clinical laboratories, physicians and third party payors andendorsement by influential opinion leaders, clinical governingbodies and associations, patient advocacy groups, and consumers.Commercial acceptance of our molecular diagnostic tests andimaging systems, if any, will depend upon several factors,including: •     their potential clinical advantages, including their impact on    patient management, impact on patient outcome, impact on the    costs of patient care, and cost benefit and effectiveness    relative to alternative diagnostic methods;  •     product features that facilitate their adoption by laboratories,    including accuracy, reproducibility and other indicators of    analytical performance, all-in cost, including our material    charges to the laboratory as well as the laboratory’s labor    and overhead costs related to the adoption of our products,    impact on laboratory organization and staffing, processing speed    and reliability, convenience, complexity of result    interpretation, and cost effectiveness relative to alternative    diagnostic methods;  •     our ability to design and execute clinical trials whose results    demonstrate the clinical value of our products, provide us a    basis for communicating the clinical value of our products and    translate into market opportunity;  •     our ability to compete with similar or superior products    developed by our competitors;  •     our ability to build and maintain, or access through third    parties, a capable sales force; and  •     qualification of our products for third party medical insurance    coverage and reimbursement.     If any of the molecular diagnostic products that we develop donot achieve significant market acceptance, it could have amaterial adverse effect on our business, financial condition andresults of operations.**We have a history of operating losses and an accumulateddeficit and we may not remain profitable.**     We have a history of operating losses. While we becameprofitable for the first time in 2004, we intend to continue tomarket our products, develop new products and perform additionalclinical studies, all of which will continue to be a drain onearnings. While our cervical cytology and slide wizard productlines have grown in acceptance as measured by our revenues, westill operate in a very competitive environment. Additionally,we have yet to achieve market acceptance of our moleculardiagnostic products and product candidates. As ofDecember 31, 2004, we had cumulative net losses ofapproximately $232.4 million. These losses resultedprincipally from the costs of our research and development andsales and marketing activities and other expenses in excess ofrevenues. Our operating expenses have been concentrated in thefollowing areas: •     research and development activities;  •     sales and marketing activities, including the cost and effect of    promotional discounts, sales, and marketing programs and    strategies; and  •     regulatory issues, including activities in connection with    pre-market approval and 510K applications to the FDA.     We expect marketing and sales expenses, as well as regulatoryexpenses, associated with our products to either continue attheir current rate or increase in the future, which could burdenour drive toward continued profitability. These expenses are aresult of our expanded marketing and sales efforts to continuethe commercial rollout of our products and our efforts to obtainFDA and other approvals for our products. Our continuingprofitability is subject to uncertainty and will depend on anumber of factors including: •     receipt of regulatory approvals or clearances for future    products in a timely manner;  •     successful marketing of our products in the United States and    abroad;  •     the extent to which our products gain market acceptance;  •     ability to manufacture our products at an acceptable cost and    with acceptable quality;  •     introduction of alternative technologies by our competitors;
5

 
 •     the timing and volume of system placements;  •     the timing of certain non-cash sales discounts relating to    warrants held by Quest, which depend upon the achievement of    certain sales-based milestones;  •     availability of reimbursement from third-party payors, and the    extent of coverage; and  •     ability to establish internal financial controls and other    infrastructure necessary to support large-scale commercial    operations.     We expect to continue our profitable performance into 2005,anticipating that product sales and service revenuessufficiently will fund our operations while our oncologybusiness is developing products that can be commerciallyintroduced into the market. While we hope that 2005 will beprofitable as a whole, we cannot be certain that we will achieveprofitability.**We cannot be certain of our future capital needs andadditional financing may not be available whenwe need it.**     Since beginning operations, we have financed our operationsprimarily through the private placement and public sales ofequity securities, debt facilities and product sales. We havehad negative annual cash flow from operations since inception.During the last half of 2004, we experienced positive cash flowfrom operations for the first time. At December 31, 2004,we had approximately $18.9 million in cash and cashequivalents. While we believe that we will continue to achieveoverall corporate profitability in 2005, there is no certaintythat we will be able to maintain profitability and/or positivecash flows from operations. In any event, we believe that ourexisting cash and existing debt and lease financing will besufficient to enable us to meet our future operating cashobligations for the foreseeable future.     We may be unable to obtain adequate funds, either throughfinancial markets or from collaborative or other arrangementswith corporate partners or other sources, when we need them, orwe may be unable to find adequate funding on favorable terms, ifat all. If we are unable to fund our future capitalrequirements, it would significantly limit our ability tocontinue our operations.     The extent of our future capital requirements depends on severalfactors, including: •     our ability to maintain profitability;  •     the timing and costs of product introductions;  •     the extent of our ongoing research and development programs,    including those at TriPath Oncology;  •     the progress and scope of clinical trials;  •     the timing and costs required to receive both United States and    foreign governmental approvals for new products in development;  •     the extent to which our products gain market acceptance;  •     demand for and sales of our PrepStain and FocalPoint systems for    cervical cancer screening and of FocalPoint GS in the United    States, if and when it gains FDA approval;  •     the resources required to further develop our marketing and    sales capabilities domestically and internationally, and the    success of those efforts;  •     the resources required to expand manufacturing capacity;  •     the costs of training laboratory personnel to become proficient    with the use of our products; and  •     the cost of filing, prosecuting, defending and enforcing patent    claims and other intellectual property rights.     Many of these factors are out of our control. There is noguarantee that the assumptions underlying our estimates aboutour needs for future capital will prove to be accurate.
6

 
**Our future financing arrangements may impact the value ofyour investment or may impact our rights to our intellectualproperty.**     We may choose to raise additional funding to meet our futurecapital requirements through a variety of financing methods,including lease arrangements, debt or equity financings, orstrategic alliances. If we were to raise additional fundingthrough the sale of equity or securities convertible intoequity, your proportionate ownership in TriPath Imaging may bediluted. In addition, if we obtain additional funds througharrangements with collaborative partners, we may have torelinquish rights to certain of our technologies or potentialproducts that we would otherwise seek to develop orcommercialize ourselves.**If our corporate relationships are unsuccessful, our earningsgrowth will be limited.**     An important element of our strategy is to enter into corporaterelationships for the research and development of alternativeapplications for our extensive body of intellectual propertyand, where appropriate, for the market introduction of some ofour new products. We currently have a corporate relationshipwith BD for the development of diagnostic and pharmacogenomiconcology tests and with Ventana to sell and distribute a Ventanabranded version of our interactive histology imaging system. Wemay enter into additional corporate relationships in the future.We believe that recent advances in genomics, biology, andinformatics are providing new opportunities to leverage ourproprietary technology and that some of our products appeal tomarkets that are better served by other companies. The successof these arrangements is largely dependent on technology andother intellectual property contributed by our collaborators ortheir market position and selling and distribution strength, aswell as their efforts, resources and skills. Our existing andfuture corporate relationships are also dependent upon ourcollaborators” continued willingness to work with us, asopposed to our competitors and to prioritize their projects withus. There can be no assurance that we will succeed inimplementing and finalizing any new corporate relationships tofacilitate the exploitation of our intellectual property estateor to augment our sales and distribution activities. The failureto do so could have a material adverse effect on our futureprospects inside and outside of the cervical cytology ormolecular diagnostic markets and could impact our business,financial condition and results of operations.**We have limited manufacturing experience and capacity and wemay not be able to establish sufficient manufacturing capabilityand capacity, either of which could have a material adverseeffect on our business.**     We manufacture SurePath, PrepStain and FocalPoint, and relatedproducts as well as our molecular diagnostic reagents andimaging systems at either our Burlington, North Carolina, or ourRedmond, Washington facilities. Currently, we have limitedmanufacturing experience in and capabilities for high-volumetest kit manufacturing. While we believe we have sufficientcapacity to meet near term customer demand for our cervicalcytology and molecular diagnostic products, and while we haveintroduced lean manufacturing into our Burlington, NorthCarolina operations, we may have to substantially increase ourmanufacturing capabilities in the future if our products gainwider market acceptance. We may not be able to recruit andretain skilled manufacturing personnel to establish sufficientmanufacturing capability and capacity. Even if we are able toestablish sufficient manufacturing capability and capacity, westill may be unable to manufacture our products: •     in a timely manner;  •     at a cost or in quantities necessary to make them commercially    viable;  •     in conformance with quality system requirements; or  •     in a manner which otherwise ensures our products’ quality.     If we cannot successfully increase our manufacturing capabilityand capacity, if and when needed , or successfully contract withthird parties to manufacture our products, our business and ourprofitability will suffer.
7

 
**We may not be able to manufacture our products in a timely orcost effective manner because we depend on single and limitedsource suppliers for our products’ components.**     We currently obtain certain components for our productsincluding PrepStain and FocalPoint components, on a singlesource basis from certain suppliers. If any of these sole-sourcesuppliers are unable to provide an adequate and constant supplyof components, we will need to modify any components provided byadditional or replacement suppliers. If we are unable toestablish additional or replacement sources of supply on acost-competitive and timely basis from these suppliers, we mayneed to delay or halt our manufacturing process. If any of thecomponents of our products were no longer available in themarketplace, we could be forced to further develop ourtechnology to incorporate alternate components. We also may tryto establish relationships with additional suppliers or vendorsfor components for our products, so long as we are notprohibited from doing so by any existing contractualobligations. We may not be able to further develop ourtechnology to incorporate new components or establishrelationships with additional suppliers or vendors for thenecessary components of our products.     In addition, use of any new components or replacement componentsfrom alternative suppliers into our products may require us tosubmit supplemental submissions to the FDA for its approval orclearance before we could market our products with new orreplacement components. Ultimately, we may not be able tosuccessfully develop, obtain, or incorporate replacementcomponents into our products. Even if we were able tosuccessfully incorporate new components into our products, theFDA may not approve or clear these new components quickly, if atall.**If we do not successfully expand our marketing and salesresources, we may not be able to maintain profitability.**     We are currently expanding our marketing and sales forces tomore effectively market our cervical cytology products. Further,it is our intent to channel our molecular diagnostic productsthrough this expanded marketing and sales force, whenappropriate. Even with the increased size of our sales force, wemay not be able to successfully promote our cervical cytology ormolecular diagnostic products to clinical laboratories, healthcare providers, including physicians, and third-party payors orpenetrate the large commercial laboratory segment to the extentanticipated. In addition, we must continue to educate healthcare providers and third-party payors regarding the clinicalbenefits and cost-effectiveness of our cervical cytology andmolecular diagnostic products because of the market’slimited awareness. We may not be able to recruit and retainadditional skilled marketing, sales, service or supportpersonnel to help in our achievement these goals when needed. Inaddition, we find that our current marketing and sales forcecannot effectively market our molecular diagnostic productsforcing us to seek an alternative approach.     Our marketing success in the United States and abroad willdepend on whether we can: •     obtain required regulatory approvals;  •     successfully demonstrate the cost-effectiveness and    clinical-effectiveness of our products;  •     further develop our direct sales capabilities; and  •     establish arrangements with contract sales organizations,    distributors and marketing partners.     If we cannot successfully expand our marketing and salescapabilities in the United States and in international markets,we may never become profitable.**We may have difficulty managing the expansion of ouroperations, and failure to do so will harm our business.**     We have experienced growth in our employee base and in the scopeof our operations, and we anticipate that further expansion maybe required to achieve growth in our customer base and todevelop and seize market opportunities. This expansion couldplace a significant strain on our senior management team and onour operational and financial resources.
8

 
     To manage the expected growth of our operations and personnel,we will need to improve existing, and implement new operationaland financial systems, procedures, and controls. We also willneed to expand, train, and manage our growing employee base aswell as expand and maintain close coordination among our salesand marketing, finance, administrative, and operations staff.Further, we may be required to enter into additionalrelationships with various suppliers and other third partiesnecessary to our business. A successful continued expansion mayalso require us to further develop expertise in complex jointventure negotiations. We cannot guarantee that our current andplanned systems, procedures, and controls will be adequate tosupport our future operations, that we will be able to hire,train, retain, motivate, and manage the required personnel orthat we will be able to identify, manage, and benefit fromexisting and potential strategic relationships and marketopportunities. If we do not effectively manage the budgeting,forecasting, and other process-control issues presented by suchexpansion, our business will suffer. If we are unable toundertake new business due to a shortage of staff or resources,our growth will be impeded. Therefore, there may be times whenour opportunities for revenue growth may be limited by thecapacity of our internal and external resources rather than bythe absence of market demand.     In recent years, we made some significant changes to ourmanagement team and to our Board of Directors. Although webelieve that the new members of our management team arecurrently integrated with the other members of our managementteam, we cannot assure you that our management team in itscurrent form or any future form will be able to continue to worktogether effectively or manage our growth successfully. Webelieve that the successful integration of any new members ofmanagement that we may hire, and cooperation of our existingmanagement team is critical to our ability to manage ouroperations effectively and support our anticipated future growth.**We depend on patents, copyrights, licenses and otherproprietary rights to grow our business and we may not be ableto adequately protect all of our proprietary rights.**     Our long-term success largely depends on our ability to marketproducts that are technologically competitive. If we fail toobtain or maintain these protections, we may not be able toprevent third parties from using our proprietary rights. Toprotect our proprietary technology, rights and know-how, we relyon a combination of patents, trade secrets, copyrights, andconfidentiality agreements.     We currently hold over 100 foreign patents and over 110U.S. patents. These patents will expire from 2004 through2019. In addition, our molecular diagnostic reagents incorporategenomic or proteomic markers we received through ourcollaboration with BD as well as other genomic or proteomicmarkers that have been identified independently of thatagreement. Our approach to marker discovery, identification, andprioritization is based on correlation with patient outcome andincludes the evaluation of markers that have been previouslyidentified by others as well as novel markers that have not beenpreviously associated with our specific product indications. Asa result, to ensure our freedom to utilize known markers andintegrate them into our product candidates, we will in certaininstances be required to license them from third parties. We areconcurrently pursuing intellectual property protection for thenovel markers that we have identified and the proprietaryformulations that we are creating from the combination of eithernovel or known markers as well as for molecular imaging systems.However, we cannot be sure that we will be able to licensemarkers on acceptable terms, if at all, or establishintellectual property protection of our novel markers,proprietary formulations or molecular imaging systems whichcould make the possibility of piracy of our technology morelikely.     Our reliance on patents poses the following risks: •     any patent applications that we file may not ultimately issue as    patents;  •     patents we obtain may not be broad enough to protect our    proprietary rights;  •     the claims allowed in any of our existing or future patents may    not provide competitive advantages for our products;  •     competitors may challenge or circumvent our patents or pending    applications; and
9

 
 •     in certain foreign countries, protection of our patent and other    intellectual property may be unavailable or very limited.     This may make the possibility of piracy of our technology andproducts more likely. We cannot guarantee that the steps we havetaken to protect our intellectual property will be adequate toprevent infringement or misappropriation of our technology. Inaddition, detection of infringement or misappropriation isdifficult. Even if we do detect infringement or misappropriationof our technology, we may be unable to enforce our proprietaryrights, which could result in harm to our business.     Litigation may be necessary to defend against claims ofinfringement, to enforce patents, trademarks and copyrights, orto protect trade secrets and could result in substantial costto, and diversion of effort by us. There can be no assurancethat we would prevail in any such litigation. In addition, thelaws of some foreign countries do not protect our proprietaryrights to the same extent, as do the laws of the U.S. Wemay engage in litigation to attempt to: •     enforce our patents;  •     protect our trade secrets or know-how;  •     defend ourselves against claims that we infringe the rights of    others; or  •     determine the scope and validity of the patents or intellectual    property rights of others.     As of March 2005, we are engaged in patent litigation with oneof our largest competitors, Cytyc Corporation. In thisproceeding, we are claiming among other things that Cytyc’sThinPrep Imaging System infringes certain of our patents. Cytycis claiming that its product does not infringe our patents andthat certain of our patents are invalid. See “LegalProceedings” in our Annual Report on Form 10-K for theyear ended December 31, 2004, as well as any updated in ourQuarterly Reports on Form 10-Q and Current Reports onForm 8-K for the current fiscal year.     This, or any other litigation could be unsuccessful, result insubstantial cost to us, and divert our management’sattention, which could harm our business.     In addition, we have entered into confidentiality agreementswith all of our employees who we believe should sign suchagreements, and several of our consultants and third-partyvendors. These agreements also require employees and consultantsto disclose to us ideas, developments, discoveries or inventionsthey conceive during employment or consultation. They also mustassign any proprietary rights in any inventions conceived ordeveloped while employed by us if such relate to our businessand technology. These agreements may not provide meaningfulprotection for our confidential information if there isunauthorized use or disclosure of our proprietary information.There can be no assurance that the obligations of our employeesand consultants and third parties with whom we have entered intoconfidentiality agreements to maintain the confidentiality oftrade secrets and proprietary information will effectivelyprevent disclosure of our confidential information. There alsocan be no assurances that our trade secrets or proprietaryinformation will not be independently developed by ourcompetitors.**The risk of third-party claims of infringement against us ishigh because our industry depends on patents and otherproprietary rights.**     The large role that patents play in our industry in general maypose the following risks for us: •     we cannot be sure that our products or technologies do not    infringe patents of competitors that may be granted in the    future pursuant to pending patent applications;  •     we cannot be sure that our products do not infringe any existing    patents or proprietary rights of third parties; and  •     we cannot be sure that a court would rule that our products do    not infringe any existing third-party patents or that a court    would not invalidate any existing patents in our favor.
10

 
     If a court were to uphold any claims of infringement made byexisting patent holders against us, we could then be: •     prevented from selling our products;  •     required to pay damages;  •     required to obtain licenses from the owners of the    patents; or  •     required to redesign our products.     In the event that a court was to uphold a claim of patentinfringement against us, we may not be able to obtain licensesfrom the owners of the patents or be able to successfullyredesign our products to avoid patent infringement. If we wereunable to obtain the necessary licenses or successfully redesignour products, it could seriously harm our ability to become aprofitable company.     The cost to us of any litigation or other proceeding relating tointellectual property rights, even if resolved in our favor,could be substantial. Such litigation may also cause a diversionof our management’s time and attention from our business.Some of our competitors may be able to sustain the financial andother costs of complex patent litigation more effectively thanwe can because they have substantially greater resources.Uncertainties resulting from the initiation and continuation ofany litigation could have a material adverse effect on ourability to continue our operations.**We face special risks related to international sales andoperations because we have limited experience in conducting ourbusiness in other countries.**     We are currently selling our products to customers in Australia,Asia, Canada, Europe, and South America. While we are evaluatingmarketing and sales channels abroad, including contract salesorganizations, distributors and marketing partners, we have verylimited foreign sales channels in place and except for Canada,where we sell through our own direct sales force, we market andsell our products outside the U.S. primarily through anetwork of regional distributors. Our success in mostinternational markets is, to a large extent, dictated by theperformance of our regional distributors. There can be noassurance that we will successfully develop significantinternational sales capabilities or that, if we establish suchcapabilities, we will be successful in obtaining reimbursementor any regulatory approvals required in foreign countries. Therecan be no assurance that we will effectively manage our networkof independent regional distributors. Our international salesand operations may be limited or disrupted by the imposition ofgovernment controls, export license requirements, politicalinstability, trade restrictions, changes in tariffs,difficulties in staffing and managing international operations,changes in applicable laws, less favorable intellectual propertylaws, longer payment cycles, difficulties in collecting accountsreceivable, fluctuations in currency exchange rates andpotential adverse tax consequences. Foreign regulatory agenciesoften establish product standards different from those in theUnited States and any inability to obtain foreign regulatoryapprovals on a timely basis, if at all, could have a materialadverse effect on our international business operations.Additionally, if significant international sales occur, ourbusiness, financial condition and results of operations could beadversely affected by fluctuations in currency exchange rates aswell as increases in duty rates. There can be no assurance thatwe will be able to successfully commercialize our products orany future products in any foreign market.**Our stock price is highly volatile and the value of yourinvestment will likely fluctuate.**     Our stock price has, from time to time, experienced extremeprice and volume fluctuations. Often these fluctuations areunrelated or disproportionate to our actual operatingperformance. Many factors could cause the market price of ourstock to decline, including: •     failure to successfully implement aspects of our growth strategy;  •     failure to achieve revenue and profitability results expected    among those in the investment community;  •     failure to meet research and development goals related to our    products and services;  •     technological innovations by our competitors or introductions of    competing technologies;
11

 
 •     investor perception of the biotechnology and medical device    industry; and  •     general technology or biotechnology trends.     Occasionally, when the market price of a stock has beenvolatile, holders of that stock have instituted securities classaction litigation against the company that issued the stock. Ifany of our stockholders brought such a lawsuit against us, evenif the lawsuit was without merit, we could incur substantialcosts defending the lawsuit. The lawsuit would also divert thetime and attention of our management from our business.**Sales of a substantial number of shares of our common stockcould cause the market price of our common stock to decline.**     Future sales of common stock by us or any significantshareholder could adversely affect the market price of ourcommon stock. For example, the lock-up provision contained inour Securities Purchase Agreement, our largest shareholder,expired in February 2003. As a result, in addition to2,950,680 shares owned by Roche and its affiliates thathave no lock-up restrictions, and subject to applicablesecurities laws, Roche was entitled to sell up to2,500,000 shares, the sale of which was previouslyrestricted, during the 12 months following February 2003,and may sell up to an additional 2,500,000 shares, the saleof which was also previously restricted, during the12 months following February 2004. If Roche sells all or asignificant portion of these shares, our stock price maydecline. There can be no assurance that Roche will not attemptto sell all or most of its shares and the value of yourinvestment may fluctuate as a result of such sales.     In addition, if we sell any equity securities, the market priceof our common stock could be adversely affected.**Our significant stockholders have the ability to influencesignificant decisions regarding our future.**     Roche is our single largest stockholder. As of March 5,2004, Roche beneficially owned approximately 21% of ouroutstanding common stock. Roche also has the right to designateone member of our Board of Directors. In addition, as ofMarch 5, 2004, BD beneficially owned approximately 7% ofour outstanding common stock. As a result, those significantstockholders are able to significantly influence all mattersrequiring stockholder approval, including the election ofdirectors and the approval of significant corporatetransactions. This concentration of ownership could also delayor prevent a change in control of us that may be favored byother stockholders.**RISKS RELATED TO OUR INDUSTRY****We may be unable to attain or maintain the requiredcompliance with regulations governing manufacturing of medicaldiagnostic devices.**     Manufacturers of medical diagnostic devices face strict federal,national, state or local regulations regarding the quality ofmanufacturing. For example, the FDA periodically inspects themanufacturing facilities of diagnostic device manufacturers todetermine compliance with regulations. Our current and futuremanufacturing and design operations must comply with these andall other applicable regulations, including regulations imposedby other governments. If we fail to comply with quality systemsregulations we could face civil or criminal penalties orenforcement proceedings. These proceedings may require us torecall a product, to stop placing our products in service or tostop selling our products. Similar results could occur if weviolate equivalent foreign regulations. We may not be able toattain or maintain compliance with quality systems requirements.Any failure to comply with the applicable manufacturingregulations would have a material adverse effect on our business.**If we fail to obtain adequate levels of third-partyreimbursement for our products, the commercial success of ourproducts will be significantly limited.**     Our ability to successfully sell our products for cervicalcancer screening in the United States and other countriesdepends on the availability of adequate reimbursement fromthird-party payors such as private insurance plans, managed careorganizations, Medicare and Medicaid and government healthcareproviders. Virtually all of our revenues will be dependent oncustomers who rely on third party reimbursement. Third-
12

 
party healthcare payors in the United States and elsewhere areincreasingly sensitive to containing healthcare costs andheavily scrutinize new technology as a primary factor inincreased healthcare costs. Third-party payors may influence thepricing or perceived attractiveness of our products and servicesby regulating the maximum amount of reimbursement they provideor by not providing any reimbursement. Medical community orthird-party healthcare payors may deny or delay acceptance ofour products or may provide reimbursement at levels that areinadequate to support adoption of our technologies.     If these third-party payors do not reimburse for our preparationand screening products, or only provide reimbursementsignificantly below the amount laboratories charge patients toperform screening with our products, our potential market andrevenues will be significantly limited. Use of our products maynever become widely reimbursed, and the level of reimbursementwe obtain may never be sufficient to permit us to generatesubstantial revenue.     To successfully market FocalPoint and PrepStain together, twoCommon Procedural Terminology Codes, or CPT codes, wereestablished covering the combined use of these products by theCenter for Medicare and Medicaid Services (“CMS”).These CPT codes are applicable to the combined use of ourSurePath slides screened using our FocalPoint slide profiler.Also included in the CMS announcement were tentative paymentdeterminations which were finalized on November 8, 2002.The payment determination for the cytopathology tests providesfor an appropriate reimbursement amount by combining currentpayment amounts for the liquid based slide preparations and aportion of either of the two codes that represent the automatedscreening system. CMS issued a Program Memorandum withinstructions on the 2003 Clinical Laboratory Fee Schedule to itscarriers and intermediaries on November 8, 2002. There canbe no assurance, however, that the laboratories claimingreimbursement under these CPT codes will be successful inobtaining favorable reimbursement.     Convincing third-party payors to provide reimbursement is acostly and time consuming process because reimbursement approvalis required from each payor individually; and obtaining thisapproval from the third-party payor typically requires thepresentation of scientific and clinical data to support the useof the products. Whether a third-party payor is willing toprovide reimbursement for the use of our products at a levelthat can allow our company to succeed depends on severalunpredictable factors, including: •     the level of demand for our products by physicians;  •     the payor’s determination that our products are an    improvement over the conventional Pap smear process; and  •     the payor’s determination that our products are safe and    effective, medically necessary, appropriate for specific patient    populations, and cost effective.     We may face particular difficulties convincing third-partypayors that our products are cost effective because theup-front, direct costs of using the products will initially begreater than the cost of the conventional Pap smear. As aresult, we will need to convince third-party payors that the useof our products will result in a net overall cost savings to thehealth care system.     As with our cervical cytology products, our molecular diagnosticreagents and imaging systems will be primarily purchased bymedical institutions and laboratories that bill third-partypayers such as government healthcare administration authorities,private health coverage insurers, managed care organizations andother similar organizations. Our ability to earn sufficientreturns on these products will depend in part on the extent towhich reimbursement for these products and related treatmentswill be available to our customers from third-party payers. Allof our slide based molecular diagnostic reagents are beingformatted as either immunohistochemistry or immunocytochemistrytests that may be performed either with or without imageanalysis. Currently, generic billing codes and reimbursementschedules exist for these technologies, with and without imageanalysis, and the opportunity exists to enhance third partyreimbursement if the results of clinical studies support uniqueand high value clinical claims. For blood based screeningassays, we will most likely be required to work with governmenthealthcare administrative authorities to establish new billingcodes and reimbursement schedules. Under any circumstance wherewe are applying for new codes, the process is time consuming,there can be no guarantee we will obtain the new code, and ifand when we do obtain the new
13

 
code, that the majority of our customers will be successful toobtain reimbursement at the levels specified by the code fromtheir payer population. Third-party payers are increasinglyattempting to limit both the coverage and the level ofreimbursement of products to contain costs, and if they aresuccessful, our ability to generate revenue growth andprofitability from our molecular diagnostic products will beadversely effected.**We can only sell our products to a limited number ofcustomers.**     A significant portion of our product sales will be concentratedamong a relatively small number of large, and medium-sized,clinical laboratories. Moreover, due to consolidation in theclinical laboratory industry, we expect that the number ofpotential domestic customers for our products may decrease.These factors increase our dependence on sales to the largestclinical laboratories and the bargaining power of thosepotential customers. Our market research indicates that nearly40% of all U.S. Pap smears are processed by the two largestlaboratories. Each of these companies operates multiplelaboratory facilities nationwide.     We will have to make this number of potential customers aware ofour products and then convince them to accept and use ourproducts. To gain acceptance of our products within this smallcustomer base, we will have to successfully demonstrate thebenefits of our products over the conventional Pap smear processand other alternative methods of sample collection, slidepreparation and cervical cancer screening. In addition, togenerate demand for our products among these clinicallaboratories, we believe that we must: •     educate clinicians, laboratorians and other health care    providers on, and convince them of, the clinical benefits and    cost-effectiveness of our products; and  •     demonstrate to clinicians, laboratorians and other health care    providers that adequate levels of third-party payor    reimbursement will be available for our products.     Ultimately, we may not be able to successfully sell our productsto large clinical laboratories to the extent that we anticipate.Even if we do successfully sell our products to large clinicallaboratories, those sales may not generate enough revenue tomaintain our profitability.**We are at risk of product liability claims and may be unableto maintain adequate insurance against such liabilities.**     The commercial screening of Pap smears in particular hashistorically generated significant malpractice litigation. As aresult, we face product liability, errors and omissions or otherclaims if our products are alleged to have caused a false-negative diagnosis. Although we have product liabilityinsurance, it could become increasingly difficult for us toobtain and maintain product liability coverage at a reasonablecost or in amounts sufficient to protect us against potentiallosses. If we are unable to obtain adequate product liabilityinsurance at a reasonable cost a successful product liabilityclaim or a series of claims brought against us could require usto pay substantial amounts that would decrease ourprofitability, if any.**Our success depends on our ability to retain our keypersonnel.**     We will depend heavily on the principal members of ourmanagement and scientific staff. The loss of their servicesmight impede achievement of our strategic objectives or researchand development. Our success depends on our ability to retainkey employees and to attract additional qualified employees,which may be particularly difficult to do in the future.Competition for highly skilled scientific and managementpersonnel is intense, particularly in the geographic areas inwhich we currently are located, and these resources are scarcerelative to the needs of a growing high technology businesssector. The failure to recruit such personnel or the loss ofexisting personnel could adversely affect our business.
14