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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

FORM 10-K



|  |                                                                                      
|- | -------------------------------------------------------------------------------------
|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31,
2001

OR



|  |                                                                                          
|- | -----------------------------------------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR
	15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From
 to

Commission File No. 000-30369


VIROLOGIC, INC.

(Exact name of registrant as specified in its
charter)


|                                                                                                 |  |                                      
|------------------------------------------------------------------------------------------------ |  | -------------------------------------
|DELAWARE                                                                                         |  | 94-3234479                           
|(State or other jurisdiction of
	incorporation or organization)                                  |  | (I.R.S. Employer
	identification no.)
|270 East Grand Avenue
	South San Francisco, California
	(Address of principal executive offices) |  | 94080
	(Zip code)                    

Registrants Telephone Number, Including
Area Code: (650) 635-1100

Securities Registered Pursuant to
Section 12(b) of the Act:

None


Securities Registered Pursuant to
Section 12(g) of the Act:

Common Stock, $0.001 Par Value


(Title of class)


Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes x  No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K (Section 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K     o.

The aggregate market value of the voting stock
held by non-affiliates of the Registrant as of March 28,
2002 was $32,864,238.*

The number of shares outstanding of the
Registrants Common Stock was 22,972,881 as of
March 28, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

The registrants Definitive Proxy Statement,
to be filed with the Securities and Exchange Commission (the
Commission) pursuant to Regulation 14A in
connection with the 2002 Annual Meeting of Stockholders to be
held on May 16, 2002 (the 2002 Annual Meeting),
is incorporated by reference into Part III of this Report.

Certain exhibits filed with the Registrants
(i) Registration Statement on Form S-1 (Registration
No. 333-30896), as amended, (ii) Quarterly Reports on
Form 10-Q for the three months ended September 30,
2000, March 31, 2001 and June 30, 2001,
(iii) Annual Report on Form 10-K for the year ended
December 31, 2000, (iv) Current Report on
Form 8-K filed July 6, 2001 and (v) Current
Report on Form 8-K filed March 26, 2002 are
incorporated by reference into part IV of this Report.




|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Excludes 8,928,335 shares of Common Stock held by
	directors, officers and stockholders whose beneficial ownership
	exceeds 5% of the Registrants Common Stock outstanding.
	The number of shares owned by such persons was determined based
	upon information supplied by such persons and upon
	Schedules 13D and 13G, if any, filed with the SEC.
	Exclusion of shares held by any person should not be construed
	to indicate that such person possesses the power, direct or
	indirect, to direct or cause the direction of the management or
	policies of the Registrant, that such person is controlled by or
	under common control with the Registrant, or that such persons
	are affiliates for any other purpose.



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TABLE OF CONTENTS



|              |                                                                                               |  |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I       
|              | Item 1.Business                                                                              
|              | Item 2. Properties                                                                           
|              | Item 3. Legal Proceedings                                                                    
|              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II      
|              | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|              | Item 6. Selected Financial Data                                                              
|              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|              | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                          
|              | Item 8. Financial Statements and Supplementary Data                                          
|              | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|Part III     
|              | Item 10. Directors and Executive Officers of the Registrant                                  
|              | Item 11. Executive Compensation                                                              
|              | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|              | Item 13. Certain Relationships and Related Transactions                                      
|Part IV      
|              | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES   
|EXHIBIT 10.19
|EXHIBIT 23.1 



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TABLE OF CONTENTS

|           |  |                                                                                        |  |    
|---------- |  | -------------------------------------------------------------------------------------- |  | ---
|PART I     |  |                                                                                        |  |    
|Item 1.    |  | Business                                                                               |  | 3  
|Item 2.    |  | Properties                                                                             |  | 28 
|Item 3.    |  | Legal Proceedings                                                                      |  | 28 
|Item 4.    |  | Submission of Matters to a Vote of Security
	Holders                                   |  | 28 
|PART II    |  |                                                                                        |  |    
|Item 5.    |  | Market for Registrants Common Equity and
	Related Stockholder Matters                 |  | 29 
|Item 6.    |  | Selected Financial Data                                                                |  | 31 
|Item 7.    |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations |  | 32 
|Item 7A    |  | Quantitative and Qualitative Disclosures About
	Market Risk                            |  | 41 
|Item 8.    |  | Financial Statements and Supplementary Data                                            |  | F-1
|Item 9.    |  | Changes in and Disagreements with Accountants on
	Accounting and
	Financial Disclosure |  | 42 
|PART III   |  |                                                                                        |  |    
|Item 10.   |  | Directors and Executive Officers of the Registrant                                     |  | 42 
|Item 11.   |  | Executive Compensation                                                                 |  | 42 
|Item 12.   |  | Security Ownership of Certain Beneficial Owners
	and Management                        |  | 42 
|Item 13.   |  | Certain Relationships and Related Transactions                                         |  | 42 
|PART IV    |  |                                                                                        |  |    
|Item 14.   |  | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K                       |  | 43 
|Signatures |  |                                                                                        |  | 46 

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This Annual Report on Form 10-K contains
certain forward-looking statements within the meaning of the
safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 including, without limitation,
statements regarding our PhenoSense and GeneSeq testing
products, the growth of our pharmaceutical business, research
and development expenditures, adequacy of our capital resources,
and other financial matters. These statements, which sometimes
include words such as expect, goal,
may, anticipate, should,
continue, or will, reflect our
expectations and assumptions as of the date of this Annual
Report based on currently available operating, financial and
competitive information. Actual results could differ materially
from those in the forward-looking statements as a result of a
number of factors, including our ability to raise additional
capital, the market acceptance of our resistance testing
products, the effectiveness of our competitions existing
products and new products, the ability to effectively manage
growth and the risks associated with our dependence on patents
and proprietary rights. These factors and others are more fully
described in Risk Factors Related to Our Business
and elsewhere in this Form 10-K. We assume no obligation to
update any forward-looking statements.




PART I




Item 1. Business

We are a biotechnology company developing,
marketing and selling innovative products to guide and improve
treatment of viral diseases. We incorporated in the state of
Delaware on November 14, 1995 and commenced commercial
operations in 1999. We developed a practical way of directly
measuring the impact of genetic mutations on drug resistance and
using this information to guide therapy. We have proprietary
technology, called PhenoSense, for testing drug resistance in
viruses that cause serious viral diseases such as HIV/AIDS,
hepatitis B and hepatitis C. Our first product,
PhenoSense HIV, is a test that directly and quantitatively
measures resistance of a patients HIV to anti-viral drugs.
Our second product, GeneSeq HIV examines and evaluates the
genetic sequences of a patients HIV. Our third product,
PhenoSense GT combines PhenoSense HIV and GeneSeq HIV into one
test on an integrated report to provide the most comprehensive
drug resistance information available to assist physicians in
selecting optimal treatments for their patients. In addition, we
perform resistance testing and research for industry, academia
and government for clinical studies, drug screening/
characterization and basic research. We are also developing
resistance testing products for serious viral diseases other
than HIV. In addition, we are collecting resistance test results
and related clinical data in an interactive database that we may
use to assist our pharmaceutical customers in drug marketing and
drug development and make available to physicians for use in
therapy guidance. Our products and products in development,
which, if completed, might be stand-alone product offerings or
incorporated into our existing offerings, include:
(i) PhenoSense HBV and GeneSeq HBV, for hepatitis B;
(ii) PhenoSense HCV and GeneSeq HCV, for hepatitis C;
(iii) an entry assay to measure HIV resistance to entry
inhibitors; (iv) an entry assay to assist in the
development of HIV vaccines; and (v) a test to measure
viral fitness, which is a measure of a virus ability to
reproduce and infect new cells. We believe our products have the
potential to revolutionize the way physicians treat many serious
diseases.

Background

Viruses

Viruses are microorganisms that must infect
living cells to reproduce, or replicate. Many viruses cause
disease in people. These viruses infect human cells and
replicate, making new viruses that can infect other cells. There
are many different types of viruses, but all viruses share
structural and functional characteristics associated with their
ability to replicate. During the replication cycle, viruses
often change slightly, or mutate. For example, in an untreated
HIV patient, as many as ten billion new viruses are produced
each day, and at least one quarter of the new viruses have
errors, or mutations, in their genes. At any given time there
can be many different variants of the virus present within the
body, each with a slightly different genetic sequence.

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The Viral Drug Resistance Crisis

Viruses are so adaptive that the drugs used to
fight them can become ineffective, making many serious viral
diseases almost impossible to cure. Currently available
anti-viral drugs interfere with key viral functions to prevent
viruses from replicating, and therefore slow the progression of
disease. However, these drugs are typically effective for only a
limited time because viruses develop resistance to them through
mutation, making the therapy less effective. A resistant virus
is one that is less sensitive to the drug that is administered.
Mutant viruses resistant to a particular drug therapy continue
to replicate while the others are eliminated. Over time the
mutant, resistant virus predominates and the drug therapy fails.
In response to this effect, physicians now use anti-viral drugs
in combination, attacking different targets within a virus
simultaneously. Combination therapy slows replication more
effectively than a single drug, further delaying the development
of drug resistance. In the short term, combination therapy has
helped many patients. However, even combination therapy
eventually fails in a great majority of patients, due in large
part to the fact that the virus becomes resistant to some or all
of the drugs used in combination.

This drug resistance crisis is most serious in
HIV/AIDS. There are currently sixteen FDA-approved drugs used in
various combinations to treat HIV infections. Combination
therapy requires each drug in the combination to be active for
therapy to be most effective. If any of the drugs are not
active, the therapy will likely fail more quickly. To make
matters worse, each treatment failure increases the risk that
the next drug combination will not work, or work for a shorter
period of time, and leaves the patient with fewer future
treatment options. Additionally, drug resistant viruses are
transmitted to newly infected individuals, increasing the risk
that initial treatment for those individuals will not work. New
drugs with increased potency and activity against drug resistant
viruses are not becoming available in time to overcome this
crisis. Consequently, physicians are faced with the challenge of
tailoring therapy to individual patients numerous times per year
for many patients.

Resistance Testing

When anti-viral therapy does not completely
suppress viral replication, drug resistant variants can emerge
rapidly, within days to weeks. If left unchecked, patients may
be at greater risk of becoming more seriously ill unless
effective drugs are promptly administered. Until a few years
ago, physicians chose drugs without drug resistance tests based
on a patients treatment history and assumptions regarding
drug resistance of the patients virus, without knowing to
which drugs the patients virus was resistant, and
frequently changed all drugs in a treatment regimen even when
some might have still been effective. When physicians
inadvertently select ineffective drugs, patients become more
seriously ill, suffer toxic side effects, and unnecessarily bear
the costs of the drugs.

To achieve long-term clinical benefit, physicians
must select drugs that maximally suppress viral replication and
avoid drugs to which a patients virus is resistant. We
believe that long term solutions will rely on drug resistance
tests and information systems that can guide physicians in
selecting the most effective drugs against the patients
virus and avoiding drugs to which the patients virus is
resistant. The need for resistance testing has been affirmed in
guidelines from panels led by the U.S. Department of Health and
Human Services, the International AIDS Society-USA and the
EuroGuidelines Group, recommending that resistance tests be
routinely used when treating HIV patients. Resistance tests can
also assist pharmaceutical companies in the development of drugs
to target resistant viruses. In fact, a November 1999 FDA
advisory committee recommended emphatically that resistance
testing be used in the development of all new anti-viral drugs
for HIV.

Phenotypic tests determine phenotype,
which refers to an organisms outward appearance or
functional characteristics. For example, eye color is a
phenotype. One viral phenotype is the ability to replicate in
the presence of anti-viral drugs, also referred to as drug
resistance. Phenotypic drug resistance tests directly
measure the sensitivity of a patients virus to anti-viral
drugs by adding a drug to a virus sample and determining whether
the virus is able to replicate in the presence of the drug.
These tests eliminate much of the guesswork in making treatment
decisions by providing the physician with direct information
about drug resistance of a patients virus.

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Early phenotypic tests required culturing, or
growing viruses in the laboratory. These tests were slow, labor
intensive and not easily automated. Since viruses mutate while
growing in culture, the process could produce inaccurate results
since the virus in culture may be different from the virus in
the patient. As a result, early phenotypic testing was
impractical for patient management. In the absence of practical
phenotypic drug resistance tests, clinicians began to use
genotypic tests in an attempt to predict drug resistance
indirectly. Genotypic tests detect mutations in the underlying
gene sequence, or genotype of the virus, and attempt to
correlate these mutations with drug resistance.

Our Solution

Our PhenoSense technology has significantly
improved viral drug resistance testing. Our technology uses a
genetically engineered virus that replicates only once. As a
result, we avoid the need to culture viruses during testing,
which makes the tests more consistent and accurate and
dramatically shortens the time required to complete them. Also,
our tests can be automated and performed in large numbers,
making them practical for routine use in clinical management of
patients. We believe that our tests and the information that we
collect from these tests have the potential to significantly
change the way physicians treat viral diseases.

We believe our PhenoSense technology meets the
needs of physicians and patients because it is:



| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | Direct:detects drug
	resistance of viruses without need for complex interpretation of
	mutations                    
|
| |  | Quantitative:measures the degree of drug resistance
	and susceptibility, providing more than a yes or
	no answer
|
| |  | Reliable:results
	are accurate and reproducible                                                                     
|
| |  | Comprehensive:can
	evaluate drug resistance to all currently available anti-viral
	drugs                            
|
| |  | Versatile:can be
	modified to evaluate new classes of anti-viral drugs                                              
|
| |  | User-Friendly:results are easy to read and understand                                                               
|
| |  | Rapid:can be
	performed in eight to ten days, much faster than other
	phenotypic resistance tests                   

The cornerstone of our PhenoSense technology is a
proprietary vector, which we call the resistance test
vector. This vector is a strand of viral genes that
replicates when introduced into a living cell. Our vector
includes two key elements. The first is a gene that produces a
protein that can be easily detected, which we call an
indicator. An example of an indicator we use is
luciferase, which is responsible for the glow of fireflies. The
second key element is one or more specific genes derived from
the patients virus. These genes correspond to the targets
of the anti-viral drugs being tested. For example, many HIV
drugs target an enzyme called protease that is needed for HIV to
replicate. We incorporate the gene that makes protease into the
vector for our HIV drug resistance test.

To perform our PhenoSense tests, we:



| |   |                                                                 
| | - | ----------------------------------------------------------------
| |  | Obtain a blood sample from the patient                          
|
| |  | Isolate and inactivate the virus                                
|
| |  | Copy the viral genes corresponding to the drug
	targets         
|
| |  | Insert these genes into the vector                              
|
| |  | Introduce the assembled vector into living cells
	in a test tube
|
| |  | Add anti-viral drugs to the cells                               
|
| |  | Allow the vector to complete a single round of
	replication     
|
| |  | Measure the replication of the vector using the
	indicator      

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The amount of indicator we detect is used to
measure drug resistance. For example, we measure the amount of
light produced by luciferase in our PhenoSense HIV test. If the
virus is sensitive to the drug being tested, less light is
detected. If the virus is resistant to the drug, more light is
detected.

We report our resistance test results using
illustrative curve diagrams. We plot the amount of luciferase,
which corresponds to the amount of virus replication, on the
vertical axis against the amount of drug administered on the
horizontal axis. We generate curves for both a patients
virus and a drug-sensitive control virus, and compare the two
curves to quantitatively measure drug resistance. Viruses with
increased resistance require more drugs to inhibit replication.
We produce curves for each available drug.

Our Strategy

Our objective is to be the world leader in
developing and commercializing products and information systems
to guide treatment of serious diseases. Our first products are
in the field of HIV/ AIDS; future target therapeutic areas
include hepatitis and oncology. Key elements of our strategy are
to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Establish ViroLogic As The World Leader In
	Drug Resistance.We believe we have
	firmly established ourselves as a prominent force in the medical
	and scientific community in the field of HIV drug resistance. We
	present important new scientific discoveries at major meetings
	each year and publish those findings in prominent peer-reviewed
	journals. Many of the major pharmaceutical companies have
	partnered with ViroLogic in training their organizations on the
	topic of HIV drug resistance and in educating the physician
	community.                                                                                                                                                                                                                                                                                                                
|
| |  | Successfully Commercialize our Product
	Portfolio.We are currently marketing
	PhenoSense HIV, PhenoSense GT and GeneSeq HIV to physicians
	directly and through scientific publications, clinical trials
	and scientific meetings, and to patients through
	direct-to-patient advertising. We market our products directly
	to physicians in the United States through our own sales force,
	primarily focusing on the 1,000 leading HIV physicians who treat
	approximately 80% of the total HIV/ AIDS patient population. We
	also conduct educational symposia and programs on HIV drug
	resistance and resistance testing for physicians, patients and
	treatment educators throughout the country. We have
	collaborative agreements with two major pharmaceutical companies
	and informally work with many others to educate physicians about
	resistance testing.
|
| |  | Provide Broad, Easy Access to our Products.We have created broad access to our
	current commercial products from both reimbursement and
	distribution standpoints. We have advocated and achieved
	established coverage policies for our marketed products
	throughout the country, with now over 75% of HIV/AIDS patients
	having access to coverage. Our products are also available
	either directly from us or through major national and regional
	reference labs.                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Apply Our Technology to Drug Discovery and
	Development.We are applying our
	technology to create tools for pharmaceutical companies to help
	them determine how patients will respond to particular drugs, to
	assist them in screening drug candidates and to use in other
	drug discovery efforts. We are also assembling a library of
	resistance test vectors for testing of drug compounds and
	candidates. We are currently engaged in testing agreements with
	numerous pharmaceutical companies to conduct clinical trial and
	drug characterization work and we intend to enter into
	additional partnerships to jointly discover and develop drug
	candidates for the treatment of HIV and other viral diseases.                                                                                                                                             
|
| |  | Expand Our PhenoSense Technology to Other
	Serious Diseases.Using our
	proprietary PhenoSense technology, we intend to develop
	phenotypic drug resistance testing products for other diseases.
	We are currently developing phenotypic and genotypic resistance
	tests for hepatitis B and hepatitis C. We also believe that as
	the next generation of cancer drugs gain wide acceptance and
	use, they will provide a promising application for
	ViroLogics platform therapy guidance technologies.                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Maintain a Strong Intellectual Property
	Portfolio.We have patent coverage for
	our PhenoSense HIV product and patent applications directed to
	our other products. As we expand into new areas and diversify
	our business, we intend to build strong intellectual property
	positions to maintain our competitive advantage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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Products

PhenoSense HIV

PhenoSense HIV is a phenotypic drug resistance
test that measures the resistance of HIV to all available
anti-viral drugs. When a physician orders a PhenoSense HIV test,
a blood sample is drawn from the patient. This sample is sent to
us to perform the test in our clinical laboratory located in
South San Francisco, California. We then send a report detailing
the results of the test to the physician, typically within two
weeks. We began sales and marketing activity for PhenoSense HIV
in November 1999.

HIV now affects nearly one million people in the
United States and over 40 million people worldwide. Sixteen
anti-viral drugs are FDA-approved for treatment of HIV infection
and more than 25 additional drugs are currently being
tested in clinical trials. Despite the availability of
anti-viral drugs, HIV is difficult to treat effectively because
it replicates rapidly and becomes resistant to individual
anti-viral drugs. Selecting the right drugs when treating HIV
patients is often difficult when physicians have limited
information about the susceptibility to specific anti-viral
drugs of the HIV infecting an individual patient.

Physicians are increasingly using resistance
testing because drug resistance in HIV/AIDS treatment has become
a serious crisis. Guidelines for the management of patients with
HIV, issued by separate panels led by the U.S. Department of
Health and Human Services and the International AIDS Society-USA
each recommend that resistance tests be routinely used for HIV
patients. The guidelines also state that it is reasonable to use
resistance testing when selecting an initial anti-viral drug
regimen because transmission of drug resistant strains of HIV is
well documented. In addition, the FDA Antiviral Drugs Advisory
Committee in November 1999 emphatically recommended that
resistance tests should be utilized in the development of new
anti-viral drugs for HIV.

All currently FDA-approved HIV drugs target an
important step in the replication cycle of HIV. One group of
drugs, called reverse transcriptase inhibitors,
blocks the virus from copying its genetic material. Another
group, called protease inhibitors, blocks the
formation of viral proteins that are necessary for the virus to
infect other cells. The vectors used in our PhenoSense HIV test
incorporate the protease and reverse transcriptase gene segments
from the virus of the patient being tested. A new group of HIV
drugs, called virus entry inhibitors, blocks HIV
from entering new cells, thereby preventing the spread of the
virus in the body. PhenoSense HIV has been expanded to test this
new group of drugs. Based on our knowledge of the mechanism of
action of all of the HIV drugs currently in development, we
believe we will be able to incorporate appropriate genes
corresponding to the targets of the new drugs into our
PhenoSense HIV vector, such as HIV integrase inhibitors or
assembly inhibitors.

More than five prospective clinical trials have
demonstrated that the use of resistance testing to guide
selection of anti-viral drug treatment regimens leads to
significantly better treatment outcomes than therapy selection
without resistance testing. These trials included patients who
had failed one or more standard combination therapy regimens.
Patients in these trials who had their therapy guided by
resistance tests subsequently had, on average, significantly
lower amounts of virus in their blood; and there were a
significantly higher percentage of patients with undetectable
levels of virus in their blood after therapy. A fourth
prospective clinical trial sponsored by the California
Collaborative Treatment Group, or CCTG, and ViroLogic showed a
similar benefit in the use of PhenoSense HIV to guide selection
of anti-viral drug treatment over selection of therapy without
resistance testing in patients with extensive prior anti-viral
treatment or viruses that are more highly drug resistant;
although this trial did not show a difference in primary
endpoints.

We have, with our collaborators, performed over
25 retrospective clinical trials that support the conclusion
that resistance testing of HIV patients, and specifically the
use of PhenoSense HIV, improves their treatment outcomes. These
studies have evaluated over 2,500 patients in many different
clinical settings, at various stages of HIV disease, and with
various treatment histories. The studies have assessed newly
infected adult patients, adult patients treated previously with
one or more treatment regimens, pregnant patients, and pediatric
patients. These studies have demonstrated that the results of
PhenoSense HIV were significantly associated with better
treatment outcomes, generally as measured by greater reductions
in viral load in the

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patients. In addition, studies have shown that
patients treated with a new regimen that included a greater
number of susceptible drugs, as determined by PhenoSense HIV,
had a significantly greater reduction in viral load than those
patients whose new regimen included fewer susceptible drugs. A
landmark clinical study that used PhenoSense HIV showed the
rates of drug-resistant HIV transmission in North America have
nearly quadrupled over the past five years, demonstrating the
value of resistance tests for newly infected patients. Another
landmark study of drug resistance, as measured by PhenoSense
HIV, that was reflective of 209,000 HIV patients throughout the
United States detected the presence of virus with reduced
susceptibility to one or more drugs in 78% of patients with
detectable levels of HIV in their blood. The data from these
clinical studies have dramatically increased the awareness of
physicians and public health groups to the importance of drug
resistance tests in patient management.


GeneSeq HIV

We have commercialized a genotypic test we call
GeneSeq HIV. Genotypic tests identify gene sequence mutations
that may be associated with resistance to certain drugs. We have
developed GeneSeq HIV as a tool to examine and evaluate the
genetic sequences of patients HIV. We are also developing
rules correlating genotypic and phenotypic results to improve
genotypic interpretation and our understanding of drug
resistance and have incorporated many of those rules into our
genotypic algorithm. We sell GeneSeq HIV to physicians who
request genotypic testing and pharmaceutical companies that are
developing new drugs. We may use the genetic sequence
information and the rules as a component of the database
supporting our Therapy Guidance System described below.

PhenoSense GT

PhenoSense GT is the first and only available
drug resistance test using phenotypic test results supplemented
by genotypic information to provide physicians with
comprehensive resistance information on one integrated,
easy-to-interpret report. It is our latest product to help
physicians and patients individualize treatment regimens to
fight HIV. PhenoSense GT was designed in response to an
increasing number of physicians ordering both phenotypic and
genotypic tests for their patients.

PhenoSense HBV

We are currently applying our PhenoSense
technology to develop a test to analyze drug resistance of
hepatitis B virus, or HBV. HBV infection is a leading cause of
liver disease and liver cancer, and leads to more than one
million deaths worldwide each year. The Center for Disease
Control and Prevention estimates that there are over one million
people in the United States chronically infected with HBV, and
over 350 million people chronically infected worldwide,
mostly in Asia. We estimate that approximately half of those
chronically infected would benefit from anti-viral drug therapy.

As in the case of HIV, drug resistance is a
problem when treating HBV. Similar to the treatment of HIV
infection, effective therapy of chronic HBV infection will
likely require complex combinations of anti-viral drugs. As more
drugs become available, physicians will face increasing
difficulty selecting the most appropriate drug combinations for
HBV patients. Therefore, we believe drug resistance testing will
play a significant role in guiding HBV treatment.

The FDA has approved two drugs for the treatment
of HBV infection and more than 15 drugs are in preclinical
or clinical stages of development. Many of these drugs target
HBV reverse transcriptase, which acts in a manner similar to HIV
reverse transcriptase, to prevent the virus from copying its
genes. Research efforts are ongoing to discover drugs that
target other aspects of HBVs life cycle, such as the
assembly of HBV viruses, or the entry of HBV into liver cells.
Based on our knowledge of the mechanism of action of these drugs
in research, we believe that we will be able to incorporate
genes corresponding to the targets of these drugs into our
PhenoSense HBV vector.

As the use of HBV drugs increases, we expect the
demand for PhenoSense HBV to grow dramatically. Prior to that
time, we expect PhenoSense HBV will be used in discovery and
development of new HBV drugs.

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PhenoSense HCV

We are currently applying our PhenoSense
technology to develop a test to analyze drug resistance of
hepatitis C virus, or HCV. HCV infection causes liver
disease and liver cancer, similar to HBV. The CDC estimates that
four million people in the United States and more than
170 million people worldwide are infected with HCV. We
estimate that approximately 75% of patients infected with HCV
may benefit from anti-viral drug therapy.

HCV replicates and mutates at extremely high
rates inside an infected patient, similar to HIV and HBV. The
virus is likely to develop resistance to drugs being developed
for treatment. Complex combinations of drugs may then be
required to increase the success of treatment. As a result, a
number of major pharmaceutical companies are discovering and
developing new drugs for HCV.

HCV drugs are in development that target many
different aspects of HCVs life cycle. Similar to HIV
drugs, there are efforts to develop HCV protease inhibitors as
well as drugs that block the replication of the genetic material
of HCV or the production of HCV proteins. Based on our knowledge
of the mechanism of action of these drugs in research, we
believe we will be able to incorporate appropriate genes that
correspond to the targets of these drugs into our PhenoSense HCV
vector.

We expect PhenoSense HCV will be utilized to
assist in the discovery and development of HCV drugs and the
assessment of drug resistance in HCV patients. As effective
treatments for HCV become more widely available, we intend to
offer PhenoSense HCV to assist physicians in drug treatment
decisions.

Viral Fitness Test

We have developed an enhancement of our
PhenoSense technology to measure viral fitness. Viral fitness is
a measure of a virus ability to replicate and infect new
cells. It is different from resistance in that it is a measure
of the virus ability to replicate in the absence of
anti-viral drugs, rather than a measure of drug activity against
the virus. While this technology is new, we believe that there
will be numerous applications for our Viral Fitness Test. For
example, in a heavily treated patient infected with a resistant
strain of virus with low viral fitness, a physician may choose
to maintain that patient on the regimen even though it does not
fully suppress the virus.

Pharmaceutical Customers

We perform resistance testing and research for
industry, academia and government for clinical studies, drug
screening/ characterization and basic research. Given the
FDAs endorsement of the important role of resistance
testing in drug development, and the large number of drugs in
development for HIV and other viral diseases, our pharmaceutical
product and service offerings have become a significant aspect
of our business.

Clinical Trials.Because clinical trials are the most expensive part of drug
development, pharmaceutical companies are trying to improve the
outcomes of clinical trials by using the methods of
pharmacogenomics, the scientific discipline focused
on how genetic differences among patients determine or predict
responsiveness or adverse reactions to particular drugs. In a
similar way, pharmaceutical companies are applying our
PhenoSense technology to help select patients for clinical
trials. This selection process may allow companies to guide
important drug development decisions before large resource
commitments are made. To date, we have signed testing agreements
with most pharmaceutical companies involved in AIDS drug
development, including: Agouron, Abbott Laboratories,
Bristol-Myers Squibb, Chiron Corporation, DuPont
Pharmaceuticals, Gilead Sciences, GlaxoSmithKline, Hoffmann-La
Roche Ltd., Merck and Co., Pfizer, Triangle Pharmaceuticals and
Vertex Pharmaceuticals. We are involved in more than 70 clinical
research and drug characterization studies with these
pharmaceutical companies as well as other government and
academic organizations evaluating a number of HIV drugs and drug
regimens.

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We are growing our clinical research business by
applying our technology and expertise to new HIV targets and
other serious viral diseases. We are collecting resistance test
results and related clinical data in an interactive database,
which we call a Therapy Guidance System, that we may use to
assist our pharmaceutical customers in drug marketing and drug
development and make available to physicians for use in therapy
guidance. We are conducting collaborative research with numerous
key investigators to define the role of viral replication
capacity in patient management using our Viral Fitness Test and
we have established relationships with several pharmaceutical
companies to use our PhenoSense HIV Entry Assay in the
development of the new HIV entry inhibitor drugs and vaccine
candidates. As PhenoSense HBV and HCV are developed, we intend
to expand our clinical trial business into those disease areas
as well.

Drug and Vaccine
Discovery.Two important components of
our Therapy Guidance System include the database of viral
resistance data and information and our specimen library
comprised of resistance test vectors, virus clones and
site-directed mutants. Using these tools as a foundation, we are
developing a pharmacogenomics capability for use in screening
potential drugs or vaccines. We believe our drug resistance
technology can be supplemented and enhanced to provide more
extensive information about the activity of chemical compounds
than conventional assays. We expect to enter into additional
corporate partnerships to jointly discover and develop drug
candidates for the treatment of viral diseases as well as
potential vaccines. We will evaluate the activity of compounds
or vaccines against viruses selected from our extensive
collection of patient samples.

Sales and Marketing

We commenced sales and marketing activity for
PhenoSense HIV in November 1999. We currently have 22
experienced field sales representatives promoting our resistance
tests in the primary U.S. markets for drugs targeted at
HIV/AIDS. Within these major markets, we are targeting the 1,000
leading HIV physicians who treat 80% of the HIV/AIDS patients in
the United States. Outside the United States, we intend to enter
into relationships with other companies to serve these markets.

We employ a wide range of communications channels
to promote our products. Our marketing strategies focus on
physician, patient and payor education in order to increase
market awareness of PhenoSense HIV and resistance testing. We
routinely sponsor and participate in conferences and scientific
meetings, sponsor educational forums for physicians, and
advertise in relevant journals and publications. Additionally we
target patients directly through educational programs and
advertising.

We have launched an active reimbursement
strategy, and educate both private and public payors concerning
drug resistance testing in an effort to maximize reimbursement.
Over 75 percent of HIV/AIDS patients in the United States
now have access to coverage for resistance testing. At the end
of 2001, 44 state Medicaid programs, including California and
New York, the states with the largest HIV/AIDS patient
populations, had favorable coverage policies for drug resistance
testing. Positive HIV resistance testing coverage legislation
has been introduced in those key remaining Medicaid states that
have yet to cover. Medicare and nearly all private payors,
including Aetna U.S. Healthcare, UnitedHealthCare, the Blue
Cross Blue Shield Organizations and Humana, pay for resistance
testing.

In addition, we have made PhenoSense HIV broadly
available through numerous national and regional reference
laboratories and hospitals. We currently have distribution
agreements with nearly all major national reference laboratories
including Quest Diagnostics, Laboratory Corporation of America,
American Medical Laboratories and ARUP, Mayo, as well as
multiple regional laboratories. Under these agreements, these
entities perform numerous services for us including collection
of samples, shipping the samples to us, billing and reporting
the results to doctors.

Patents and Proprietary Rights

We will be able to protect our technology from
unauthorized use by third parties only to the extent that our
proprietary rights are covered by valid and enforceable patents
or are effectively maintained as trade secrets. Patents and
other proprietary rights are an essential element of our
business. We have two issued U.S. patents, with claims to
the method of carrying out our PhenoSense HIV and
hepatitis B tests and

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composition of matter claims for our HIV
resistance test vector. As of December 31, 2001, we had
filed nine patent applications in the United States and
corresponding foreign patent applications. Our policy is to file
patent applications and to protect technology, inventions and
improvements to inventions that are commercially important to
the development of our business. Our commercial success will
depend in part on obtaining this patent protection. We also seek
protection through confidentiality and proprietary information
agreements. Some of the intellectual property we use is owned by
Roche Molecular Systems, Inc., or Roche, and licensed to us on a
non-exclusive basis. Other companies may have patents or patent
applications relating to products or processes similar to,
competitive with or otherwise related to our products. These
products and processes include technologies relating to HIV and
hepatitis B and C and other viruses. Unless we are able to
expand our existing license and obtain additional licenses,
patents covering these technologies may adversely impact our
ability to commercialize one or more of our PhenoSense products.


Roche License

We license technology for performing a step in
our PhenoSense and GeneSeq tests from Roche. This license is
non-exclusive and lasts for the life of the patent term of the
last to expire licensed Roche patents. In general, newly-issued
patents have a term of twenty years. In addition, if Roche
develops or acquires additional patents covering technology
related to the licensed technology, we have the option of
licensing that additional technology under the terms of this
agreement. In exchange for the license, we have agreed to pay
Roche a royalty based on the net service revenues we receive
from our products. At least sixty days prior to introducing a
new product utilizing the Roche technology, we must notify Roche
of that introduction. If we fail to notify Roche, we would have
to pay a higher royalty. We also agreed to participate in
proficiency testing in accordance with applicable quality
assurance standards and to comply with all relevant regulations
and standards. Further, we have agreed to give Roche a
reasonable opportunity to negotiate for a license to use any
technology we develop related to the reaction technology we
license from Roche, such as the automation of the method for
performing the reaction. Royalty expense recorded under this
agreement was $0.7 million and $0.2 million for the
years ended December 31, 2001 and 2000, respectively.
Royalty expense for the year ended December 31, 1999 was
minimal.

Competition

We face, and will continue to face, competition
from organizations such as other biotechnology companies and
commercial laboratories, as well as academic and research
institutions.

Our major competitors include manufacturers and
distributors of phenotypic drug resistance technology, such as
Tibotec-Virco, which has recently announced that Johnson and
Johnson intends to acquire all of its assets, Specialty
Laboratory and makers of genotypic tests and instrumentation,
such as Applied Biosystems Group, Visible Genetics Inc. and
laboratories performing genotypic testing. Each of these
competitors is attempting to establish its test as the standard
of care among opinion leaders. However, we believe that
ViroLogic is well positioned in this market as the only company
focused on HIV drug resistance with:



| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | Multiple testing platforms (phenotype, genotype
	and combination)                        
|
| |  | Rapid turnaround time (2 weeks or less)                                                  
|
| |  | Clinical cutoffs derived using our assay                                                 
|
| |  | Technologies developed to provide additional
	resistance information for new drug targets

Some of our competitors have substantially
greater financial resources and larger research and development
staffs than we do. In addition, they may have greater experience
in developing products, obtaining the necessary regulatory
approvals of products, and the processing and marketing of
products.

Our ability to compete successfully will depend,
in part, on our ability to:



| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | Demonstrate the degree of clinical benefit of our
	products relative to their costs
|
| |  | Develop proprietary products                                                       

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| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | Develop and maintain products that reach the
	market first                         
|
| |  | Develop products that are technologically
	superior to other products in the market
|
| |  | Obtain patent or other proprietary protection for
	our products and technologies   
|
| |  | Obtain reimbursement coverage from payors                                          
|
| |  | Attract and retain scientific and product
	development personnel                   

Regulation and Reimbursement

Regulation of Clinical Laboratory
Operations

The Clinical Laboratory Improvement Amendments of
1988, extends federal oversight to virtually all clinical
laboratories by requiring that laboratories be certified by the
federal government, by a federally-approved accreditation agency
or by a state that has been deemed exempt from the
regulations requirements. Pursuant to these Federal
clinical laboratory regulations, clinical laboratories must meet
quality assurance, quality control and personnel standards. Labs
also must undergo proficiency testing and inspections. Standards
are based on the complexity of the method of testing performed
by the laboratory.

These regulations categorize our laboratory as
high complexity, and we believe we are in compliance with the
more stringent standards applicable to high complexity testing
for personnel, quality control, quality assurance and patient
test management. Our clinical laboratory holds a Certificate of
Registration under these regulations, which allows us to conduct
testing pending determination of compliance through a survey.
Our clinical laboratory has been surveyed by the College of
American Pathologists, a federally-approved accreditation
agency, which has accredited our clinical laboratory.

In addition to the Federal laboratory
regulations, states, including California, require laboratory
licensure and may adopt regulations that are more stringent than
federal law. We believe we are in material compliance with
California and other applicable state laws and regulations.

The sanctions for failure to comply with Federal
or state clinical laboratory regulations, or accreditation
requirements of federally-approved agencies, may be suspension,
revocation or limitation of a laboratorys certificate or
accreditation. There also could be fines and criminal penalties.
The suspension or loss of a license, failure to achieve or loss
of accreditation, imposition of a fine, or future changes in
applicable federal or state laws or regulations or in the
interpretation of current laws and regulations, could have a
material adverse effect on our business.

Under our current labeling and marketing plans,
our phenotypic products have not been subject to FDA regulation,
although we are aware of increasing activity by the FDA in
regards to regulating homebrew HIV genotypic resistance testing.
However, we cannot predict the extent of future FDA regulation,
and we might be subject in the future to greater regulation, or
different regulations, that could have a material effect on our
finances and operations. For further discussion, see Risk
Factors Related to Our Business below.

Medical Waste and Radioactive
Materials

We are subject to licensing and regulation under
federal, state and local laws relating to the handling and
disposal of medical specimens and hazardous waste and
radioactive materials as well as to the safety and health of
laboratory employees. Our clinical laboratory is operated in
material compliance with applicable federal and state laws and
regulations relating to disposal of all laboratory specimens. We
utilize outside vendors for disposal of specimens.

Occupational Safety

In addition to its comprehensive regulation of
safety in the workplace, the Federal Occupational Safety and
Health Administration has established extensive requirements
relating to workplace safety for healthcare employers, including
clinical laboratories, whose workers may be exposed to
blood-borne pathogens such as HIV and the hepatitis virus. These
regulations, among other things, require work practice controls,
protective

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clothing and equipment, training, medical
follow-up, vaccinations and other measures designed to minimize
exposure to chemicals and transmission of the blood-borne and
airborne pathogens. Although we believe that we are currently in
compliance in all material respects with such federal, state and
local laws, failure to comply could subject us to denial of the
right to conduct business, fines, criminal penalties and other
enforcement actions.


Specimen Transportation

Regulations of the Department of Transportation,
the International Air Transportation Agency, the Public Health
Service and the Postal Service apply to the surface and air
transportation of clinical laboratory specimens.

Regulation of Coverage and
Reimbursement

Revenues for clinical laboratory testing services
come from a variety of sources, including Medicare and Medicaid
programs; other third-party payors, including commercial
insurers, Blue Cross Blue Shield plans, health maintenance and
other managed care organizations; and patients, physicians,
hospitals and other laboratories. We are a Medicare laboratory
services provider. Medicare has issued coverage policies and
payment guidelines for resistance testing, including phenotypic
testing. We are currently an approved Medicaid provider in 44
states and have submitted Medicaid provider applications in
other states. Six remaining states Medicaid and other
third party payors are evaluating whether to cover services they
deem to be investigational or otherwise not reasonable and
necessary for diagnosis or treatment. While recently issued
guidelines of the Department of Health and Human Services
recommend drug resistance testing for HIV patients, this does
not assure coverage by state, Medicare or any other payors.

We are unable to predict whether and under what
circumstances state agencies will implement Medicare and
Medicaid coverage policies and payment guidelines, and whether
and the extent to which other payors will cover resistance
testing services. Denial of such coverage by payors would have a
material adverse impact on our business.

Since 1984, Congress has periodically lowered the
ceilings on Medicare reimbursement for clinical laboratory
services from previously authorized levels. In addition, state
Medicaid programs are prohibited from paying more than Medicare
for clinical laboratory tests. In some instances, they pay
significantly less. Similarly, other payors, including managed
care organizations, have sought on an ongoing basis to reduce
the costs of healthcare by limiting utilization and payment
rates. Actions by Medicare or other payors to reduce
reimbursement rates or limit coverage or utilization of
resistance testing would have a direct adverse impact on our
revenues and cash flows. We cannot predict whether reductions or
limitations will occur, though we feel some reductions are
likely.

Fraud and Abuse Regulation

Existing federal laws governing Medicare and
Medicaid and other federal healthcare programs, as well as
similar state laws, impose a variety of broadly described fraud
and abuse prohibitions on healthcare providers, including
clinical laboratories. Multiple government agencies enforce
these laws. The Health Insurance Portability and Accountability
Act of 1996 provides for the establishment of a program to
coordinate federal, state and local law enforcement programs.
Over the last several years, the clinical laboratory industry
has also been the focus of major government enforcement actions.

One set of fraud and abuse laws, the federal
anti-kickback laws, prohibits clinical laboratories from, among
other things, making payments or furnishing other benefits
intended to induce the referral of patients for tests billed to
Medicare, Medicaid, or certain other federally funded programs.
California also has its own Medicaid anti-kickback law, as well
as an anti-kickback law that prohibits payments made to
physicians to influence the referral of any patients. California
laws also limit the ability to use a non-employee sales force.

Under another federal provision, known as the
Stark law or self-referral prohibition,
physicians who have an investment or compensation relationship
with a clinical laboratory may not, unless a statutory

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exception applies, refer Medicare or Medicaid
patients for testing to the laboratory. In addition, a
laboratory may not bill Medicare, Medicaid or any other party
for testing furnished pursuant to a prohibited referral. There
is a California self-referral law, as well, which applies to all
patient referrals.


Currently, we have a financial relationship with
one referring physician, who serves as part-time medical
director at our clinical laboratory. Very few of this
physicians patients, if any, are federal healthcare
program patients. In addition, we do not bill for services
furnished to any patients referred by this physician. The
California anti-kickback law may have exceptions applicable to
our relationship with this physician. We have requested a
written opinion from California officials to determine whether
this relationship is appropriate.

There are a variety of other types of federal and
state anti-fraud and abuse laws, including laws prohibiting
submission of false or otherwise improper claims to federal
healthcare programs, and laws limiting the extent of any
differences between charges to Medicare and Medicaid and charges
to other parties. We seek to structure our business to comply
with the federal and state anti-fraud and abuse laws. We cannot
predict, however, how these laws will be applied in the future,
and we cannot be sure arrangements will not be found in
violation of them. Sanctions for violations of these laws may
include exclusion from participation in Medicare, Medicaid and
other federal healthcare programs, criminal and civil fines and
penalties, and loss of license. Any of these could have a
material adverse effect on our business.

Patient Privacy

The US Department of Health and Human Services
pursuant to the Health Insurance Portability and Accountability
Act of 1996 (HIPPA) has enacted regulations to
prohibit the use or disclosure of protected health
information except for certain purposes or unless specific
conditions are met. Protected health information is information
transmitted or maintained in any form  by electronic
means, on paper, or through oral communications that:
(1) relates to the past, present, or future physical or
mental health or condition of an individual, the provision of
health care to an individual, or the past, present, or future
payment for the provision of health care to an individual; and
(2) identifies the individual or with respect to which
there is a reasonable basis to believe the information can be
used to identify the individual. Data that have been
de-identified in accordance with the Privacy regulations
stringent de-identification standard are not considered
protected health information and are not subject to the
regulation. Compliance with HIPPA is required by April 2003.

Employees

As of March 25, 2002, we had
204 employees, of whom 10 hold PhD or MD degrees and 26
hold other advanced degrees. Approximately 80 employees are
engaged in clinical laboratory operations, including
32 licensed healthcare professionals. There are
37 employees in research and development, and 87 in sales,
marketing, information systems, finance and other administrative
functions. We believe we maintain excellent relations with our
employees.

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Executive Officers

The following table sets forth, as of
March 25, 2002, certain information concerning our
executive officers:

|                             |  |     |    |          |  |                                                                      
|---------------------------- |  | --- | -- | -------- |  | ---------------------------------------------------------------------
|Name                         |  | Age |    | Position
|                             |  |     |    |         
|William D. Young             |  |     | 57 |          |  | Chairman, Chief Executive Officer and Director                       
|Karen J. Wilson              |  |     | 38 |          |  | Vice President, Chief Financial Officer                              
|Frank Barker                 |  |     | 60 |          |  | Vice President, Information Technology and Chief
	Information Officer
|Tien T. Bui                  |  |     | 37 |          |  | Vice President, Sales                                                
|Karen E. Hartwig             |  |     | 33 |          |  | Vice President, Marketing                                            
|Nicholas S. Hellmann, MD     |  |     | 43 |          |  | Vice President, Clinical Research                                    
|Kathy L. Hibbs               |  |     | 38 |          |  | Vice President, General Counsel                                      
|Christos J. Petropoulos, PhD |  |     | 48 |          |  | Vice President, Research and Development                             
|Patricia A. Wray             |  |     | 45 |          |  | Vice President, Human Resources                                      

WILLIAM D. YOUNG has served as our Chief
Executive Officer since November 1999 and has served as the
Chairman of the Board since May 1999. From March 1997 to October
1999, Mr. Young was Chief Operating Officer at Genentech,
Inc., a biotechnology company. As COO at Genentech,
Mr. Young was responsible for all of the companys
development, operations and commercial functions. Mr. Young
joined Genentech in 1980 as Director of Manufacturing and
Process Sciences and held various positions prior to becoming
COO. Prior to joining Genentech, Mr. Young was employed by
Eli Lilly and Company for 14 years. Mr. Young is
a member of the board of directors of IDEC Pharmaceuticals,
Inc., VaxGen, Inc. and Enchira, Inc. He received his BS in
chemical engineering from Purdue University and his MBA from
Indiana University.

KAREN J. WILSON has served as our Chief Financial
Officer since January 2001. From November 1999 to January 2001,
Ms. Wilson held the position of Chief Financial Officer and
Vice President of Operations for Novare Surgical Systems, Inc.,
a medical device manufacturer. Prior to that, from 1987 to 1993
and from 1996 to November 1999, she worked for Deloitte &
Touche LLP, a professional services firm, most recently as
Senior Manager serving a diverse list of global clients in both
the medical and technology fields. From 1993 to 1996, she was
Controller for Lightwave Electronics Corporation, a laser
manufacturer. Ms. Wilson is a certified public accountant
and received her B.S. degree in Business from the University of
California at Berkeley.

FRANK BARKER has served as our Vice President,
Information Technology and Chief Information Officer since
November 1999. From 1996 until October 1999, Mr. Barker was
Senior Vice President and Chief Information Officer for
HealthCor, Inc., a home healthcare provider. From 1993 to 1996,
Mr. Barker was Vice President of Client Services for
Antrim, Corp., a laboratory information systems vendor. From
1987 to 1993, he was Chief Operating Officer for CHC, Inc., a
hospital and laboratory information systems vendor.

TIEN T. BUI joined ViroLogic as National Sales
Director in November 2000 and was named Vice President of Sales
in September 2001. Before joining ViroLogic, Ms. Bui was
the Virology Field Director for DuPont Pharmaceuticals
Western Business Unit, where she was responsible for
$60 million in product sales. In addition to her most
recent sales management position at Dupont, she served that
company for over 10 years in various sales and marketing
roles, including: physician and hospital sales; clinical
development and education; healthcare policy and government
affairs; and strategic market development. Ms. Bui received
her Bachelors of Science degree in International Business
from San Francisco State University and also studied abroad at
The University of Liege, Belgium.

KAREN E. HARTWIG served as our Director of
Marketing beginning February 1999, became Senior Director of
Marketing in February 2000 and was named Vice President of
Marketing in September 2001. Prior to joining ViroLogic,
Ms. Hartwig was Senior Director of Marketing for
ProDuct Health, Inc., a

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company developing diagnostic devices for breast
cancer. From 1993 to 1999, she worked at Genentech, most
recently as Senior Product Manager of Oncology Products,
responsible for the 1998 launch and subsequent commercialization
of Herceptin® (trastuzumab). Prior to joining Genentech,
Ms. Hartwig was an investment banker at Smith Barney in New
York. She earned a masters degree in business
administration from the Walter A. HAAS School of Business
at the University of California, Berkeley, and a bachelors
degree in government from Dartmouth College.


NICHOLAS S. HELLMANN, MD has served as our Vice
President, Clinical Research since September 1997. From 1995 to
1997, Dr. Hellmann was Director of Clinical Research at
Gilead Sciences, Inc., a biopharmaceutical company. In 1995 he
was employed as a clinical scientist at Genentech. From 1993 to
1995, he was Associate Director of Antiviral Clinical Research
at Bristol-Myers Squibb, a pharmaceutical company.
Dr. Hellmann has been involved with clinical care of
patients with infectious diseases, especially HIV infection, and
infectious disease research since 1982. He received his MD
degree from the University of Kentucky and completed his
Internal Medicine Residency and Infectious Diseases Fellowship
training at the University of California, San Francisco.

KATHY L. HIBBS joined ViroLogic as Vice
President, General Counsel in April 2001. Prior to joining
ViroLogic, Ms. Hibbs was Vice President and General Counsel
for Multitude, Inc., an Internet telecommunications company.
Prior to that, from 1996 to 2000, she served as Senior Corporate
Counsel at Varian Medical Systems, Inc., a leading manufacturer
of integrated cancer therapy systems. At Varian, she was
responsible for numerous legal matters, including regulatory
compliance, employment law, litigation, and SEC reporting.
Before her employment with Varian, Ms Hibbs worked as a
litigator for two California law firms and dealt with various
legal issues, including civil rights and securities law. She
received her JD degree from the University of California,
Hastings College of Law, and her bachelors degree in
political science from the University of California, Riverside.

CHRISTOS J. PETROPOULOS, PHD has served as our
Director of Research and Development since August 1996, became
Senior Director of Research and Development in September 1997
and was named our Vice President, Research and Development in
November 1999. From 1992 to 1996, Dr. Petropoulos was a
scientist at Genentech where he headed the Molecular Virology
Laboratory and the Research Virology and Molecular Detection
Laboratories from 1994 to 1996. Dr. Petropoulos received
his PhD in molecular and cell biology from Brown University.

PATRICIA A. WRAY has served as our Senior
Director of Human Resources since September 1998 and was named
our Vice President of Human Resources in November 1999. From
1997 until September 1998, Ms. Wray operated her own human
resources consulting business. From 1989 to 1997, Ms. Wray
was an internal consultant and director with Genentech. She
received her MS from Michigan State University.

Scientific Advisory Board

We have established an internationally renowned
Scientific Advisory Board to provide specific expertise in areas
of research and development relevant to our business. Our
Scientific Advisory Board meets periodically with our scientific
and development personnel and management to discuss our present
and long-term research and development activities. Scientific
Advisory Board members include the following leaders in
scientific and clinical research:

STEPHEN P. GOFF, PHD Higgens Professor of Biochemistry and
Molecular Biophysics at the College of Physicians and Surgeons
of Columbia University, and an Investigator of the Howard Hughes
Medical Institute.

DAVID D. HO, MD Scientific Director and Chief
Executive Officer of the Aaron Diamond AIDS Research Center, and
a Professor of The Rockefeller University.

STEPHEN H. HUGHES, PHD Chief of the Retroviral Replication
Laboratory, HIV Drug Resistance Program at the National Cancer
Institute  Frederick.

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DOUGLAS D. RICHMAN, MD Professor of Pathology and Medicine at
the University of California, San Diego School of Medicine and
Director of the Research Center for AIDS and HIV Infection at
the San Diego VA Medical Center.

ROBERT T. SCHOOLEY, MD Tim Gill Professor of Medicine and
Head of the Infectious Disease Division at the University of
Colorado Health Sciences Center and Chairman of the Executive
Committee of the AIDS Clinical Trials Group (ACTG), National
Institute of Allergy and Infectious Diseases (NIAID).

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RISK FACTORS RELATED TO OUR BUSINESS

Except for the historical information
contained or incorporated by reference, this annual report on
Form 10-K and the information incorporated by reference
contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from
those discussed here. Factors that could cause or contribute to
differences in our actual results include those discussed in the
following section, as well as those discussed in Part II,
Item 7 entitled Managements Discussion and
Analysis of Financial Condition and Results of Operations
and elsewhere throughout this annual report and in any other
documents incorporated by reference into this annual report. You
should consider carefully the following risk factors, together
with all of the other information included in this annual report
on Form 10-K. Each of these risk factors could adversely
affect our business, operating results and financial condition,
as well as adversely affect the value of an investment in our
common stock.

We expect to incur future operating losses and
may not achieve profitability as soon as expected, which may
cause our stock price to fall.

We have experienced significant operating losses
each year since our inception and expect to incur substantial
additional operating losses. We experienced net losses
applicable to common stockholders of approximately
$28.8 million, $38.9 million and $20.2 million in
2001, 2000 and 1999, respectively. As of December 31, 2001,
we had an accumulated deficit of approximately
$79.0 million. We expect to continue to incur substantial
operating losses primarily as a result of expected increases in
expenses for:



| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | Expanding patient sample processing capabilities                                 
|
| |  | Research and product development costs                                           
|
| |  | Sales and marketing                                                              
|
| |  | Additional clinical laboratory and research space
	and other necessary facilities
|
| |  | General and administrative costs                                                 

If our history of operating losses continues, our
stock price may fall and you may lose part or all of your
investment.

If we need to raise additional capital and it
is not available on commercially reasonable terms, our ability
to operate our business may be diminished.

We anticipate that our existing capital resources
will enable us to maintain currently planned operations through
at least December 31, 2002. However, we may need additional
funding sooner than that. Our inability to raise capital would
seriously harm our business and product development efforts. In
addition, we may choose to raise additional capital due to
market conditions or strategic considerations even if we believe
we have sufficient funds for our current or future operating
plans. To the extent that additional capital is raised through
the sale of equity or convertible debt securities, the issuance
of these securities could result in dilution to our
stockholders. To the extent operating and capital resources are
insufficient to meet future requirements, including cash
dividend payments that we must make to the holders of our
Series B Convertible Preferred Stock, we will have to raise
additional funds to continue the development and
commercialization of our technologies. These funds may not be
available on favorable terms, or at all. If adequate funds are
not available on attractive terms, we may be required to curtail
operations significantly or to obtain funds by entering into
financing, supply or collaboration agreements on unattractive
terms.

Our testing products may not achieve market
acceptance, which could limit our future revenue.

Our ability to establish phenotypic resistance
testing as the standard of care to guide and improve the
treatment of viral diseases will depend on physicians and
clinicians acceptance and use of phenotypic resistance
testing. Phenotypic resistance testing is still relatively new.
We cannot predict the extent to which physicians and clinicians
will accept and use phenotypic resistance testing. They may
prefer competing technologies and products such as genotypic
testing. The commercial success of phenotypic resistance testing

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will require demonstrations of its advantages and
potential economic value in relation to the current standard of
care, as well as to genotypic testing. We have introduced two
products using our proprietary PhenoSense technology, PhenoSense
HIV and PhenoSense GT, which we began actively marketing in
November 1999 and November 2001, respectively. We are still in
the early stages of development of new products applying our
PhenoSense technology to other viral diseases. If PhenoSense HIV
or PhenoSense GT is not accepted in the marketplace, our ability
to sell other PhenoSense products would be undermined. Market
acceptance will depend on:




| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our marketing efforts and continued ability to
	demonstrate the utility of PhenoSense in guiding anti-viral drug
	therapy, for example, through the results of retrospective and
	prospective clinical studies
|
| |  | Our ability to demonstrate the advantages and
	potential economic value of our PhenoSense testing products over
	current treatment methods and other resistance tests                                         

If the market does not accept phenotypic
resistance testing, or our PhenoSense products in particular,
our ability to generate revenue will be limited.

Our revenues will be diminished if payors do
not authorize reimbursement for our products.

Government and third-party payors, which
reimburse patients and healthcare providers for medical
expenses, are attempting to contain or reduce the costs of
healthcare. This could limit the price that we can charge for
our products and hurt our ability to generate revenues. In the
United States, federal and state government healthcare programs
have been attempting to reduce costs and otherwise implement
government control of healthcare costs. In addition, increasing
emphasis on managed care in the United States will continue to
put pressure on the pricing of healthcare products. Significant
uncertainty exists as to the reimbursement status of new medical
products like PhenoSense HIV, especially in light of any
negative results from clinical studies. Third-party payors,
including state payors and Medicare, are challenging the prices
charged for medical products and services. If government and
other third-party payors do not provide adequate coverage and
reimbursement for PhenoSense or GeneSeq testing products, our
revenues will be reduced.

If we are unable to expand our sales and
marketing capabilities, we may not be able to effectively
commercialize our products.

We currently have 22 sales people and limited
marketing resources. In order to commercialize our products
effectively and to expand into additional markets, we must
expand our sales and marketing capabilities or arrange with a
third party to perform these services. We are currently taking
steps in this direction, but we may not be able to do this
successfully. If we enter into co-promotion or other marketing
arrangements, our share of product revenues is likely to be
lower than if we directly marketed and sold our products through
our own sales force. If we fail to effectively commercialize our
products our revenue will be reduced.

We have limited experience processing patient
samples for our resistance tests and may encounter problems or
delays in processing tests, or in expanding our automated
testing systems, which could result in lost revenue.

Over the last year, we have begun to process a
significant number of patient samples and are continuing to
develop our quality-control procedures. In order to meet the
projected demand for PhenoSense HIV, PhenoSense GT,
GeneSeq HIV and other future resistance testing products,
we will have to process many more patient samples than we are
currently processing. We also have to establish more consistency
with respect to test turnaround so that results are delivered in
a timely manner. Thus, we need to develop and implement
additional automated systems to perform our tests. We also need
to, and may not be able to, develop more sophisticated software
to support the automated tests, analyze the data generated by
our tests, and report the results. Further, as we attempt to
scale up our processing of patient samples, processing or
quality control problems may arise. If we are unable to
consistently process patient samples on a timely basis because
of these or other factors, or if we encounter problems with our
automated processes, our revenues will be limited. We have
experienced periods during which our test results were delayed,
which delayed delivery of

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results to our customers, and while we take steps
to minimize the likelihood of future delays, future delays may
nevertheless occur.


We may be obligated to redeem our
Series A and Series B Redeemable Convertible Preferred
Stock at a premium to the purchase price.

Holders of our Series A redeemable
convertible preferred stock (Series A Preferred
Stock) and Series B redeemable convertible preferred
stock (Series B Preferred Stock) have the right
to require us to redeem for cash all of the Preferred Stock that
they own. The redemption price for the Series A Preferred
Stock is the greater of (i) 115% of the original purchase
price plus 115% of any accrued dividend payment thereon and
(ii) the aggregate fair market value of the shares of
common stock into which such shares of Series A Preferred
Stock are then convertible. The redemption price for the
Series B Preferred Stock is the greater of (i) 120% of
the original purchase price plus 120% of any accrued dividend
payment thereon and (ii) the aggregate fair market value of
the shares of common stock into which such shares of
Series B Preferred Stock are then convertible. The
Series A Preferred Stock and Series B Preferred Stock
are each redeemable by the holders of the respective series in
any of the following situations:



| |   |                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | If our common stock is not tradable on the NYSE,
	the AMEX, the Nasdaq National Market or the Nasdaq SmallCap
	market for an aggregate of twenty trading days in any nine month
	period                                                                                                                                                                       
|
| |  | If we fail to remove a restrictive legend on any
	certificate representing any common stock issued to any holder
	of the series                                                                                                                                                                                                                               
|
| |  | If we fail to have sufficient shares of common
	stock reserved to satisfy conversions of the series                                                                                                                                                                                                                                                           
|
| |  | If we fail to honor requests for conversion, or
	if we notify any holder of the series of our intention not to
	honor future requests for conversion                                                                                                                                                                                                          
|
| |  | Upon the institution of bankruptcy proceedings,
	the making of an assignment for the benefit of creditors or
	other similar event                                                                                                                                                                                                                             
|
| |  | If we sell all or substantially all of our
	assets, or if the control of our company changes                                                                                                                                                                                                                                                                  
|
| |  | If we fail to pay any indebtedness in excess of
	$350,000 when due, or if there is any event of default under any
	agreement that is likely to have a material adverse effect on us                                                                                                                                                                           
|
| |  | If 35% or more of our voting power is held by any
	one person, entity or group                                                                                                                                                                                                                                                                                
|
| |  | If we commit a material breach under, or
	otherwise materially violate the terms of, the transaction
	documents entered into in connection with the issuance of the
	series                                                                                                                                                                                   
|
| |  | In the case of the Series B Preferred Stock
	only, if we fail to timely register for resale the shares
	underlying the Series B Preferred Stock or warrants issued
	to the holders of the Series B Preferred stock in
	connection with the financing, pursuant to the terms of a
	registration rights agreement requiring such registration by
	June 23, 2002.

Redemption of the Series A Preferred Stock
or Series B Preferred Stock in any event described above
would require us to expend a significant amount of cash that
would substantially exceed the proceeds that we received in the
private placement, could exceed our total available cash and
cash equivalents and our ability to make such payment or raise
additional capital. In addition, redemption of either series
would likely trigger rights of the holders of the other series
to redeem their shares as well, further endangering our
financial position.

Our stockholders could experience substantial
dilution as a result of the issuance of our two series of
preferred stock and the related warrants.

We sold 1,625 shares of Series A Preferred
Stock in a private placement in 2001, initially convertible into
approximately 6,372,561 shares of common stock. One hundred two
of such shares had been converted as of December 31, 2001
and 633 of such shares had been converted as of March 28,
2002. We sold 1,005 shares of Series B Preferred Stock in a
private placement in March 2002, initially convertible into
approximately

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4,407,899 shares of common stock. The issuance of
the Series B Preferred Stock resulted in an adjustment to
the conversion price, due to the provisions described in the
following paragraph, of the Series A Preferred Stock so
that the 992 shares of Series A Preferred Stock
remaining outstanding are now convertible into approximately
4,350,877 shares of common stock (not including the
conversion of accrued but unpaid dividends). The issuance of the
Series B Preferred Stock also resulted in an adjustment to
the exercise price and number of shares subject to the warrants
granted in connection with the Series A Preferred Stock
issuance, which are now exercisable for approximately 3,919,970
shares at $2.28 per share. The warrants granted in connection
with the sale of Series B Preferred Stock are currently
exercisable for 2,841,214 shares of common stock, at an exercise
price of $2.508 per share. Together, the common shares reserved
for issuance upon conversion of the Series A Preferred
Stock and Series B Preferred Stock, and upon exercise of
the warrants referenced above, represent about
15,519,960 shares of common stock, or 67.6% of the
outstanding shares of our common stock at March 28, 2002,
issuable for an approximate effective price of $2.32 per share.


Common stockholders have already experienced
dilution as some of the holders of Series A Preferred Stock
converted their shares to common stock. The potential for
additional dilution increased further as a result of the private
placement of Series B Preferred Stock and the issuance of
warrants at the same time; which also caused an adjustment to
the number of shares issuable to holders of Series A
Preferred Stock and warrants they hold. Moreover, the number of
shares of common stock that we may be required to issue upon
conversion of the Series A Preferred Stock, and exercise of
the warrants granted to holders of Series A Preferred Stock
in connection with the issuance thereof, or otherwise in
connection with those securities, can increase substantially in
several events, including if:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We issue shares of stock for less than the
	conversion price of the Series A Preferred Stock (now
	$2.28) or the exercise price of the warrants issued in
	connection with the issuance of the Series A Preferred
	Stock (now $2.28), which could be more likely given that this
	sort of adjustment has already occurred, our stock price has
	been below $2.28, the historical volatility of our stock price
	and the recent volatility of stocks of companies in our industry
	and of the stock market in general
|
| |  | We fail to have sufficient shares of common stock
	reserved to satisfy conversions, exercises and other issuances                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | We fail to honor requests for conversion, or
	notify any holder of Series A Preferred Stock of our
	intention not to honor requests for conversion                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | We fail to grant shares upon exercise of the
	warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                              

We may also be required to issue shares of common
stock without additional consideration in the event that we fail
to redeem any shares of Series A Preferred Stock when
required. We are also obligated to issue additional shares of
common stock every six months to the holders of the
Series A Preferred Stock, which constitute preferred stock
dividends as required by the terms of the Series A
Preferred Stock. These issuances currently equal about
132 shares of common stock for every share of Series A
Preferred Stock outstanding at the time the issuance is made.
The number of shares we must issue increases every six months,
starting with the fourth such issuance, by 44 shares of
common stock for each share of Series A Preferred Stock, up
to a maximum of 307 shares of common stock for every share
of Series A Preferred Stock. (All of the previous share totals
are based upon an assumed stock price of $2.28, but the actual
number of shares will be based upon our stock price from time to
time as of the payment dates.) In January 2002, we issued 72,884
shares of common stock to holders of Series A Preferred
Stock sold on July 2, 2001 as the first dividend payment on
those shares. On March 27, 2002, we issued
83,664 shares of common stock to holders of Series A
Preferred Stock sold on September 27, 2001 as the first
dividend payment on those shares. If the currently outstanding
992 shares of the Series A Preferred Stock remain
outstanding for five years following March 28, 2002, we
will issue as preferred stock dividends an additional
2,436,491 shares of common stock (again based on an assumed
stock price of $2.28), or 10.6% of the shares of common stock
outstanding as of March 28, 2002, to the holders of the
Series A Preferred Stock due to these dividend provisions.
We do not receive payment or other consideration for these
issuances.

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All of the foregoing issuances of common stock
are likely to be substantially dilutive to the outstanding
shares of common stock, especially where, as described above,
the shares of common stock are issued without additional
consideration. Moreover, any increase in the number of shares of
common stock we are required to issue resulting from
anti-dilution protection, penalties or other adjustments to the
conversion or exercise prices of the Series A Preferred
Stock and/or the warrants held by Series A Preferred Stock
holders will further increase the anticipated dilution to the
outstanding holders of our common stock. We cannot predict
whether or how many additional shares of our common stock will
become issuable due to these provisions.

Any such dilution, potential dilution, or
increase in dilution or potential dilution, may result in a
decrease in the value of the outstanding shares of our common
stock. Such a decrease in value, the risk of dilution, any
actual dilution, or any increase in potential dilution may cause
our stockholders to sell their shares, which would contribute to
a downward movement in stock price of our common stock. This
could prevent us from sustaining a per share price sufficient to
enable us to maintain an active trading market on the Nasdaq
National Market. In addition, any downward pressure on the
trading price of our common stock could encourage investors to
engage in short sales, which would further contribute to a
downward pricing of our common stock.

We may be required to obtain the consent of
the holders of our preferred stock before taking corporate
actions, which could harm our business.

Our charter documents require us to obtain the
consent of the holders of the Series A Preferred Stock and
Series B Preferred Stock, each voting as a separate class,
before we may issue securities that have senior or equal rights
to the respective series, or if we incur unsecured indebtedness
for borrowed money, or take other actions with respect to the
respective series or other securities. We are also required to
obtain the consent of the holders of the Series A Preferred
Stock and Series B Preferred Stock, again each voting as a
separate class, before we amend or modify our certificate of
incorporation or bylaws to change any of the rights of the
series. To obtain these consents, we would need to get consent
from holders of a majority of the outstanding shares in the case
of the Series A Preferred Stock, and from holders of 81% of
the outstanding shares in the case of the Series B
Preferred Stock.

While these obligations may deter a potential
acquirer from completing a transaction with us, they may also
prevent us from taking corporate actions that would be
beneficial to our stockholders and us, such as raising capital
to operate our business or maintain our capitalization or per
share price in attempts to maximize stockholder volume and
liquidity. Even if we are not prevented from taking such
actions, they might be more expensive to the company. This was
the case with our financing in March 2002, when we issued our
Series B Preferred Stock, because we had to grant
additional warrants to holders of Series A Preferred Stock
as a payment in order to secure their consent and waiver
concerning the financing and the resulting impact on the
Series A Preferred Stock.

We face intense competition, and if our
competitors existing products or new products are more
effective than our products, the commercial opportunity for our
products will be reduced or eliminated.

The commercial opportunity for our products will
be reduced or eliminated if our competitors develop and market
new testing products that are superior to, or are less expensive
than, our phenotypic and/or genotypic resistance testing
products we develop using our proprietary technology. The
biotechnology industry evolves at a rapid pace and is highly
competitive. Our major competitors include manufacturers and
distributors of phenotypic drug resistance technology, such as
Tibotec-Virco and Specialty Laboratory. We also compete with
makers of genotypic tests such as Applied Biosystems Group,
Visible Genetics Inc. and laboratories performing genotypic
testing as well as other genotypic testing referred to as
virtual phenotyping. Each of these competitors is attempting to
establish its test as the standard of care. Tibotec-Vircos
phenotypic test and genotypic tests have been commercially
available for a longer time than has PhenoSense HIV or
GeneSeq HIV. Genotypic tests are cheaper and generally
faster than phenotypic resistance tests. Our competitors may
successfully develop and market other testing products that are
either superior to those that we may develop or that are
marketed prior to marketing of our testing products. Some of our
competitors have substantially greater financial resources and
research and development staffs than we do. In addition, some of

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our competitors have significantly greater
experience in developing products, and in obtaining the
necessary regulatory approvals of products and processing and
marketing products.


We derive a significant portion of our
revenues from a small number of customers and our revenues may
decline significantly if any major customer cancels or delays a
purchase of our products.

Our revenues to date and for the foreseeable
future consist almost exclusively of sales of our PhenoSense
products. Sales to our largest two customers, Quest Laboratories
and Hoffmann-La Roche Ltd. accounted for approximately 15% and
14%, respectively, of our total revenues for the year ended
December 31, 2001. Unless and until we diversify and expand
our customer base, our future success will significantly depend
upon the timing and size of future purchases, from these and our
other large customers.

While the level of sales to any specific customer
is anticipated to vary from period to period, and even though we
have increasingly sold through physicians and physician groups
rather than laboratory partners as a percentage of our total
sales, it is possible that we will continue to have significant
customer concentration. Our customers are not typically required
to purchase tests from us under long-term contracts, and may
stop ordering tests from us at any time. The loss of any major
customer, or a slowdown in the pace of increasing physician and
physician group sales as a percentage of sales, or the delay of
significant orders from any significant customer, even if only
temporary, could have a significant impact on our ability to
fund operations, generate cash from operations or achieve
profitability and would have a material adverse impact on our
liquidity, financial condition and results of operations.

Some of our vendors are our sole source of
supply for certain of our testing materials, and there are
limited sources and supplies of some of these materials, which
could result in our inability to secure sufficient materials to
conduct our business.

We rely on a few vendors as our sole source of
supply for various materials in our testing process. In some
cases, there are no other available sources of materials that we
require for our tests. In other instances, there are limited
sources and limited supplies of necessary materials. Any
extended interruption, delay or decreased availability of the
supply of these materials could result in our failure to meet
our customers demands, and prevent us from running our
business as contemplated. We might also face significant
additional expenditures if we are forced to find alternate
sources of supplies, or change materials we use. If significant
customer relationships were harmed by our failing to report test
results on a timely basis, or another negative impact on our
ability to procure necessary materials, then our operations and
revenues could be adversely affected. Similarly, if our expenses
were to increase dramatically as a result of changes to our
relationships with vendors or ability to procure materials, it
would make it more difficult for us to attain profitability,
offer our tests at competitive prices, and continue our business
as currently conducted or at all.

We are dependent on a license for technology
we use in our resistance testing, and our business would suffer
if the license was terminated, not renewed or not
expanded.

We license technology that we use in our
PhenoSense and GeneSeq tests from Roche Molecular Systems, Inc.
We hold a non-exclusive license for the life of the patent term
of the last licensed Roche patent. We believe that many of our
competitors, including Tibotec-Virco and other resistance
testing companies, also license this technology on non-exclusive
terms. In order to maintain this license, however, we must pay
royalties, make a semi-annual royalty report and participate in
proficiency testing. If Roche Molecular Systems, Inc. were to
terminate this license or this license was not renewed, or we
were unable to expand the terms of this license to cover other
products, we would have to change a portion of our testing
methodology, which would halt our testing, at least temporarily,
and cause us to incur substantial additional expenses.

The intellectual property underlying our
technology and trade secrets may not be adequate, allowing third
parties to use our technology or similar technologies, and thus
reducing our ability to compete in the market.

The strength of our intellectual property
protection is uncertain. In particular, we cannot be sure that
we were the first to invent the technologies covered by our
patent or pending patent applications; we were the first

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to file patent applications for these inventions;
others will not independently develop similar or alternative
technologies or duplicate any of our technologies; any of our
pending patent applications will result in issued patents; any
patents issued to us will provide a basis for commercially
viable products or will provide us with any competitive
advantages or will not be challenged by third parties. Other
companies may have patents or patent applications relating to
products or processes similar to, competitive with or otherwise
related to our products. Patent law relating to the scope of
claims in the technology fields in which we operate, including
biotechnology and information technology, is still evolving and,
consequently, patent positions in our industry are generally
uncertain. We cannot assure you that we will prevail in any of
these lawsuits or that, if successful, we will be awarded
commercially valuable remedies. In addition, it is possible that
we will not have the required resources to pursue such
litigation or to otherwise protect our patent rights. We also
rely on unpatented trade secrets to protect our proprietary
technology. Other companies may independently develop or
otherwise acquire equivalent technology or gain access to our
proprietary technology.


Our products could infringe on the
intellectual property rights of others, which may cause us to
engage in costly litigation and, if we are not successful or can
not obtain necessary licenses, could cause us to pay substantial
damages and prohibit us from selling our products.

Third parties may assert infringement or other
intellectual property claims against us based on their patents
or other intellectual property claims against our current or
future products. We may have to pay substantial damages,
possibly including treble damages, for past infringement if it
is ultimately determined that our products infringe a third
partys patents. Further, we may be prohibited from selling
our products before we obtain a license, which, if available at
all, may require us to pay substantial royalties. Even if
infringement claims against us are without merit, defending a
lawsuit takes significant time, may be expensive and may divert
management attention from other business concerns.

We may be unable to build brand loyalty
because our trademarks and trade names may not be
protected.

Our registered or unregistered trademarks or
trade names such as the name PhenoSense, PhenoSense GT and
GeneSeq may be challenged, canceled, infringed, circumvented or
declared generic or determined to be infringing on other marks.
We may not be able to protect our rights to these trademarks and
trade names, which we need to build brand loyalty. Brand
recognition is critical to our short-term and long-term
marketing strategies especially as we commercialize future
enhancements to our products.

If we do not successfully introduce new
products using our technology, we may not achieve
profitability.

We may not be able to develop and market new
resistance testing products for HIV and other serious diseases,
including hepatitis B and hepatitis C. Demand for
these products will depend in part on the development by others
of additional anti-viral drugs to fight these diseases.
Physicians will likely use our resistance tests to determine
which drug is best for a particular patient only if there are
multiple drug treatment options. Several anti-viral drugs are in
development but we cannot assure you that they will be approved
for marketing, or if these drugs are approved that there will be
a need for our resistance tests. If we are unable to develop and
market resistance test products for other viral diseases, or if
an insufficient number of anti-viral drug products are approved
for marketing, we may not achieve profitability.

Our business operations and the operation of
our clinical laboratory facility are subject to stringent
regulations and if we are unable to comply with them, we may be
prohibited from accepting patient samples or may incur
additional expense to attain and maintain compliance.

The operation of our clinical laboratory facility
is subject to a stringent level of regulation under the Clinical
Laboratory Improvement Amendments of 1988. Laboratories must
meet various requirements, including requirements relating to
quality assurance, quality control and personnel standards. Our
laboratory is also subject to regulation by the state of
California and various other states. We have received
accreditation by the College of American Pathologists and
therefore are subject to their requirements and evaluation. Our
failure to comply with applicable requirements could result in
various penalties, including loss of certification or
accreditation, and we may be prevented from conducting our
business as we do now or as we may wish to in the future.

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The FDA may impose medical device regulatory
requirements on our tests, including possibly premarket approval
requirements, which could be expensive and time-consuming and
could prevent us from marketing these tests.

In the past, the FDA has not required that
genotypic or phenotypic testing conducted at a clinical
laboratory be subject to premarketing clearance or approval,
although the FDA has stated that it believes its jurisdiction
extends to tests generated in a clinical laboratory. We received
a letter from the FDA in September 2001 that asserted such
jurisdiction over in-house tests like ours, but which also
stated the FDA is not currently requiring premarket approval for
HIV monitoring home brew tests, provided that the promotional
claims for such tests are limited to its analytical capabilities
and do not mention the benefit of making treatment decisions on
the basis of test results. The FDA letter also asserted that our
GeneSeq test is misbranded if test reports do not include a
statement disclosing that the test has not been cleared or
approved by the FDA. The FDA has indicated in discussions that
the focus of the letter was our genotypic tests not our
phenotypic tests, but there is no certainty its focus will
remain narrow.

We have had and plan to have additional
discussions with the FDA related to its positions set forth in
the letter. We have added the requested disclosure statement to
our genotypic test reports. Once we begin using a different
reagent in our tests, we believe the statement will no longer be
required. In any event, we do not at this point believe the FDA
will require us to take steps that materially affect our
business or financial performance, but we cannot guarantee this
will remain the case.

We cannot be sure that the FDA will accept the
steps we take, or that the FDA will not require us to alter our
promotional claims or undertake the expensive and time-consuming
process of seeking premarket approval with clinical data
demonstrating the sensitivity and specificity of our tests. If
premarket approval is required, we cannot be sure that we will
be able to obtain it in a timely fashion or at all; and in such
event the FDA would have authority to require us to cease
marketing tests until such approval is granted.

In general, we cannot predict the extent of
future FDA regulation of our business. We might be subject in
the future to greater regulation, or different regulations, that
could have a material effect on our finances and operations. If
we fail to comply with existing or additional FDA regulations,
it could cause us to incur civil or criminal fines and
penalties, increase our expenses, prevent us from increasing
revenues, or hinder our ability to conduct our business.

Our information and other internal systems may
not work effectively and as a result we may not be able to
process orders, record transactions and meet our reporting
obligations, which in turn could affect our ability to run our
business efficiently or profitably.

We have installed several new information
systems, including enterprise resource and laboratory
information systems. If our new information and internal systems
do not work effectively, we may experience delays or failures in
our operations. These delays or failures could adversely impact
the promptness and accuracy of our transaction processing,
financial accounting and reporting and ability to properly
forecast earnings and cash requirements. Our current and planned
systems, transaction processing, procedures and controls may not
be adequate to support future operations. To manage the expected
growth of our operations and personnel, we will need to continue
to improve our operational and financial systems, transaction
processing, procedures and controls.

Clinicians or patients using our products or
services may sue us and our insurance may not sufficiently cover
all claims brought against us which will increase our
expenses.

Clinicians, patients and others may at times seek
damages from us if drugs are incorrectly prescribed for a
patient based on testing errors or similar claims. Although we
have obtained liability insurance coverage, we cannot guarantee
that liability insurance will continue to be available to us on
acceptable terms or that our coverage will be sufficient to
protect us against all claims that may be brought against us. We
may incur significant legal defense expenses in connection with
a liability claim, even one without merit or for which we have
coverage.

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Our lack of operating experience may cause us
difficulty in managing our growth and attracting and retaining
skilled personnel, which could hinder our commercial efforts and
impair our ability to compete.

We have limited experience selling our products
and processing patient samples. If our management is unable to
manage our growth effectively, it is possible that our systems
and our facilities may become inadequate. Our success also
depends on our continued ability to attract and retain highly
qualified management and scientific personnel. Competition for
personnel is intense. We believe stock options are a critical
component of motivating and retaining our key employees. As we
mature as a public company, stock options may be less attractive
to potential candidates for our management and scientific
positions, and, therefore, it may be more difficult to fill
those positions. If we cannot successfully attract and retain
qualified personnel, our research and development efforts could
be hindered and our ability to run our business effectively and
compete with others in our industry will be harmed.

We may be subject to litigation, which would
be time consuming and divert our resources and the attention of
our management.

We were involved in a dispute with a significant
stockholder and former officer. We settled the dispute in
November 1999. In connection with the settlement, we purchased
shares of our common stock held by him for $225,000 in cash, and
allowed him to retain other shares that we had a right to
repurchase. In 1999, we recorded $1.9 million in legal fees
and costs related to this settlement, including a non-cash
charge related to the common stock retained by him. In the
future, our stockholders or former employees may bring further
claims and we may have to spend significant additional resources
and time. Even if we are eventually successful in our defense of
any such claim, the time and money spent may prevent us from
operating our business effectively or profitably or may distract
our management.

Our operating results may fluctuate from
quarter to quarter, making it likely that, in some future
quarter or quarters, we will fail to meet analysts
estimates of operating results or financial performance, causing
our stock price to fall.

If revenue declines in a quarter, our losses will
likely increase or our earnings will likely decline because many
of our expenses are relatively fixed. Though our revenues may
fluctuate significantly as we continue to build the market for
our products, expenses such as research and development, sales
and marketing and general and administrative are not affected
directly by variations in revenue. In addition, our cost of
product revenue could also fluctuate significantly due to
variations in the demand for our product and the relatively
fixed costs to produce it. We cannot accurately predict how
volatile our future operating results will be because our past
and present operating results, which reflect moderate sales
activity, are not indicative of what we might expect in the
future. It is likely that in some future quarter or quarters,
our operating results will be below the expectations of
securities analysts or investors, as they have been in the past.
In this event, the market price of our common stock may fall
abruptly and significantly. Because our revenue and operating
results are difficult to predict, we believe that
period-to-period comparisons of our results of operations are
not a good indication of our future performance.

If a natural disaster strikes our clinical
laboratory facility, we would be unable to receive and or
process our customers samples for a substantial amount of
time and we would lose revenue.

We rely on a single clinical laboratory facility
to process patient samples for our tests, which are received via
delivery service or mail, and have no alternative facilities. We
will also use this facility for conducting other tests we
develop, and even if we move into different or additional
facilities they will likely be in close proximity to our current
clinical laboratory. Our clinical laboratory and some pieces of
processing equipment are difficult to replace and could require
substantial replacement lead-time. Our processing facility may
be affected by natural disasters such as earthquakes and floods.
Earthquakes are of particular significance since our clinical
laboratory is located in South San Francisco, California, an
earthquake-prone area. In the event our existing clinical
laboratory facility or equipment is affected by man-made or
natural disasters, we would be unable to process patient samples
and meet customer demands or sales projections. If our patient
sample processing operations were curtailed or ceased, we would
not be able to perform our tests and we would lose revenue.

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Terrorist acts and acts of war may seriously
harm our business and financial condition.

Terrorists acts or acts of war (wherever located
around the world) may cause damage or disruption to our company,
its employees, facilities, partners, suppliers, distributors and
resellers, and customers, which could significantly impact our
revenues, costs and expenses and financial condition. The
terrorist attacks that took place in the United States on
September 11, 2001 and the potential for future attacks
have created many economic and political uncertainties, some of
which may materially harm our business and results of operations
in ways that cannot presently be predicted. In addition, as our
headquarters and our significant patient populations are located
in major metropolitan areas of the United States, we may be
impacted by actions against United States. Depending on severity
and location, such acts could impact our ability to receive
shipments of patient samples or result in a substantial
reduction in the number of ordered tests due to the inability of
patients to get to their physicians. We will be predominantly
uninsured for losses and interruptions caused by terrorist acts
and acts of war.

Concentration of ownership among some of our
stockholders may prevent other stockholders from influencing
significant corporate decisions.

At March 28, 2002, close to 40% of our
common stock was beneficially held by a small number of
stockholders including our directors, entities affiliated with
our directors and former directors, and our executive officers.
In addition, our Series A Preferred Stock and Series B
Preferred Stock, described elsewhere, are held by a small number
of stockholders, some of whom also own shares of our common
stock. Consequently, a small number of our stockholders may be
able to substantially influence our management and affairs. If
acting together, they would be able to influence most matters
requiring the approval by our stockholders, including the
election of directors, any merger, consolidation or sale of all
or substantially all of our assets and any other significant
corporate transaction. The concentration of ownership may also
delay or prevent a change in our control at a premium price if
these stockholders oppose it. There are also certain approval
rights of the Series A Preferred Stock and Series B
Preferred Stock, and the few holders of those shares could
prevent certain important corporate actions by not approving
those actions.

Our stock price may be volatile, and our stock
could decline in value.

The market prices for securities of biotechnology
companies in general have been highly volatile and may continue
to be highly volatile in the future. Our stock price has
fluctuated widely since we became a publicly traded company. The
following factors, in addition to other risk factors described
in this section, may have a significant adverse impact on the
market price of our common stock:



| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | Announcements of technological innovations or new
	commercial products by our competitors                         
|
| |  | Results from clinical studies                                                                                     
|
| |  | Developments concerning proprietary rights,
	including patents                                                    
|
| |  | Publicity regarding actual or potential medical
	results relating to products under development by our competitors
|
| |  | Regulatory developments in the United States and
	foreign countries                                               
|
| |  | Changes in payor reimbursement policies                                                                           
|
| |  | Litigation                                                                                                        
|
| |  | Economic and other external factors or other
	disaster or crisis                                                  
|
| |  | Period-to-period fluctuations in financial results                                                                

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If our stockholders sell substantial amounts
of our common stock, the market price of our common stock may
fall.

If our stockholders sell substantial amounts of
our common stock, including shares issued upon the exercise of
outstanding options and warrants and upon the conversion of the
Series A Preferred Stock and Series B Preferred Stock,
the market price of our common stock may fall. These sales also
might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that
we deem appropriate. Sales of a substantial number of shares
could occur at any time. This may have an adverse effect on the
price of our common stock and may impair our ability to raise
capital in the future. During 2001, our stock fluctuated between
a low of $1.00 to a high of $9.50. See market data table in
Item 5. Market for Registrants Common Equity
and Related Stockholder Matters under Part II.

Provisions of our charter documents and
Delaware law may inhibit a takeover, which could limit the price
investors might be willing to pay in the future for our common
stock.

Provisions in our certificate of incorporation
and bylaws may have the effect of delaying or preventing an
acquisition, or merger in which we are not the surviving company
or changes in our management. The Series A and B Preferred
Stock also have certain voting rights relating to any such
transactions. In the case of the Series B Preferred Stock,
certain actions require a vote of 81% of the outstanding
Series B Preferred Stock. In addition, because we are
incorporated in Delaware, we are governed by the provisions of
Section 203 of the Delaware General Corporation Law. These
provisions could discourage acquisitions or other changes in our
control and otherwise limit the price that investors might be
willing to pay in the future for our common stock.




Item 2.     Properties

We currently lease three buildings with
approximately 120,000 square feet of laboratory and office space
in South San Francisco, California. We began leasing 54,000
square feet of this laboratory and office space in June 2001.
Initially, this facility will provide more space than is
required for our currently planned operations. In October 2001,
we sublet approximately 40,000 square feet to a third party for
a term of 18 months with an option to extend for an additional
six months. In September 2001, we received $2.6 million as
an advance from the subtenant as specified in the sublease
agreement. This advance is recognized over the term of the
subtenants lease, offsetting related rental and
depreciation expense with the remaining amount recorded as other
income. In July 2001, we sublet approximately 12,000 square feet
of one of our existing facilities to another third party for a
term of 18 months with an option to extend for an
additional six months. Leases on our facilities expire in the
years 2004 and 2011. All leases provide us with options to
extend the term.




Item 3.     Legal
Proceedings

We are not a party to any legal proceedings.




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

None.

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PART II




Item 5.     Market
for Registrants Common Equity and Related Stockholder
Matters

(a) Market Data; Dividends

Since May 2, 2000, our common stock has been
traded on the Nasdaq National Market under the symbol
VLGC. The following table sets forth, for the
periods indicated, the high and low sales prices per share of
Common Stock on the Nasdaq National Market:

|                                 |  |      |       |     |  |   |       | 
|-------------------------------- |  | ---- | ----- | --- |  | - | ----- | 
|                                 |  | High |       | Low
|                                 |  |      |       |    
|2001                             |  |      |       |     |  |   |       | 
|Fourth Quarter                   |  | $    | 3.93  |     |  | $ | 2.25  | 
|Third Quarter                    |  | $    | 4.26  |     |  | $ | 1.30  | 
|Second Quarter                   |  | $    | 4.35  |     |  | $ | 1.13  | 
|First Quarter                    |  | $    | 9.50  |     |  | $ | 1.00  | 
|                                
|2000                             |  |      |       |     |  |   |       | 
|Fourth Quarter                   |  | $    | 17.38 |     |  | $ | 5.75  | 
|Third Quarter                    |  | $    | 26.75 |     |  | $ | 12.13 | 
|Second Quarter (Beginning May 2) |  | $    | 16.31 |     |  | $ | 5.13  | 
|First Quarter                    |  |      | N/A   |     |  |   | N/A   | 

The last reported sale price of our common stock
on the Nasdaq National Market on March 28, 2002, was $2.34.
As of March 28, 2002, there were approximately 5,000
stockholders of record of our common stock.

We have never declared or paid any cash dividends
on our common stock. We currently intend to retain any future
earnings for funding growth and, therefore, do not anticipate
paying any cash dividends in the foreseeable future, except for
cash dividends payable on shares of our Series B Preferred
Stock, as discussed in Item 7 below. Any future
determination to pay cash dividends on our common stock will be
at the discretion of the board of directors and will be
dependent upon the Companys financial condition, results
of operations, capital requirements and other such factors as
the board of directors deems relevant. As long as any
Series A Preferred Stock or Series B Preferred Stock
is outstanding, the Company may not, without first obtaining the
written approval of the holders of such stock, declare or pay
any cash dividend, except cash dividends payable on shares of
our Series B Preferred Stock.

Recent Sales of Unregistered
Securities.

In October 2001, we issued 302,953 shares of our
common stock to two holders of our Series A Preferred Stock
upon such holders conversion of certain shares of
Series A Preferred Stock held by such holders. For this
issuance, we relied on the exemption provided by
Section 4(2) of the Securities Act.

In November 2001, we issued 98,923 shares of our
common stock to two holders of our Series A Preferred Stock
upon such holders conversion of certain shares of
Series A Preferred Stock held by such holders. For this
issuance, we relied on the exemption provided by
Section 4(2) of the Securities Act.

In December 2001, we issued 78,793 shares of
common stock with a market value of $0.2 million as of the
date of such issuance, to the ViroLogic, Inc. 401(k) Profit
Sharing Plan as a matching contribution under the terms of the
plan. For these issuances, we relied on the exemptions provided
by Section 4(2) of the Securities Act and certain no action
letters promulgated by the Securities and Exchange Commission.

In January 2002, we issued 72,884 shares of our
common stock with a market value of $0.2 million as of the
date of such issuance as a dividend on the outstanding shares of
the first closing of Series A Preferred Stock. For this
issuance, we relied on the exemption provided by
Section 4(2) of the Securities Act.

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In January 2002, we issued 100,035 shares of our
common stock to two holders of our Series A Preferred Stock
upon such holders conversion of certain shares of
Series A Preferred Stock held by such holders. For this
issuance, we relied on the exemption provided by
Section 4(2) of the Securities Act.

In February 2002, we issued 506,461 shares of our
common stock to four holders of our Series A Preferred
Stock upon such holders conversion of certain shares of
Series A Preferred Stock held by such holders. For this
issuance, we relied on the exemption provided by
Section 4(2) of the Securities Act.

In March 2002, we issued 1,557,423 shares of our
common stock to six holders of our Series A Preferred Stock
upon such holders conversion of certain shares of
Series A Preferred Stock held by such holders. For this
issuance, we relied on the exemption provided by
Section 4(2) of the Securities Act.

In March 2002, we issued 1,005 shares of our
Series B Preferred Stock and warrants to purchase 2,841,214
shares of our common stock for an aggregate purchase price of
$10.05 million to certain accredited investors. For this
issuance, we relied on the exemption provided by
Section 4(2) of the Securities Act.

In March 2002, we issued 83,664 shares of our
common stock with a market value of $0.2 million as of the
date of such issuance as a dividend on the outstanding shares of
the second closing of Series A Preferred Stock. For this
issuance, we relied on the exemption provided by
Section 4(2) of the Securities Act.

(b) Use of Proceeds from Registered
Securities

The effective date of our registration statement
on Form S-1 (No. 333-30896) relating to our initial public
offering was May 1, 2000. A total of 5,000,000 shares of
the Companys common stock in the aggregate were sold at a
price of $7.00 per share to an underwriting syndicate led by
CIBC World Markets Corp, ING Barings LLC and Prudential
Securities Incorporated. The offering commenced on May 1,
2000, and closed on May 5, 2000. The initial public
offering resulted in gross proceeds of approximately
$35.0 million, of which $2.5 million was applied
toward the underwriting discount. Expenses related to the
offering totaled approximately $1.3 million. From the time
of receipt through December 31, 2001, we used the entire
net proceeds for operating activities and capital expenditures.

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Item 6.     Selected
Financial Data

The following selected financial information has
been derived from the audited financial statements. The
information below is not necessarily indicative of results of
future operations, and should be read in conjunction with
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations and the
financial statements and related notes thereto included in
Item 8 of this Form 10-K in order to fully understand
factors that may affect the comparability of the information
presented below.

|                                                                      |                            |                                          |         |        |        |      |         |        |        |      |         |       |        |   |        |       |       |   |        |       |       | 
|--------------------------------------------------------------------- | -------------------------- | ---------------------------------------- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | ---- | ------- | ----- | ------ | - | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|                                                                      |                            |                                         
|                                                                      |                            | Year Ended December 31,                 
|                                                                      |                            |                                         
|                                                                      |                            | 2001                                     |         | 2000   |        | 1999 |         | 1998   |        | 1997
|                                                                      |                            |                                          |         |        |        |      |         |        |        |     
|                                                                      |                            |                                         
|                                                                      |                            | (In thousands, except per share amounts)
|Statement of Operations Data:                                         |                            |                                          |         |        |        |      |         |        |        |      |         |       |        |   |        |       |       |   |        |      
|Revenue:                                                              |                            |                                          |         |        |        |      |         |        |        |      |         |       |        |   |        |       |       |   |        |      
|                                                                      | Product revenue            |                                          | $       | 17,815 |        |      | $       | 7,466  |        |      | $       | 1,069 |        |   | $      | 102   |       |   | $      |      |      
|                                                                      | NIH grant revenue          |                                          |         | 458    |        |      |         |       |        |      |         |      |        |   |        |      |       |   |        |      |      
|                                                                      |                            |                                          |         |        |        |      |         |        |        |      |         |       |        |   |        |       |       |   |        |      
|                                                                      |                            | Total revenue                            |         |        | 18,273 |      |         |        | 7,466  |      |         |       | 1,069  |   |        |       | 102   |   |        |       |      | 
|Operating costs and expenses:                                         |                            |                                          |         |        |        |      |         |        |        |      |         |       |        |   |        |       |       |   |        |      
|                                                                      | Cost of product revenue    |                                          |         | 11,845 |        |      |         | 5,457  |        |      |         | 627   |        |   |        | 17    |       |   |        |      |      
|                                                                      | Research and development   |                                          |         | 11,693 |        |      |         | 10,080 |        |      |         | 9,588 |        |   |        | 5,977 |       |   |        | 2,458 |      
|                                                                      | General and administrative |                                          |         | 11,376 |        |      |         | 10,841 |        |      |         | 6,804 |        |   |        | 1,782 |       |   |        | 858   |      
|                                                                      | Sales and marketing        |                                          |         | 10,336 |        |      |         | 5,890  |        |      |         | 1,196 |        |   |        | 484   |       |   |        |      |      
|                                                                      |                            |                                          |         |        |        |      |         |        |        |      |         |       |        |   |        |       |       |   |        |      
|                                                                      |                            | Total operating costs and expenses       |         |        | 45,250 |      |         |        | 32,268 |      |         |       | 18,215 |   |        |       | 8,260 |   |        |       | 3,316 | 
|                                                                      |                            |                                          |         |        |        |      |         |        |        |      |         |       |        |   |        |       |       |   |        |      
|Operating loss                                                        |                            |                                          | (26,977 | )      |        |      | (24,802 | )      |        |      | (17,146 | )     |        |   | (8,158 | )     |       |   | (3,316 | )    
|Interest income                                                       |                            |                                          | 1,143   |        |        |      | 1,868   |        |        |      | 249     |       |        |   | 302    |       |       |   | 262    |      
|Interest expense                                                      |                            |                                          | (466    | )      |        |      | (262    | )      |        |      | (243    | )     |        |   | (198   | )     |       |   | (83    | )    
|Other income                                                          |                            |                                          | 106     |        |        |      |        |        |        |      |        |       |        |   |       |       |       |   |       |      
|                                                                      |                            |                                          |         |        |        |      |         |        |        |      |         |       |        |   |        |       |       |   |        |      
|Net loss                                                              |                            |                                          | (26,194 | )      |        |      | (23,196 | )      |        |      | (17,140 | )     |        |   | (8,054 | )     |       |   | (3,137 | )    
|Deemed dividend to preferred stockholders                             |                            |                                          | (2,269  | )      |        |      | (15,700 | )      |        |      | (3,100  | )     |        |   |       |       |       |   |       |      
|Preferred stock dividend                                              |                            |                                          | (334    | )      |        |      |        |        |        |      |        |       |        |   |       |       |       |   |       |      
|                                                                      |                            |                                          |         |        |        |      |         |        |        |      |         |       |        |   |        |       |       |   |        |      
|Net loss applicable to common stockholders                            |                            | $                                        | (28,797 | )      |        | $    | (38,896 | )      |        | $    | (20,240 | )     |        | $ | (8,054 | )     |       | $ | (3,137 | )    
|                                                                      |                            |                                          |         |        |        |      |         |        |        |      |         |       |        |   |        |       |       |   |        |      
|Basic and diluted net loss per common share                           |                            | $                                        | (1.43   | )      |        | $    | (2.62   | )      |        | $    | (4.24   | )     |        | $ | (1.71  | )     |       | $ | (1.21  | )    
|                                                                      |                            |                                          |         |        |        |      |         |        |        |      |         |       |        |   |        |       |       |   |        |      
|Shares used in computing basic and diluted net
	loss per common share |                            |                                          | 20,072  |        |        |      | 14,852  |        |        |      | 4,772   |       |        |   | 4,700  |       |       |   | 2,591  |      
|                                                                      |                            |                                          |         |        |        |      |         |        |        |      |         |       |        |   |        |       |       |   |        |      

|                                                    |  |                |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        |  
|--------------------------------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------ | -
|                                                    |  |               
|                                                    |  | December 31,  
|                                                    |  |               
|                                                    |  | 2001           |         | 2000 |  | 1999 |         | 1998 |  | 1997
|                                                    |  |                |         |      |  |      |         |      |  |     
|                                                    |  |               
|                                                    |  | (In thousands)
|Balance Sheet Data:                                 |  |                |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        |  
|Cash, cash equivalents, and short-term
	investments |  | $              | 8,962   |      |  | $    | 23,794  |      |  | $    | 2,208   |   |  | $ | 9,564   |   |  | $ | 3,986  |  
|Accounts receivable, net                            |  |                | 4,562   |      |  |      | 2,404   |      |  |      | 550     |   |  |   |        |   |  |   |       |  
|Working capital                                     |  |                | 7,508   |      |  |      | 21,097  |      |  |      | 522     |   |  |   | 7,398   |   |  |   | 3,315  |  
|Restricted cash                                     |  |                | 1,000   |      |  |      | 2,029   |      |  |      | 950     |   |  |   |        |   |  |   |       |  
|Total assets                                        |  |                | 37,851  |      |  |      | 43,647  |      |  |      | 9,777   |   |  |   | 13,275  |   |  |   | 5,598  |  
|Long-term portion of capital lease obligations      |  |                | 1,341   |      |  |      | 945     |      |  |      |        |   |  |   |        |   |  |   |       |  
|Long-term portion of loans payable                  |  |                | 174     |      |  |      | 1,019   |      |  |      | 1,051   |   |  |   | 1,948   |   |  |   | 470    |  
|Long-term advance from subtenant                    |  |                | 975     |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |       |  
|Redeemable convertible preferred stock              |  |                | 11,228  |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |       |  
|Accumulated deficit                                 |  |                | (78,995 | )    |  |      | (52,801 | )    |  |      | (29,605 | ) |  |   | (12,465 | ) |  |   | (4,411 | )
|Total stockholders equity                          |  |                | 13,471  |      |  |      | 33,643  |      |  |      | 4,698   |   |  |   | 8,830   |   |  |   | 4,336  |  

See notes to the financial statements for a
description of the number of shares used in the computation of
the basic and diluted net loss per common share.

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Item 7.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations

The following discussion of the financial
condition and results of operations should be read in
conjunction with the financial statements and the notes thereto
included in this Form 10-K. The estimates and certain other
statements below are forward-looking statements that involve
risks and uncertainties. Our actual future capital requirements
and the adequacies of our available funds will depend on many
factors, including those under Risk Factors Related to Our
Business.

OVERVIEW

We are a biotechnology company developing,
marketing and selling innovative products to guide and improve
treatment of viral diseases. We incorporated in the state of
Delaware on November 14, 1995 and commenced commercial
operations in 1999. We developed a practical way of directly
measuring the impact of genetic mutations on drug resistance and
using this information to guide therapy. We have proprietary
technology, called PhenoSense, for testing drug resistance in
viruses that cause serious viral diseases such as HIV/AIDS,
hepatitis B and hepatitis C. Our first product,
PhenoSense HIV, is a test that directly and quantitatively
measures resistance of a patients HIV to anti-viral drugs.
Our second product, GeneSeq HIV examines and evaluates the
genetic sequences of a patients HIV. Our third product,
PhenoSense GT combines PhenoSense HIV and GeneSeq HIV into one
test on an integrated report to provide the most comprehensive
drug resistance information available to assist physicians in
selecting optimal treatments for their patients. In addition, we
perform resistance testing and research for industry, academia
and government for clinical studies, drug
screening/characterization and basic research. We are also
developing resistance testing products for serious viral
diseases other than HIV. In addition, we are collecting
resistance test results and related clinical data in an
interactive database that we may use to assist our
pharmaceutical customers in drug marketing and drug development
and make available to physicians for use in therapy guidance.
Our products and products in development, which, if completed,
might be stand-alone product offerings or incorporated into our
existing offerings, include: (i) PhenoSense HBV and GeneSeq
HBV, for hepatitis B; (ii) PhenoSense HCV and GeneSeq HCV,
for hepatitis C; (iii) an entry assay to measure HIV
resistance to entry inhibitors; (iv) an entry assay to
assist in the development of HIV vaccines; and (v) a test
to measure viral fitness, which is a measure of a virus
ability to reproduce and infect new cells. We believe our
products have the potential to revolutionize the way physicians
treat many serious diseases.

Series B Redeemable Convertible Preferred
Stock

On March 22, 2002, we entered into a
securities purchase agreement with several investors to issue
and sell, in a private placement, an aggregate of 1,005 shares
of Series B redeemable convertible preferred stock
(Series B Preferred Stock) with warrants to
purchase an aggregate of 2.2 million shares of common
stock, for an aggregate purchase price of $10.05 million.
The transaction closed on March 25, 2002. In connection
with this financing, we also had to grant warrants to purchase
an aggregate of 637,261 shares of common stock to holders of
Series A Preferred Stock as a payment in order to secure
their consent and waiver concerning the financing and the
resulting impact on the Series A Preferred Stock. The
rights, preferences and privileges of the Series B
Preferred Stock are set forth in the Certificate of
Designations, Preferences and Rights of the Series B
Preferred Stock filed with the Delaware Secretary of State, and
are in many ways similar to the terms of the Series A
Preferred Stock. The warrants are subject to the terms and
conditions of the stock purchase warrants issued by us and
evidencing the warrants. We are obligated to file a registration
statement with the Securities and Exchange Commission, prior to
June 23, 2002, covering the resale of the shares of our
common stock issuable upon conversion of the Series B
Preferred Stock, and issuable upon exercise of the warrants
issued to the holders of Series A Preferred Stock and
Series B Preferred Stock in connection with the financing,
as well as additional shares of common stock, which in total is
8.7 million shares of common stock that we anticipate
registering for resale. If this registration statement is not
declared effective by the Securities and Exchange Commission
prior to July 23, 2002, holders of the securities will
become entitled to certain rights, including the right to
require redemption of their shares.

The Series B Preferred Stock bears an
initial 6% annual dividend rate, payable semi-annually in cash,
which increases to an 8% annual rate after 18 months, then
increases by 2% every six months up to a

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maximum of 14%. The holders of Series B
Preferred Stock may elect to convert their shares into our
common stock at any time, just as they may choose to exercise
their warrants at any time. We may, at our option, convert the
Series B Preferred Stock into common stock at any time
after the date 270 days following the effectiveness of the
registration statement covering the Series B Preferred
Stock, but only if our stock price exceeds $4.56 for 20
consecutive trading days. We may also, at our option, convert
the Series B Preferred Stock into common stock upon a sale
of common stock in a firm commitment underwritten offering to
the public if the public offering price exceeds $4.56, the
aggregate gross proceeds exceed $40 million and the registration
statement referenced above are effective.


The holders are not subject to any limitations on
the number of conversions of Series B Preferred Stock or
subsequent sales of the corresponding common stock, that they
can effect, other than a prohibition on any holder acquiring
beneficial ownership of more than the greater of (i) 4.99%
of the outstanding shares of our common stock, or (ii) the
number of shares of our common stock beneficially owned by the
holder as of immediately prior to the Series B Preferred
Stock financing.

We expect to record a deemed dividend of
approximately $2.9 million, in the first quarter of 2002,
relating to the beneficial conversion feature of the
Series B Preferred Stock and the additional warrants issued
to the holders of the Series A Preferred Stock in
connection with the Series B Preferred Stock financing. The
deemed dividend will increase the loss applicable to common
stockholders in the calculation of basic and diluted net loss
per common share and will be included in stockholders
equity as offsetting charges and credits to additional paid-in
capital. This accounting result is similar to accounting
implications of our issuance of Series A Preferred Stock,
which resulted in us recording a deemed dividend of
$2.3 million in the third quarter of 2001.

The investors of Series B Preferred Stock
have the right to require us to redeem all of the Series B
Preferred Stock for cash equal to the greater of (i) 120%
of their original purchase price plus 120% of any accrued and
unpaid dividend or (ii) the aggregate fair market value of
the shares of common stock into which such shares of
Series B Preferred Stock are then convertible, upon certain
triggering events, as defined in our Certificate of
Designations, Preferences and Rights of Series B
Convertible Preferred Stock. We may not have available funds to
do so in the event redemption is required. In addition, we may
redeem the Series B Preferred Stock at any time after
March 25, 2004. Due to the nature of the redemption
features of the Series B Preferred Stock, we will exclude
the Series B Preferred Stock from equity in our financial
statements, just as we do with our Series A Preferred
Stock. The net proceeds of approximately $2.6 million
attributable to the warrants we issued to the holders of
Series B Preferred Stock at the time of the financing will
be included in additional-paid-in capital.

Series A Redeemable Convertible Preferred
Stock

On June 29, 2001, we entered into a
securities purchase agreement with several investors to issue
and sell, in a private placement, an aggregate of 1,625 shares
of Series A redeemable convertible preferred stock
(Series A Preferred Stock) with warrants to
purchase an aggregate of 3.2 million shares of common
stock, for an aggregate purchase price of $16.25 million.
The securities purchase agreement contemplated two closings,
each for a portion of the Series A Preferred Stock and the
warrants. The first closing occurred on July 2, 2001, and
we received gross proceeds of $6.65 million. The second and
final closing occurred on September 27, 2001, and we
received gross proceeds of $9.6 million. The rights,
preferences and privileges of the Series A Preferred Stock
are set forth in the Certificate of Designations, Preferences
and Rights filed with the Delaware Secretary of State. The
warrants are subject to the terms and conditions of the stock
purchase warrant issued by us and evidencing the warrants. We
filed registration statements with the Securities and Exchange
Commission, following the first closing and second closing,
respectively, covering the resale of the shares of our common
stock issuable upon conversion of the Series A Preferred
Stock, issuable upon exercise of the warrants and that may
become issuable pursuant to the respective rights, preferences
and privileges of the Series A Preferred Stock and
warrants. The registration statement for the first closing was
effective September 24, 2001 and the registration statement
for the second closing, which superceded the registration
statement for the first closing and covers the Series A
Preferred Stock and warrants issued in the first and second
closing, was effective October 12, 2001. Of the 1,625
shares issued in the financing, 992 shares remain

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outstanding as of March 28, 2002, and the
others were converted into an aggregate of 2,531,571 shares of
our common stock.


The Series A Preferred Stock bears an
initial 6% annual dividend rate, payable as a dividend, which
increases to an 8% annual rate after two years, then increases
by 2% every six months up to a maximum of 14%, payable twice a
year in shares of common stock. The holders of Series A
Preferred Stock may elect to convert their shares into our
common stock at any time, just as they may choose to exercise
their warrants at any time. We may, at our option, convert the
Series A Preferred Stock into common stock at any time
after June 21, 2002 for Series A Preferred Stock
issued at the first closing and after July 9, 2002 for
Series A Preferred Stock issued at the second closing, but
only if our stock price exceeds $5.10 for 20 consecutive trading
days. We may also, at our option, convert the Series A
Preferred Stock into common stock upon a sale of common stock in
a firm commitment underwritten offering to the public if the
public offering price exceeds $5.10, the aggregate gross
proceeds exceed $40 million and the registration statements
referenced above are effective.

The holders are not subject to any limitations on
the number of conversions of Series A Preferred Stock or
subsequent sales of the corresponding common stock, that they
can effect, other than a prohibition on any holder acquiring
beneficial ownership of more than 4.99% of the outstanding
shares of our common stock.

We recorded a deemed dividend of
$2.3 million, in the third quarter of 2001, relating to the
beneficial conversion feature of the Series A Preferred
Stock. The deemed dividend increases the loss applicable to
common stockholders in the calculation of basic and diluted net
loss per common share and is included in stockholders
equity as offsetting charges and credits to additional paid-in
capital.

The investors of Series A Preferred Stock
have the right to require us to redeem all of the Series A
Preferred Stock for cash equal to the greater of (i) 115%
of their original purchase price plus 115% of any accrued and
unpaid dividend or (ii) the aggregate fair market value of
the shares of common stock into which such shares of
Series A Preferred Stock are then convertible, upon certain
triggering events, as defined in our Certificate of
Designations, Preferences and Rights of Series A
Convertible Preferred Stock. We may not have available funds to
do so in the event redemption is required. In addition, we may
redeem the Series A Preferred Stock at any time after
June 29, 2003, for Series A Preferred Stock issued at
the first closing and after September 27, 2003 for
Series A Preferred Stock issued at the second closing. Due
to the nature of the redemption features of the Series A
Preferred Stock, we excluded the Series A Preferred Stock
from equity in our financial statements. The net proceeds
attributable to the warrants of $2.8 million are included
in additional paid-in capital.

Public Offering

On May 1, 2000, we completed our initial
public offering and sold 5,000,000 shares of Common Stock at
$7.00 per share. Total gross proceeds to ViroLogic were
approximately $35.0 million. See Stockholders
Equity and Redeemable Convertible Preferred Stock note to
the financial statements for further discussion.

Reverse Stock Split

On February 21, 2000, our board of directors
approved a one for two reverse split of common stock which
became effective on April 17, 2000. The accompanying
financial statements have been adjusted retroactively to reflect
the reverse split. The conversion ratios of the respective
series of convertible preferred stock were automatically
adjusted to reflect the reverse split.

SUMMARY OF CRITICAL ACCOUNTING
POLICIES

The preparation of our financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in our financial
statements and accompanying notes. Actual results could differ
materially from those

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estimates. See Note 1 to the financial
statements for further discussion. Items in our financial
statements requiring significant estimates and judgments are as
follows:


Revenue Recognition

Revenue is recognized upon completion of tests
made on samples provided by customers and the shipment of test
results to those customers. Services are provided to certain
patients covered by various third-party payor programs,
including Medicare. Billings for services under third-party
payor programs are included in revenues net of an allowance for
contractual discounts and an allowance for differences between
the amounts billed and estimated payment amounts. We estimate
these allowances based on historical payment information and
current sales data. If the government and other third-party
payors significantly change their reimbursement policies or the
relative mix of third-party payors changes, an adjustment to the
allowance may be necessary. National Institutes of Health
(NIH) grant revenue is recorded on a reimbursement
basis as grant costs are incurred. Costs associated with NIH
grant revenue are included in research and development expenses.
Deferred revenue relates to cash received in advance of delivery
of test results.

Bad Debts

We maintain an allowance for doubtful accounts
for estimated losses resulting from the inability of our
customers to make required payments. We estimate the amount of
allowance for doubtful accounts based on the age of the
receivable and the risk profile of the customer. If the
financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments,
additional allowances may be required.

Deferred Tax Assets

We record a valuation allowance to reduce our
deferred tax assets to the amount that we believe is more likely
than not to be realized. Due to our lack of earnings history,
the net deferred tax assets at December 31, 2001 have been
fully offset by a valuation allowance.

Deemed Dividends

We estimate a beneficial conversion feature for
our convertible preferred stock in accordance with Emerging
Issues Task Force Consensus No. 98-5, Accounting for
Convertible Securities with Beneficial Conversion Features
and No. 00-27, Application of Issue No. 98-5 to
Certain Convertible Instruments based on the difference
between the estimated conversion price and common stock fair
market value at the date of issuance. We record the beneficial
conversion feature as a deemed dividend on the Statement of
Operations, resulting in an increase to the loss applicable to
common stockholders in the calculation of basic and diluted net
loss per common share.

Stock Based Compensation

We account for employee stock option grants using
the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25 (APB 25),
which does not require the recognition of compensation expense
for options granted to employees with exercise prices equal to
the fair value of the common stock at the date of grant.
Deferred compensation, if recorded, is amortized using the
graded vesting method. Statement of Financial Accounting
Standards Board Statement No. 123, Accounting for
Stock-Based Compensation (SFAS 123) requires
the disclosure of pro forma information regarding net loss and
net loss per share as if the Company had accounted for its stock
options under the fair value method. See
Stockholders Equity and Redeemable Convertible
Preferred Stock note to the financial statements for
further discussion.

The Company accounts for stock option grants to
non-employees in accordance with the Emerging Issues Task Force
Consensus No. 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or
Services, which requires the options subject to vesting to
be periodically re-valued and expensed over their vesting
periods.

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RESULTS OF OPERATIONS

Our results of operations have fluctuated from
period to period and may continue to fluctuate in the future.
Results of operations for any period may be unrelated to results
of operations for any other period. In addition, historical
results should not be viewed as indicative of future operating
results. We are subject to risks common to companies in our
industry. These risks and uncertainties include, but are not
limited to, whether PhenoSense testing will achieve market
acceptance, whether payors will authorize reimbursement for our
products, whether we will be able to expand our sales and
marketing capabilities, whether the FDA or any other agency will
decide to further regulate our products or services, whether we
encounter problems or delays in automating our process, whether
we successfully introduce new products using our PhenoSense
technology, including entry, fitness and vaccine assays, whether
intellectual property underlying our PhenoSense technology is
adequate, whether we are able to build brand loyalty and whether
ViroLogic will be able to raise sufficient capital. See
Risk Factors Related to Our Business for further
discussion.

Year Ended December 31, 2001 Compared to
Years Ended December 31, 2000 and 1999.

Revenue.Revenue was
$18.3 million, $7.5 million and $1.1 million in
2001, 2000 and 1999, respectively. The increase of
$10.8 million in 2001 as compared to 2000 was primarily
attributable to greater sales of PhenoSense HIV, GeneSeq HIV and
the introduction of PhenoSense GT in the fourth quarter of 2001.
In addition, in 2001, we were awarded NIH research grants to
develop new technologies to measure HIV resistance to entry
inhibitors and viral replication capacity or
fitness. The increase of $6.4 million in 2000
as compared to 1999 was primarily attributable to a full year of
sales in 2000 of PhenoSense HIV, which was launched commercially
in November 1999. We believe increased demand for existing
products and new product launches will be the primary factors
contributing to an increased level of sales in 2002 as compared
to 2001.

Cost of product revenue.Cost of product revenue was
$11.8 million, $5.5 million and $0.6 million in
2001, 2000 and 1999, respectively. The increases of
$6.4 million in 2001 as compared to 2000 and
$4.8 million in 2000 as compared to 1999, were due to the
higher volume of testing and continued expansion of our clinical
laboratory activities. Included in these costs are materials,
supplies, labor and overhead related to the tests. In addition,
the increase in 2000 was partially due to the relocation of the
clinical reference laboratory into a new, larger facility and
implementation of a new laboratory information system. Gross
margins increased to 34% in 2001 from 27% in 2000 primarily due
to improved operational efficiency and economies of scale. Gross
margin in 1999 was not meaningful as PhenoSense HIV was launched
in November 1999. We anticipate that the total cost of product
revenue will increase as we increase the volume of our testing
but at a lower growth rate than the anticipated revenue growth
rate.

Research and development.Research and development costs were
$11.7 million, $10.1 million and $9.6 million in
2001, 2000 and 1999, respectively. The increase of
$1.6 million in 2001 as compared to 2000 was primarily
related to additional research and development efforts to
enhance our resistance testing products and include costs
associated with NIH grant revenue. The increase of
$0.5 million in 2000 as compared to 1999 was primarily
related to research and development efforts to enhance our
PhenoSense HIV test. We expect research and development spending
to increase in subsequent years as we expand our research and
product development and automation efforts for other serious
diseases, but at a substantially lower growth rate than the
anticipated revenue growth rate.

Below is a summary of products and products in
development. The information in the column labeled
Estimated Completion contains forward-looking
statements regarding completion of products in development. The
actual timing of completion of those products could differ
materially from the estimates provided in the table. For a
discussion of the risks and uncertainties associated with the
completion of our products, see Risk Factors Related to
Our Business.

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The following summarizes our products and
products in development:

|                                                  |                                    |            |  |           | 
|------------------------------------------------- | ---------------------------------- | ---------- |  | --------- | 
|                                                  |                                    | Estimated 
|                                                  |                                    | Completion
|                                                  |                                    |           
|PhenoSense HIV, a phenotypic HIV
	test            |                                    |            |  |          
|                                                  | Pharmaceutical and patient testing |            |  | Completed | 
|GeneSeq HIV, a genotypic HIV test                 |                                    |            |  |          
|                                                  | Pharmaceutical and patient testing |            |  | Completed | 
|PhenoSense GT, a combination HIV
	test            |                                    |            |  |          
|                                                  | Patient testing                    |            |  | Completed | 
|Fitness HIV, a replication capacity
	assay(1)     |                                    |            |  |          
|                                                  | Pharmaceutical testing             |            |  | Completed | 
|                                                  | Patient testing                    |            |  | 2002      | 
|Entry Assay HIV, an entry inhibitor
	assay(1)     |                                    |            |  |          
|                                                  | Pharmaceutical testing             |            |  | Completed | 
|                                                  | Patient testing                    |            |  | 2003      | 
|Vaccine Entry HIV, an entry neutralization
	assay |                                    |            |  |          
|                                                  | Pharmaceutical testing             |            |  | 2002      | 
|PhenoSense HBV, a phenotypic hepatitis B
	test    |                                    |            |  |          
|                                                  | Pharmaceutical testing             |            |  | 2002      | 
|                                                  | Patient testing                    |            |  | 2003      | 
|GeneSeq HBV, a genotypic hepatitis B
	test        |                                    |            |  |          
|                                                  | Pharmaceutical testing             |            |  | Completed | 
|                                                  | Patient testing(2)                 |            |  | 2003      | 
|PhenoSense HCV, a phenotypic hepatitis C
	test    |                                    |            |  |          
|                                                  | Pharmaceutical testing             |            |  | 2002      | 
|                                                  | Patient testing(2)                 |            |  | 2003      | 




|    |                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------
|(1) | This test may be incorporated into one of our
	existing products or possibly offered as a stand-alone product.
|   
|(2) | This test is expected to be offered after several
	pharmaceutical drugs are available for patients use.       

General and administrative.General and administrative expenses
were $11.4 million, $10.8 million and
$6.8 million in 2001, 2000 and 1999, respectively. The
increase of $0.5 million in 2001 as compared to 2000 was
due to greater spending on salaries and benefits resulting from
increased employee headcount and additional corporate
infrastructure to support our revenue growth. The increase was
partially offset by a $2.2 million reduction in non-cash
compensation expenses primarily related to granting stock and
options prior to our initial public offering in 2000 as
discussed below. The increase of $4.0 million in 2000 as
compared to 1999 was primarily due to greater spending on
salaries and benefits resulting from increased headcount,
implementation of a new enterprise resource planning system and
a $1.8 million increase in noncash compensation expenses
related to granting stock and options. The increase was
partially offset by the absence of any settlement or related
costs recorded in 2000 as compared with approximately
$1.9 million of settlement and other costs recorded in 1999
arising from a lawsuit with a former officer and stockholder. In
2002, we expect general and administrative expenses to increase,
but at a substantially lower growth rate than the anticipated
revenue growth rate due to continued leveraging of existing
infrastructure.

Stock Based Compensation.Deferred compensation for options
granted to employees is the difference between the exercise
price and the deemed fair value for financial reporting purposes
of our common stock on the date certain options were granted and
is a component of stockholders equity. In 2001, all
options were granted at fair value and no deferred compensation
was recorded. In connection with the grant of stock options

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to employees, prior to our initial public
offering, we recorded deferred stock compensation of
approximately $1.6 million and $5.0 million in 2000
and 1999, respectively. Stock based compensation is being
amortized over the vesting period for the individual options. We
recorded related amortization of $1.5 million,
$3.6 million and $0.5 million in 2001, 2000 and 1999,
respectively.


We determined compensation for options granted to
non-employees in accordance with the Emerging Issues Task Force
Consensus No. 96-18 as the fair value of the equity
instruments issued. We record compensation for options granted
to non-employees as the related services are rendered, and the
value of the compensation may be periodically remeasured and the
expense adjusted accordingly as the underlying options vest. We
recorded $0.2 million of stock based compensation for
non-employees in 2001 as compared to $0.3 million in 2000.
The amount recorded in 1999 was minimal. The aggregate value of
these options is $0.7 million, calculated based on the
deemed fair value of our common stock at December 31, 2001
and will be recorded as a general and administrative expense
over the period of the related services, which is generally two
to four years.

Sales and marketing.Sales and marketing expenses were
$10.3 million, $5.9 million and $1.2 million in
2001, 2000 and 1999, respectively. The increase of
$4.4 million in 2001 as compared to 2000 was primarily
attributable to the expansion of our sales force and increased
marketing programs related to the commercialization of our
existing and new products, including PhenoSense GT. The increase
of $4.7 million in 2000 as compared to 1999 was primarily
attributable to the deployment of our sales force and increased
marketing programs related to the commercialization of
PhenoSense HIV. In 2002, we expect sales and marketing expenses
to increase to support new product launches and sales of
existing products but at a lower growth rate than the
anticipated revenue growth rate.

Interest income.Interest income was $1.1 million,
$1.9 million and $0.2 million in 2001, 2000 and 1999,
respectively. The decrease of $0.7 million in 2001 as
compared to 2000 was primarily due to lower average cash
balances resulting from expenditures made to support growth in
company operations and lower interest rates. The increase of
$1.6 million in 2000 as compared to 1999 was primarily due
to higher average cash and securities investment balances
resulting from our Series C preferred stock financing in
January and February 2000 and our initial public offering in May
2000.

Interest expense.Interest expense was
$0.5 million, $0.3 million and $0.2 million in
2001, 2000 and 1999, respectively. The increases of
$0.2 million in 2001 as compared to 2000 and $19,000 in
2000 as compared to 1999, were due to increased equipment
financing.

Other income.In
2001, other income was $0.1 million, representing residual
income from one of our subleases. For further discussion, see
Liquidity and Capital Resources below.

Deemed dividend.In
2001, we sold 1,625 shares of Series A Preferred Stock, or
6.4 million shares of common stock as converted, and issued
warrants to purchase an aggregate of 3.2 million shares of
common stock at a price of $2.805 per share, for net proceeds of
approximately $14.7 million. We determined that the
issuance of the Series A Preferred Stock resulted in a
beneficial conversion feature of approximately $2.3 million
in 2001. In 2000 and 1999, we sold 8.5 million and
1.7 million shares, respectively, of Series C
preferred stock for 4.2 million and 0.8 million
shares, respectively, of common stock as converted. We received
proceeds of approximately $15.6 million and
$3.1 million in 2000 and 1999, respectively. After
re-evaluating the fair value of our common stock in
contemplation of our initial public offering, we determined that
the issuance of the Series C preferred stock resulted in a
beneficial conversion feature of approximately
$15.7 million and $3.1 million in 2000 and 1999,
respectively. The beneficial conversion features were calculated
in accordance with Emerging Issues Task Force Consensus
No. 98-5, Accounting for Convertible Securities with
Beneficial Conversion Features and Emerging Issues Task
Force Consensus No. 00-27 Application of Issue
No. 98-5 to Certain Convertible Instruments. The
beneficial conversion features were reflected as deemed
dividends in the Statement of Operations of $2.3 million,
$15.7 million and $3.1 million in 2001, 2000 and 1999,
respectively, and are included in stockholders equity as
offsetting charges and credits to additional paid-in capital.

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Preferred stock dividend.The Series A Preferred Stock
issued in 2001 bears an initial 6% annual dividend rate, payable
as a dividend, which increases to an 8% annual rate after two
years, then increases by 2% every six months up to a maximum of
14%, payable twice a year in shares of common stock. In 2001, we
recorded this dividend of $0.3 million in the Statement of
Operations.

LIQUIDITY AND CAPITAL RESOURCES

We expect our available cash, investments and
short-term restricted cash of $9.1 million at
December 31, 2001, together with gross proceeds from a
private placement of $10.05 million received in March 2002,
funds provided by the sale of our products, grant revenue,
borrowing under equipment financing arrangements and cash flows
generated from subletting a portion of our facilities will be
adequate to fund our operations through at least December 2002.
We expect to fund our cash requirements in the future by
generating cash from operations. In addition, we plan to
continue to evaluate various strategic opportunities, including
research and development collaborations, international alliances
and marketing partnerships.

We have funded our operations since inception
primarily through public and private sales of common and
preferred stock, equipment financing arrangements and product
sales. Although we expect our operating and capital resources
will be sufficient to meet future requirements, including the
cash dividend payments that we are required to make on shares of
our Series B Preferred Stock, we may have to raise
additional funds to continue the development and
commercialization of future technologies and our business
operations in general. These funds may not be available on
favorable terms, or at all. If adequate funds are not available
on attractive terms, we may be required to curtail operations
significantly or to obtain funds by entering into financing,
supply or collaboration agreements on unattractive terms. In
addition, we may choose to raise additional capital due to
market conditions or strategic considerations even if we believe
that we have sufficient funds for current or future operating
plans.

Net cash used in operating activities was
$24.3 million, $18.6 million and $13.4 million in
2001, 2000 and 1999, respectively. Cash used in operating
activities primarily relates to ongoing operating losses as
discussed above.

Net cash used in investing activities was
$2.0 million, $20.4 million and $3.9 million in
2001, 2000 and 1999, respectively. The decrease in cash used in
investing activities of $18.4 million in 2001 as compared
to 2000 is primarily due to lower net proceeds from financing in
2001. We received net proceeds of $14.7 million in 2001
from our issuance of Series A Preferred Stock as compared
to net proceeds of $31.2 million from our initial public
offering in 2000. We also received $2.6 million in 2001 as
an advance from one of our subtenants. In 2000, the increase in
cash used in investing activities of $16.5 million resulted
primarily from investing proceeds from our initial public
offering in short-term investments, net of proceeds from
maturities and sales. Also contributing to the increase were
increased capital expenditures for leasehold improvements
related to our new laboratory facility of approximately
$4.0 million, as well as equipment and software purchases
of approximately $3.7 million.

Net cash provided by financing activities was
$15.1 million, $49.4 million and $10.0 million in
2001, 2000 and 1999, respectively. Net cash provided by
financing activities in 2001 resulted primarily from the
Companys issuance of Series A Preferred Stock for net
proceeds of approximately $14.7 million and equipment
financing of approximately $1.3 million. Net cash provided
by financing activities in 2000 resulted primarily from our
initial public offering. We sold 5,000,000 shares of common
stock at $7.00 per share for a total net proceeds to ViroLogic
of approximately $31.2 million. In addition, we sold
Series C preferred stock for approximately
$15.6 million in 2000.

We currently lease three buildings with
approximately 120,000 square feet of laboratory and office space
in South San Francisco, California. We began leasing 54,000
square feet of this laboratory and office space in June 2001.
Initially, this facility will provide more space than is
required for our currently planned operations. In October 2001,
we sublet approximately 40,000 square feet to a third party for
a term of 18 months with an option to extend for an
additional six months. In September 2001, we received
$2.6 million as an advance from the subtenant as specified
in the sublease agreement. This advance is recognized over the
term of the subtenants lease, offsetting related rental
and depreciation expense with the remaining amount recorded as

39



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other income. In July 2001, we sublet
approximately 12,000 square feet of one of our existing
facilities to another third party for a term of 18 months
with an option to extend for an additional six months. The
rental income generated from these subleases is expected to be
$1.6 million and $0.2 million in 2002 and 2003,
respectively, and will be recorded as an offset to rental
expense. Leases on our facilities expire in the years 2004 and
2011. All leases provide us with options to extend the term.


Our current contractual obligations for the next
five years and thereafter, excluding sublease rental income, are
generally described as follows:

|                                |                               |                                  |       |           |  |           |       |         |  |       |       |       |  |   |        |        |  |   |        |        | 
|------------------------------- | ----------------------------- | -------------------------------- | ----- | --------- |  | --------- | ----- | ------- |  | ----- | ----- | ----- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                |                               |                                 
|                                |                               | Principal Payments Due By Period
|                                |                               |                                 
|                                |                               | Less Than                        |       |           |  | After     |       |        
|Contractual Obligations         |                               | 1 Year                           |       | 1-3 Years |  | 3-5 Years |       | 5 Years |  | Total
|                                |                               |                                  |       |           |  |           |       |         |  |      
|                                |                               |                                 
|                                |                               | (In thousands)                  
|Operating leases                |                               | $                                | 2,751 |           |  | $         | 5,699 |         |  | $     | 4,815 |       |  | $ | 10,460 |        |  | $ | 23,725 |       
|Equipment loans                 |                               |                                  | 968   |           |  |           | 179   |         |  |       |      |       |  |   |       |        |  |   | 1,147  |       
|Capital leases                  |                               |                                  | 1,188 |           |  |           | 1,449 |         |  |       | 3     |       |  |   |       |        |  |   | 2,640  |       
|Materials and service contracts |                               |                                  | 1,100 |           |  |           |      |         |  |       |      |       |  |   |       |        |  |   | 1,100  |       
|                                |                               |                                  |       |           |  |           |       |         |  |       |       |       |  |   |        |        |  |   |        |       
|                                | Total contractual obligations |                                  | $     | 6,007     |  |           | $     | 7,327   |  |       | $     | 4,818 |  |   | $      | 10,460 |  |   | $      | 28,612 | 
|                                |                               |                                  |       |           |  |           |       |         |  |       |       |       |  |   |        |        |  |   |        |       

The Series B Preferred Stock bears an
initial 6% annual dividend rate, payable semi-annually in cash,
which increases to an 8% annual rate after 18 months, then
increases by 2% every six months up to a maximum of 14%. If the
currently outstanding 1,005 shares of our Series B
Preferred Stock were to remain outstanding, we would be
obligated to pay cash dividends of $0.6 million per year at
the initial 6% rate increasing to a maximum of $1.4 million
per year at the rate of 14%.

The contractual obligations discussed above are
fixed costs. If we are unable to generate sufficient cash from
operations to meet these contractual obligations, we may have to
raise additional funds. These funds may not be available on
favorable terms or at all.

Income taxes.We
have incurred net operating losses since inception. At
December 31, 2001 and 2000, we had federal and state net
operating loss carryforwards of approximately $68.0 million
and $26.0 million, respectively. The federal net operating
loss and credit carryforwards will expire at various dates
between the years 2010 and 2021, if not utilized. The State of
California net operating losses will expire at various dates
between the years 2003 and 2006, if not utilized. Utilization of
the federal and state net operating loss and credit
carryforwards may be subject to a substantial annual limitation
due to the change in ownership provisions of the
Internal Revenue Code of 1986. The annual limitation may result
in the expiration of net operating losses and credits before
utilization.

RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 141
(SFAS 141) on Business Combinations and
Statement of Financial Accounting Standards No. 142
(SFAS 142) on Goodwill and Other Intangible
Assets. SFAS 141 applies to any business combinations
initiated after June 30, 2001 and also includes the
criteria for the recognition of intangible assets separately
from goodwill. SFAS 142 is effective for fiscal years
beginning after December 15, 2001 and requires that
goodwill not be amortized, but rather be subject to an
impairment test at least annually. Separately identified and
recognized intangible assets resulting from business
combinations completed before July 1, 2001 that do not meet
the new criteria for separate recognition of intangible assets
is subsumed into goodwill upon adoption. In addition, the useful
lives of recognized intangible assets acquired in transactions
completed before July 1, 2001 is reassessed and the
remaining amortization periods adjusted accordingly. The
adoption of SFAS 141 and 142 is not expected to have a
significant impact on the Companys financial position.

In October 2001, the FASB issued Statement of
Financial Accounting Standards No. 144 Accounting for
the Impairment or Disposal of Long-Lived Assets
(SFAS 144). SFAS 144 addresses the
financial accounting and reporting for the impairment or
disposal of long-lived assets and supercedes SFAS No. 121
Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of.

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SFAS 144 is effective for fiscal years
beginning after December 15, 2001. The adoption of
SFAS 144 is not expected to have a significant impact on
the Companys financial position.


QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)

|                                           |  |                                          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|------------------------------------------ |  | ---------------------------------------- | ------- | ------- |  | ------------ | ------ | ----------- |  | - | ------ | - |  | - | ------ | -
|                                           |  | March 31                                 |         | June 30 |  | September 30 |        | December 31
|                                           |  |                                          |         |         |  |              |        |            
|                                           |  |                                         
|                                           |  | (In thousands, except per share amounts)
|2001                                       |  |                                          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|Total revenue                              |  | $                                        | 3,088   |         |  | $            | 4,769  |             |  | $ | 4,403  |   |  | $ | 6,013  |  
|Cost of product revenue                    |  |                                          | 2,288   |         |  |              | 3,124  |             |  |   | 2,760  |   |  |   | 3,673  |  
|Net loss                                   |  |                                          | (7,017  | )       |  |              | (5,881 | )           |  |   | (6,556 | ) |  |   | (6,740 | )
|Net loss applicable to common stockholders |  |                                          | (7,017  | )       |  |              | (5,881 | )           |  |   | (8,928 | ) |  |   | (6,971 | )
|Basic and diluted net loss per share       |  |                                          | (0.35   | )       |  |              | (0.29  | )           |  |   | (0.45  | ) |  |   | (0.34  | )
|                                          
|2000                                       |  |                                          |         |         |  |              |        |             |  |   |        |   |  |   |        |  
|Total revenue                              |  | $                                        | 877     |         |  | $            | 1,947  |             |  | $ | 1,885  |   |  | $ | 2,757  |  
|Cost of product revenue                    |  |                                          | 684     |         |  |              | 1,448  |             |  |   | 1,237  |   |  |   | 2,088  |  
|Net loss                                   |  |                                          | (5,464  | )       |  |              | (5,017 | )           |  |   | (5,934 | ) |  |   | (6,781 | )
|Net loss applicable to common stockholders |  |                                          | (21,164 | )       |  |              | (5,017 | )           |  |   | (5,934 | ) |  |   | (6,781 | )
|Basic and diluted net loss per share       |  |                                          | (4.19   | )       |  |              | (0.34  | )           |  |   | (0.30  | ) |  |   | (0.34  | )




Item 7A.     Quantitative
and Qualitative Disclosures about Market Risk

The primary objective of our investment
activities is to preserve principal while at the same time
maximizing the income we receive from our investments without
significantly increasing risk. Some of the securities that we
invest in may have market risk. This means that a change in
prevailing interest rates may cause the principal amount of the
investment to fluctuate. For example, if we hold a security that
was issued with a fixed interest rate at the then-prevailing
rate and the prevailing interest rate later rises, the principal
amount of our investment will probably decline. To minimize this
risk in the future, we intend to maintain our portfolio of cash
equivalents and short-term investments in a variety of
securities, including commercial paper, money market funds,
government and non-government debt securities. Due to the
relatively short-term nature of our investments, we believe we
have no material exposure to interest rate risk arising from our
investments. Therefore we have not included quantitative tabular
disclosure in this Form 10-K.

We do not enter into financial investments for
speculation or trading purposes and are not a party to financial
or commodity derivatives.

We have operated primarily in the United States
and all sales to date have been made in U.S. Dollars.
Accordingly, we have not had any material exposure to foreign
currency rate fluctuations.

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Item 8.     Financial
Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

|                                                                            |  |      |     | 
|--------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                            |  | Page
|                                                                            |  |     
|Report of Ernst & Young LLP, Independent
	Auditors                          |  |      | F-2 | 
|Balance Sheets as of December 31, 2001 and
	2000                            |  |      | F-3 | 
|Statements of Operations for the years ended
	2001, 2000 and 1999           |  |      | F-4 | 
|Statements of Stockholders Equity for the
	years ended 2001, 2000 and 1999 |  |      | F-5 | 
|Statements of Cash Flows for the years ended
	2001, 2000 and 1999           |  |      | F-6 | 
|Notes to Financial Statements                                               |  |      | F-7 | 

F-1



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REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS

To the Board of Directors and Stockholders

ViroLogic, Inc.


We have audited the accompanying balance sheets
of ViroLogic, Inc. as of December 31, 2001 and 2000, and
the related statements of operations, stockholders equity,
and cash flows for each of the three years in the period ended
December 31, 2001. Our audits also include the financial
statement schedule listed in the index at Item 14(a). These
financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of ViroLogic, Inc. at December 31, 2001 and 2000 and
the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth herein.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Palo Alto, California

February 7, 2002, except for Notes 6
and 8 as to which the date is March 26, 2002


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VIROLOGIC, INC.

BALANCE SHEETS

(In thousands, except share data)


|                                                                                                                                                                                               |                                                                                                                                                                                                      |                                            |        |         |        |  |        |         |        | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------- | ------ |  | ------ | ------- | ------ | 
|                                                                                                                                                                                               |                                                                                                                                                                                                      |                                           
|                                                                                                                                                                                               |                                                                                                                                                                                                      | December 31,                              
|                                                                                                                                                                                               |                                                                                                                                                                                                      |                                           
|                                                                                                                                                                                               |                                                                                                                                                                                                      | 2001                                       |        | 2000   
|                                                                                                                                                                                               |                                                                                                                                                                                                      |                                            |        |        
|ASSETS                                                                                                                                                                                         |                                                                                                                                                                                                      |                                            |        |         |        |  |        |        
|Current assets:                                                                                                                                                                                |                                                                                                                                                                                                      |                                            |        |         |        |  |        |        
|                                                                                                                                                                                               | Cash and cash equivalents                                                                                                                                                                            |                                            | $      | 1,399   |        |  | $      | 12,623  |       
|                                                                                                                                                                                               | Short-term investments                                                                                                                                                                               |                                            |        | 7,563   |        |  |        | 11,171  |       
|                                                                                                                                                                                               | Accounts receivable, net of allowance for
	doubtful accounts of $588 and $175 in 2001 and 2000, respectively                                                                                         |                                            |        | 4,562   |        |  |        | 2,404   |       
|                                                                                                                                                                                               | Prepaid expenses                                                                                                                                                                                     |                                            |        | 1,464   |        |  |        | 663     |       
|                                                                                                                                                                                               | Tenant improvement reimbursement                                                                                                                                                                     |                                            |        | 1,286   |        |  |        |        |       
|                                                                                                                                                                                               | Inventory                                                                                                                                                                                            |                                            |        | 956     |        |  |        | 449     |       
|                                                                                                                                                                                               | Restricted cash                                                                                                                                                                                      |                                            |        | 100     |        |  |        | 1,050   |       
|                                                                                                                                                                                               | Other current assets                                                                                                                                                                                 |                                            |        | 385     |        |  |        | 489     |       
|                                                                                                                                                                                               |                                                                                                                                                                                                      |                                            |        |         |        |  |        |        
|                                                                                                                                                                                               |                                                                                                                                                                                                      | Total current assets                       |        |         | 17,715 |  |        |         | 28,849 | 
|Property and equipment, net                                                                                                                                                                    |                                                                                                                                                                                                      |                                            | 18,381 |         |        |  | 13,234 |        
|Restricted cash                                                                                                                                                                                |                                                                                                                                                                                                      |                                            | 900    |         |        |  | 979    |        
|Other assets                                                                                                                                                                                   |                                                                                                                                                                                                      |                                            | 855    |         |        |  | 585    |        
|                                                                                                                                                                                               |                                                                                                                                                                                                      |                                            |        |         |        |  |        |        
|                                                                                                                                                                                               |                                                                                                                                                                                                      | Total assets                               |        | $       | 37,851 |  |        | $       | 43,647 | 
|                                                                                                                                                                                               |                                                                                                                                                                                                      |                                            |        |         |        |  |        |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                           |                                                                                                                                                                                                      |                                            |        |         |        |  |        |        
|Current liabilities:                                                                                                                                                                           |                                                                                                                                                                                                      |                                            |        |         |        |  |        |        
|                                                                                                                                                                                               | Accounts payable                                                                                                                                                                                     |                                            | $      | 2,304   |        |  | $      | 1,865   |       
|                                                                                                                                                                                               | Accrued compensation                                                                                                                                                                                 |                                            |        | 2,036   |        |  |        | 1,305   |       
|                                                                                                                                                                                               | Accrued liabilities                                                                                                                                                                                  |                                            |        | 2,386   |        |  |        | 2,678   |       
|                                                                                                                                                                                               | Advance from subtenant                                                                                                                                                                               |                                            |        | 1,300   |        |  |        |        |       
|                                                                                                                                                                                               | Deferred revenue                                                                                                                                                                                     |                                            |        | 314     |        |  |        | 116     |       
|                                                                                                                                                                                               | Current portion of capital lease obligations                                                                                                                                                         |                                            |        | 977     |        |  |        | 398     |       
|                                                                                                                                                                                               | Current portion of loans payable                                                                                                                                                                     |                                            |        | 890     |        |  |        | 1,390   |       
|                                                                                                                                                                                               |                                                                                                                                                                                                      |                                            |        |         |        |  |        |        
|                                                                                                                                                                                               |                                                                                                                                                                                                      | Total current liabilities                  |        |         | 10,207 |  |        |         | 7,752  | 
|Long-term portion of capital lease obligations                                                                                                                                                 |                                                                                                                                                                                                      |                                            | 1,341  |         |        |  | 945    |        
|Long-term portion of loans payable                                                                                                                                                             |                                                                                                                                                                                                      |                                            | 174    |         |        |  | 1,019  |        
|Long-term deferred rent                                                                                                                                                                        |                                                                                                                                                                                                      |                                            | 455    |         |        |  | 288    |        
|Long-term advance from subtenant                                                                                                                                                               |                                                                                                                                                                                                      |                                            | 975    |         |        |  |       |        
|Redeemable convertible preferred stock, $0.001
	par value, 1,523 shares authorized, issued and outstanding at
	December 31, 2001; none authorized, issued or outstanding
	at December 31, 2000 |                                                                                                                                                                                                      |                                            | 11,228 |         |        |  |       |        
|Commitments                                                                                                                                                                                    |                                                                                                                                                                                                      |                                            |        |         |        |  |        |        
|Stockholders equity:                                                                                                                                                                          |                                                                                                                                                                                                      |                                            |        |         |        |  |        |        
|                                                                                                                                                                                               | Preferred stock, $0.001 par value, 4,998,477 and
	5,000,000 shares authorized at December 31, 2001 and 2000,
	respectively; none issued and outstanding at December 31,
	2001 and 2000, respectively |                                            |        |        |        |  |        |        |       
|                                                                                                                                                                                               | Common stock, $0.001 par value, 60,000,000 shares
	authorized; 20,650,012 and 19,870,491 shares issued and
	outstanding at December 31, 2001 and 2000, respectively                                  |                                            |        | 21      |        |  |        | 20      |       
|                                                                                                                                                                                               | Additional paid-in capital                                                                                                                                                                           |                                            |        | 93,226  |        |  |        | 88,772  |       
|                                                                                                                                                                                               | Notes receivable from officers and employees                                                                                                                                                         |                                            |        |        |        |  |        | (31     | )     
|                                                                                                                                                                                               | Accumulated other comprehensive income                                                                                                                                                               |                                            |        | 94      |        |  |        | 178     |       
|                                                                                                                                                                                               | Deferred compensation                                                                                                                                                                                |                                            |        | (875    | )      |  |        | (2,495  | )     
|                                                                                                                                                                                               | Accumulated deficit                                                                                                                                                                                  |                                            |        | (78,995 | )      |  |        | (52,801 | )     
|                                                                                                                                                                                               |                                                                                                                                                                                                      |                                            |        |         |        |  |        |        
|                                                                                                                                                                                               |                                                                                                                                                                                                      | Total stockholders equity                 |        |         | 13,471 |  |        |         | 33,643 | 
|                                                                                                                                                                                               |                                                                                                                                                                                                      |                                            |        |         |        |  |        |        
|                                                                                                                                                                                               |                                                                                                                                                                                                      | Total liabilities and stockholders equity |        | $       | 37,851 |  |        | $       | 43,647 | 
|                                                                                                                                                                                               |                                                                                                                                                                                                      |                                            |        |         |        |  |        |        

See accompanying notes.

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VIROLOGIC, INC.

STATEMENTS OF OPERATIONS

(In thousands, except per share
amounts)


|                                                                                       |                            |                                    |         |        |        |      |         |        |        |   |         |       |        | 
|-------------------------------------------------------------------------------------- | -------------------------- | ---------------------------------- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ----- | ------ | 
|                                                                                       |                            |                                   
|                                                                                       |                            | Year Ended December 31,           
|                                                                                       |                            |                                   
|                                                                                       |                            | 2001                               |         | 2000   |        | 1999
|                                                                                       |                            |                                    |         |        |        |     
|Revenue:                                                                               |                            |                                    |         |        |        |      |         |        |        |   |         |      
|                                                                                       | Product revenue            |                                    | $       | 17,815 |        |      | $       | 7,466  |        |   | $       | 1,069 |       
|                                                                                       | NIH grant revenue          |                                    |         | 458    |        |      |         |       |        |   |         |      |       
|                                                                                       |                            |                                    |         |        |        |      |         |        |        |   |         |      
|                                                                                       |                            | Total revenue                      |         |        | 18,273 |      |         |        | 7,466  |   |         |       | 1,069  | 
|Operating costs and expenses:                                                          |                            |                                    |         |        |        |      |         |        |        |   |         |      
|                                                                                       | Cost of product revenue    |                                    |         | 11,845 |        |      |         | 5,457  |        |   |         | 627   |       
|                                                                                       | Research and development   |                                    |         | 11,693 |        |      |         | 10,080 |        |   |         | 9,588 |       
|                                                                                       | General and administrative |                                    |         | 11,376 |        |      |         | 10,841 |        |   |         | 6,804 |       
|                                                                                       | Sales and marketing        |                                    |         | 10,336 |        |      |         | 5,890  |        |   |         | 1,196 |       
|                                                                                       |                            |                                    |         |        |        |      |         |        |        |   |         |      
|                                                                                       |                            | Total operating costs and expenses |         |        | 45,250 |      |         |        | 32,268 |   |         |       | 18,215 | 
|                                                                                       |                            |                                    |         |        |        |      |         |        |        |   |         |      
|Operating loss                                                                         |                            |                                    | (26,977 | )      |        |      | (24,802 | )      |        |   | (17,146 | )    
|Interest income                                                                        |                            |                                    | 1,143   |        |        |      | 1,868   |        |        |   | 249     |      
|Interest expense                                                                       |                            |                                    | (466    | )      |        |      | (262    | )      |        |   | (243    | )    
|Other income                                                                           |                            |                                    | 106     |        |        |      |        |        |        |   |        |      
|                                                                                       |                            |                                    |         |        |        |      |         |        |        |   |         |      
|Net loss                                                                               |                            |                                    | (26,194 | )      |        |      | (23,196 | )      |        |   | (17,140 | )    
|Deemed dividend to preferred stockholders                                              |                            |                                    | (2,269  | )      |        |      | (15,700 | )      |        |   | (3,100  | )    
|Preferred stock dividend                                                               |                            |                                    | (334    | )      |        |      |        |        |        |   |        |      
|                                                                                       |                            |                                    |         |        |        |      |         |        |        |   |         |      
|Net loss applicable to common stockholders                                             |                            | $                                  | (28,797 | )      |        | $    | (38,896 | )      |        | $ | (20,240 | )    
|                                                                                       |                            |                                    |         |        |        |      |         |        |        |   |         |      
|Basic and diluted net loss per common share                                            |                            | $                                  | (1.43   | )      |        | $    | (2.62   | )      |        | $ | (4.24   | )    
|                                                                                       |                            |                                    |         |        |        |      |         |        |        |   |         |      
|Weighted average shares used in computing basic
	and diluted net loss per common share |                            |                                    | 20,072  |        |        |      | 14,852  |        |        |   | 4,772   |      
|                                                                                       |                            |                                    |         |        |        |      |         |        |        |   |         |      

See accompanying notes.

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VIROLOGIC, INC.

STATEMENTS OF STOCKHOLDERS
EQUITY

(In thousands)


|                                                                             |                                                       |                 |         |        |  |            |     |               |  |               |        |             |  |             |    |               |  |         |         |        |  |   |     |   |  |   |     |     |   |   |        |   |  |   |         |         |   |   |         |         |  
|---------------------------------------------------------------------------- | ----------------------------------------------------- | --------------- | ------- | ------ |  | ---------- | --- | ------------- |  | ------------- | ------ | ----------- |  | ----------- | -- | ------------- |  | ------- | ------- | ------ |  | - | --- | - |  | - | --- | --- | - | - | ------ | - |  | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                             |                                                       |                 |         |        |  |            |     |               |  |               |        |             |  |             |    |              
|                                                                             |                                                       | Convertible     |         | Common |  |            |     | Notes         |  | Accumulated   |        |             |  |             |    |              
|                                                                             |                                                       | Preferred Stock |         | Stock  |  | Additional |     | Receivable    |  | Other         |        |             |  |             |    | Total        
|                                                                             |                                                       |                 |         |        |  | Paid-in    |     | from Officers |  | Comprehensive |        | Deferred    |  | Accumulated |    | Stockholders
|                                                                             |                                                       | Shares          |         | Amount |  | Shares     |     | Amount        |  | Capital       |        | & Employees |  | Income      |    | Compensation  |  | Deficit |         | Equity
|                                                                             |                                                       |                 |         |        |  |            |     |               |  |               |        |             |  |             |    |               |  |         |         |       
|Balance as of December 31, 1998                                              |                                                       |                 | 3,935   |        |  | $          | 4   |               |  |               | 4,810  |             |  | $           | 5  |               |  | $       | 21,381  |        |  | $ | (95 | ) |  | $ |    |     |   | $ |       |   |  | $ | (12,465 | )       |   | $ | 8,830   |        
|Exercise of stock options, net of repurchases                                |                                                       |                 |        |        |  |            |    |               |  |               | 25     |             |  |             |   |               |  |         | 44      |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 44      |        
|Issuance of Series C convertible preferred
	stock                            |                                                       |                 | 5,814   |        |  |            | 6   |               |  |               |       |             |  |             |   |               |  |         | 10,729  |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 10,735  |        
|Issuance of common stock                                                     |                                                       |                 |        |        |  |            |    |               |  |               | 112    |             |  |             |   |               |  |         | 1,087   |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 1,087   |        
|Stock award to officer                                                       |                                                       |                 |        |        |  |            |    |               |  |               | 150    |             |  |             |   |               |  |         | 555     |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 555     |        
|Repayment of note receivable                                                 |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         |        |        |  |   | 16  |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 16      |        
|Forgiveness of note receivable                                               |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         |        |        |  |   | 33  |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 33      |        
|Deferred compensation                                                        |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         | 4,968   |        |  |   |    |   |  |   |    |     |   |   | (4,968 | ) |  |   |        |         |   |   |        |        
|Amortization of deferred compensation                                        |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         |        |        |  |   |    |   |  |   |    |     |   |   | 490    |   |  |   |        |         |   |   | 490     |        
|Stock-based compensation related to consultant
	options                      |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         | 48      |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 48      |        
|Net loss                                                                     |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         |        |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   | (17,140 | )       |   |   | (17,140 | )      
|Deemed dividend to preferred stockholders                                    |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         | (3,100  | )      |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | (3,100  | )      
|                                                                             |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         | 3,100   |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 3,100   |        
|                                                                             |                                                       |                 |         |        |  |            |     |               |  |               |        |             |  |             |    |               |  |         |         |        |  |   |     |   |  |   |     |     |   |   |        |   |  |   |         |         |   |   |         |        
|Balance as of December 31, 1999                                              |                                                       |                 | 9,749   |        |  |            | 10  |               |  |               | 5,097  |             |  |             | 5  |               |  |         | 38,812  |        |  |   | (46 | ) |  |   |    |     |   |   | (4,478 | ) |  |   | (29,605 | )       |   |   | 4,698   |        
|Comprehensive loss:                                                          |                                                       |                 |         |        |  |            |     |               |  |               |        |             |  |             |    |               |  |         |         |        |  |   |     |   |  |   |     |     |   |   |        |   |  |   |         |         |   |   |         |        
|                                                                             | Net loss                                              |                 |         |       |  |            |     |              |  |               |        |            |  |             |    |              |  |         |         |       |  |   |     |  |  |   |     |    |   |   |        |  |  |   |         | (23,196 | ) |   |         | (23,196 | )
|                                                                             | Net unrealized gain on securities
	available-for-sale |                 |         |       |  |            |     |              |  |               |        |            |  |             |    |              |  |         |         |       |  |   |     |  |  |   |     | 178 |   |   |        |  |  |   |         |        |   |   |         | 178     |  
|                                                                             |                                                       |                 |         |        |  |            |     |               |  |               |        |             |  |             |    |               |  |         |         |        |  |   |     |   |  |   |     |     |   |   |        |   |  |   |         |         |   |   |         |        
|                                                                             | Comprehensive loss                                    |                 |         |       |  |            |     |              |  |               |        |            |  |             |    |              |  |         |         |       |  |   |     |  |  |   |     |    |   |   |        |  |  |   |         |        |   |   |         | (23,018 | )
|Issuance of Series C preferred stock, net of
	issuance costs                 |                                                       |                 | 8,462   |        |  |            | 8   |               |  |               |       |             |  |             |   |               |  |         | 15,626  |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 15,634  |        
|Conversion of Series B and C preferred stock
	to common                      |                                                       |                 | (18,211 | )      |  |            | (18 | )             |  |               | 9,588  |             |  |             | 10 |               |  |         | 8       |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   |        |        
|Issuance of common stock upon initial public
	offering net of issuance costs |                                                       |                 |        |        |  |            |    |               |  |               | 5,000  |             |  |             | 5  |               |  |         | 31,240  |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 31,245  |        
|Exercise of warrants                                                         |                                                       |                 |        |        |  |            |    |               |  |               | 13     |             |  |             |   |               |  |         | 24      |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 24      |        
|Issuance of warrants to lender                                               |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         | 318     |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 318     |        
|Repayment of note receivable                                                 |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         |        |        |  |   | 9   |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 9       |        
|Forgiveness of note receivable                                               |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         |        |        |  |   | 6   |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 6       |        
|Deferred compensation                                                        |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         | 1,577   |        |  |   |    |   |  |   |    |     |   |   | (1,577 | ) |  |   |        |         |   |   |        |        
|Amortization of deferred compensation                                        |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         |        |        |  |   |    |   |  |   |    |     |   |   | 3,560  |   |  |   |        |         |   |   | 3,560   |        
|Issuance of common stock under 401K Plan                                     |                                                       |                 |        |        |  |            |    |               |  |               | 16     |             |  |             |   |               |  |         | 150     |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 150     |        
|Exercise of employee and nonemployee stock options                           |                                                       |                 |        |        |  |            |    |               |  |               | 88     |             |  |             |   |               |  |         | 274     |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 274     |        
|Stock-based compensation related to consultant
	options                      |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         | 331     |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 331     |        
|Issuance of common stock under employee stock
	purchase plan                 |                                                       |                 |        |        |  |            |    |               |  |               | 68     |             |  |             |   |               |  |         | 412     |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 412     |        
|Deemed dividend to preferred stockholders                                    |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         | 15,700  |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 15,700  |        
|                                                                             |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         | (15,700 | )      |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | (15,700 | )      
|                                                                             |                                                       |                 |         |        |  |            |     |               |  |               |        |             |  |             |    |               |  |         |         |        |  |   |     |   |  |   |     |     |   |   |        |   |  |   |         |         |   |   |         |        
|Balance as of December 31, 2000                                              |                                                       |                 |        |        |  |            |    |               |  |               | 19,870 |             |  |             | 20 |               |  |         | 88,772  |        |  |   | (31 | ) |  |   | 178 |     |   |   | (2,495 | ) |  |   | (52,801 | )       |   |   | 33,643  |        
|Comprehensive loss:                                                          |                                                       |                 |         |        |  |            |     |               |  |               |        |             |  |             |    |               |  |         |         |        |  |   |     |   |  |   |     |     |   |   |        |   |  |   |         |         |   |   |         |        
|                                                                             | Net loss                                              |                 |         |       |  |            |     |              |  |               |        |            |  |             |    |              |  |         |         |       |  |   |     |  |  |   |     |    |   |   |        |  |  |   |         | (26,194 | ) |   |         | (26,194 | )
|                                                                             | Net unrealized loss on securities
	available-for-sale |                 |         |       |  |            |     |              |  |               |        |            |  |             |    |              |  |         |         |       |  |   |     |  |  |   |     | (84 | ) |   |        |  |  |   |         |        |   |   |         | (84     | )
|                                                                             |                                                       |                 |         |        |  |            |     |               |  |               |        |             |  |             |    |               |  |         |         |        |  |   |     |   |  |   |     |     |   |   |        |   |  |   |         |         |   |   |         |        
|                                                                             | Comprehensive loss                                    |                 |         |       |  |            |     |              |  |               |        |            |  |             |    |              |  |         |         |       |  |   |     |  |  |   |     |    |   |   |        |  |  |   |         |        |   |   |         | (26,278 | )
|Issuance of warrants under Series A
	Preferred Stock, net of issuance costs  |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         | 2,775   |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 2,775   |        
|Conversion of Series A Preferred Stock to
	common                            |                                                       |                 |        |        |  |            |    |               |  |               | 402    |             |  |             | 1  |               |  |         | 744     |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 745     |        
|Exercise of warrants                                                         |                                                       |                 |        |        |  |            |    |               |  |               | 10     |             |  |             |   |               |  |         |        |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   |        |        
|Forgiveness of note receivable                                               |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         |        |        |  |   | 31  |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 31      |        
|Reversal of deferred compensation for terminated
	employees                  |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         | (121    | )      |  |   |    |   |  |   |    |     |   |   | 121    |   |  |   |        |         |   |   |        |        
|Amortization of deferred compensation                                        |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         |        |        |  |   |    |   |  |   |    |     |   |   | 1,499  |   |  |   |        |         |   |   | 1,499   |        
|Issuance of common stock under 401K plan                                     |                                                       |                 |        |        |  |            |    |               |  |               | 79     |             |  |             |   |               |  |         | 228     |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 228     |        
|Exercise of employee and nonemployee stock options                           |                                                       |                 |        |        |  |            |    |               |  |               | 33     |             |  |             |   |               |  |         | 78      |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 78      |        
|Stock-based compensation related to consultant
	options                      |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         | 384     |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 384     |        
|Issuance of common stock under employee stock
	purchase plan                 |                                                       |                 |        |        |  |            |    |               |  |               | 256    |             |  |             |   |               |  |         | 700     |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 700     |        
|Preferred stock dividends                                                    |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         | (334    | )      |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | (334    | )      
|Deemed dividend to preferred stockholders                                    |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         | 2,269   |        |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | 2,269   |        
|                                                                             |                                                       |                 |        |        |  |            |    |               |  |               |       |             |  |             |   |               |  |         | (2,269  | )      |  |   |    |   |  |   |    |     |   |   |       |   |  |   |        |         |   |   | (2,269  | )      
|                                                                             |                                                       |                 |         |        |  |            |     |               |  |               |        |             |  |             |    |               |  |         |         |        |  |   |     |   |  |   |     |     |   |   |        |   |  |   |         |         |   |   |         |        
|Balance as of December 31, 2001                                              |                                                       |                 |        |        |  | $          |    |               |  |               | 20,650 |             |  | $           | 21 |               |  | $       | 93,226  |        |  | $ |    |   |  | $ | 94  |     |   | $ | (875   | ) |  | $ | (78,995 | )       |   | $ | 13,471  |        
|                                                                             |                                                       |                 |         |        |  |            |     |               |  |               |        |             |  |             |    |               |  |         |         |        |  |   |     |   |  |   |     |     |   |   |        |   |  |   |         |         |   |   |         |        

See accompanying notes.

F-5



---



##### Table of Contents



VIROLOGIC, INC.

STATEMENTS OF CASH FLOWS

(In thousands)


|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |       |      |         |  
|---------------------------------------------------------------------------- | ---------------------------------- | ----------------------- | ----------------------------------------- | ----- | ------ | ------- | ------- | ----- | ------ | ------- | ------- | ----- | ---- | ------- | -
|                                                                             |                                    |                        
|                                                                             |                                    | Year Ended December 31,
|                                                                             |                                    |                        
|                                                                             |                                    | 2001                    |                                           | 2000  |        | 1999   
|                                                                             |                                    |                         |                                           |       |        |        
|OPERATING ACTIVITIES                                                         |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|Net loss                                                                     |                                    | $                       | (26,194                                   | )     |        | $       | (23,196 | )     |        | $       | (17,140 | )    
|Adjustments to reconcile net loss to net cash
	used in operating activities: |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|                                                                             | Depreciation and amortization      |                         |                                           | 3,276 |        |         |         | 1,700 |        |         |         | 1,135 |     
|                                                                             | Non-cash stock-based compensation  |                         |                                           | 1,914 |        |         |         | 4,124 |        |         |         | 2,227 |     
|                                                                             | Allowance for doubtful accounts    |                         |                                           | 413   |        |         |         | 111   |        |         |         | 63    |     
|                                                                             | Amortization of subtenant advance  |                         |                                           | (325  | )      |         |         |      |        |         |         |      |     
|                                                                             | Gain on short-term investments     |                         |                                           | (164  | )      |         |         | (72   | )      |         |         |      |     
|                                                                             | Changes in assets and liabilities: |                         |                                           |       |        |         |         |       |        |         |         |       |     
|                                                                             |                                    | Accounts receivable     |                                           |       | (2,571 | )       |         |       | (1,965 | )       |         |       | (613 | )      
|                                                                             |                                    | Prepaid expenses        |                                           |       | (801   | )       |         |       | (358   | )       |         |       |     |        
|                                                                             |                                    | Inventory               |                                           |       | (507   | )       |         |       | (162   | )       |         |       | (287 | )      
|                                                                             |                                    | Other current assets    |                                           |       | 104    |         |         |       | (374   | )       |         |       | (210 | )      
|                                                                             |                                    | Accounts payable        |                                           |       | 439    |         |         |       | 408    |         |         |       | 871  |        
|                                                                             |                                    | Accrued compensation    |                                           |       | 731    |         |         |       | 745    |         |         |       | 397  |        
|                                                                             |                                    | Accrued liabilities     |                                           |       | (981   | )       |         |       | 376    |         |         |       | 223  |        
|                                                                             |                                    | Deferred revenue        |                                           |       | 198    |         |         |       | 35     |         |         |       | (67  | )      
|                                                                             |                                    | Long-term deferred rent |                                           |       | 167    |         |         |       | 43     |         |         |       | 11   |        
|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|                                                                             |                                    |                         | Net cash used in operating activities     |       |        | (24,301 | )       |       |        | (18,585 | )       |       |      | (13,390 | )
|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|INVESTING ACTIVITIES                                                         |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|Purchases of short-term investments                                          |                                    |                         | (7,160                                    | )     |        |         | (35,702 | )     |        |         |        |      
|Maturities and sales of short-term investments                               |                                    |                         | 10,848                                    |       |        |         | 24,781  |       |        |         |        |      
|Restricted cash                                                              |                                    |                         | 1,029                                     |       |        |         | (1,079  | )     |        |         | (950    | )    
|Capital expenditures                                                         |                                    |                         | (7,777                                    | )     |        |         | (8,391  | )     |        |         | (2,625  | )    
|Advance from subtenant                                                       |                                    |                         | 2,600                                     |       |        |         |        |       |        |         |        |      
|Reimbursable tenant improvements                                             |                                    |                         | (1,286                                    | )     |        |         |        |       |        |         |        |      
|Other assets                                                                 |                                    |                         | (270                                      | )     |        |         | (10     | )     |        |         | (371    | )    
|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|                                                                             |                                    |                         | Net cash used in investing activities     |       |        | (2,016  | )       |       |        | (20,401 | )       |       |      | (3,946  | )
|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|FINANCING ACTIVITIES                                                         |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|Proceeds from loans payable                                                  |                                    |                         |                                          |       |        |         | 1,664   |       |        |         |        |      
|Principal payments on loans payable                                          |                                    |                         | (1,345                                    | )     |        |         | (1,203  | )     |        |         | (801    | )    
|Proceeds in connection with sale leaseback
	transactions                     |                                    |                         | 1,303                                     |       |        |         | 1,394   |       |        |         |        |      
|Principal payments on capital lease obligations                              |                                    |                         | (619                                      | )     |        |         | (51     | )     |        |         |        |      
|Proceeds from issuance of common stock, net of
	common stock repurchases     |                                    |                         | 1,006                                     |       |        |         | 31,954  |       |        |         | 30      |      
|Repayments of notes receivable                                               |                                    |                         |                                          |       |        |         | 9       |       |        |         | 16      |      
|Net proceeds from issuance of preferred stock                                |                                    |                         | 14,748                                    |       |        |         | 15,634  |       |        |         | 10,735  |      
|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|                                                                             |                                    |                         | Net cash provided by financing activities |       |        | 15,093  |         |       |        | 49,401  |         |       |      | 9,980   |  
|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|Net increase (decrease) in cash and cash
	equivalents                        |                                    |                         | (11,224                                   | )     |        |         | 10,415  |       |        |         | (7,356  | )    
|Cash and cash equivalents at beginning of year                               |                                    |                         | 12,623                                    |       |        |         | 2,208   |       |        |         | 9,564   |      
|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|Cash and cash equivalents at end of year                                     |                                    | $                       | 1,399                                     |       |        | $       | 12,623  |       |        | $       | 2,208   |      
|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|Cash paid for interest                                                       |                                    | $                       | 466                                       |       |        | $       | 262     |       |        | $       | 243     |      
|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|SCHEDULE OF NONCASH FINANCING AND INVESTING
	ACTIVITIES                      |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|Warrants issued to preferred stockholders                                    |                                    | $                       | 2,775                                     |       |        | $       |        |       |        | $       |        |      
|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|Deemed dividend to preferred stockholders                                    |                                    | $                       | 2,269                                     |       |        | $       | 15,700  |       |        | $       | 3,100   |      
|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|Preferred shares converted into common shares                                |                                    | $                       | 745                                       |       |        | $       |        |       |        | $       |        |      
|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|Assets acquired under capital leases                                         |                                    | $                       | 291                                       |       |        | $       |        |       |        | $       |        |      
|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|Accrued capital expenditures                                                 |                                    | $                       | 355                                       |       |        | $       | 1,514   |       |        | $       |        |      
|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|Dividend to preferred stockholders                                           |                                    | $                       | 334                                       |       |        | $       |        |       |        | $       |        |      
|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|Deferred stock compensation                                                  |                                    | $                       |                                          |       |        | $       | 1,577   |       |        | $       | 4,968   |      
|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      
|Warrants issued to lender                                                    |                                    | $                       |                                          |       |        | $       | 318     |       |        | $       |        |      
|                                                                             |                                    |                         |                                           |       |        |         |         |       |        |         |         |      

See accompanying notes.

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##### Table of Contents



VIROLOGIC, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2001


1.     SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of
Presentation

ViroLogic, Inc. (ViroLogic or the
Company) is a biotechnology company developing,
marketing and selling innovative products to guide and improve
treatment of viral diseases. We incorporated in the state of
Delaware on November 14, 1995 and commenced commercial
operations in 1999. We developed a practical way of directly
measuring the impact of genetic mutations on drug resistance and
using this information to guide therapy. We have proprietary
technology, called PhenoSense, for testing drug resistance in
viruses that cause serious viral diseases such as HIV/AIDS,
hepatitis B and hepatitis C. Our first product,
PhenoSense HIV, is a test that directly and quantitatively
measures resistance of a patients HIV to anti-viral drugs.
Our second product, GeneSeq HIV examines and evaluates the
genetic sequences of a patients HIV. Our third product,
PhenoSense GT combines PhenoSense HIV and GeneSeq HIV into one
test on an integrated report to provide the most comprehensive
drug resistance information available to assist physicians in
selecting optimal treatments for their patients. In addition, we
perform resistance testing and research for industry, academia
and government for clinical studies, drug
screening/characterization and basic research. We are also
developing resistance testing products for serious viral
diseases other than HIV. In addition, we are collecting
resistance test results and related clinical data in an
interactive database that we may use to assist our
pharmaceutical customers in drug marketing and drug development
and make available to physicians for use in therapy guidance.
Our products and products in development, which, if completed,
might be stand-alone product offerings or incorporated into our
existing offerings, include: (i) PhenoSense HBV and GeneSeq
HBV, for hepatitis B; (ii) PhenoSense HCV and GeneSeq
HCV, for hepatitis C; (iii) an entry assay to measure
HIV resistance to entry inhibitors; (iv) an entry assay to
assist in the development of HIV vaccines; and (v) a test
to measure viral fitness, which is a measure of a virus
ability to reproduce and infect new cells.

Managements Plans

The Company expects available cash, investments
and short-term restricted cash of $9.1 million at
December 31, 2001, together with gross proceeds from a
private placement of $10.05 million received in March 2002,
funds provided by the sale of products, grant revenue, borrowing
under equipment financing arrangements and cash flows generated
from subletting a portion of the Companys facilities will
be adequate to fund operations through at least December 2002.
Management expects to fund cash requirements in the future by
generating cash from operations. In addition, management plans
to continue to evaluate various strategic opportunities,
including research and development collaborations, international
alliances and marketing partnerships.

The Company has funded operations since inception
primarily through public and private sales of common and
preferred stock, equipment financing arrangements and product
sales. Although management expects operating and capital
resources will be sufficient to meet future requirements,
including the cash dividend payments that the Company is
required to make on shares of Series B Preferred Stock, the
Company may have to raise additional funds to continue the
development and commercialization of future technologies and
business operations in general. These funds may not be available
on favorable terms, or at all. If adequate funds are not
available on attractive terms, management may be required to
curtail operations significantly or to obtain funds by entering
into financing, supply or collaboration agreements on
unattractive terms. In addition, management may choose to raise
additional capital due to market conditions or strategic
considerations even if management believes that the Company has
sufficient funds for current or future operating plans.

Reverse Stock Split

On February 21, 2000, the Companys
board of directors approved a one for two reverse split of
common stock which became effective on April 17, 2000. The
accompanying financial statements have been adjusted

F-7



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##### Table of Contents



VIROLOGIC, INC.


NOTES TO FINANCIAL STATEMENTS
(Continued)

December 31, 2001


retroactively to reflect the reverse split. The
conversion ratios of the respective series of convertible
preferred stock were automatically adjusted to reflect the
reverse split.

Use of Estimates

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.

Cash Equivalents

ViroLogic considers all highly liquid investments
with original maturities of three months or less from the date
of purchase to be cash equivalents. Management determines the
appropriate classification of its cash equivalents and
investment securities at the time of purchase and reevaluates
such determination as of each balance sheet date.

Short-Term Investments

Management has classified ViroLogics
marketable securities as available-for-sale securities in the
accompanying financial statements. Available-for-sale securities
are carried at market value with unrealized gains and losses
included in accumulated other comprehensive income in
stockholders equity. Realized gains and losses are
included in interest income. The cost of securities sold is
based on the specific identification method.

ViroLogic invests its excess cash in U.S.
government and agency securities, debt instruments of financial
institutions and corporations, and money market funds with
strong credit ratings. ViroLogic has established guidelines
regarding diversification of its investments and their
maturities which should maintain safety and liquidity. These
guidelines are periodically reviewed and modified to take
advantage of trends in yields and interest rates.

Inventory

Inventory is stated at the lower of standard
cost, which approximates actual cost, or market. Inventory
consists of the following:

|                |  |                |     |      |  |   |     | 
|--------------- |  | -------------- | --- | ---- |  | - | --- | 
|                |  |               
|                |  | Year Ended    
|                |  | December 31,  
|                |  |               
|                |  | 2001           |     | 2000
|                |  |                |     |     
|                |  |               
|                |  | (In thousands)
|Raw materials   |  | $              | 663 |      |  | $ | 419 | 
|Work in process |  |                | 293 |      |  |   | 30  | 
|                |  |                |     |      |  |   |     | 
|Total           |  | $              | 956 |      |  | $ | 449 | 
|                |  |                |     |      |  |   |     | 

Property and Equipment

Property and equipment are recorded at cost and
are depreciated using the straight-line method over the
estimated useful lives of the assets, generally five years.
Capitalized software includes software and external consulting
costs incurred to implement new information systems. Computer
hardware and capitalized software are depreciated over three to
five years. Leasehold improvements are amortized over the
shorter of the estimated useful life of the assets or the lease
term.

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##### Table of Contents



VIROLOGIC, INC.


NOTES TO FINANCIAL STATEMENTS
(Continued)

December 31, 2001


Impairment of Long-Lived Assets

In accordance with the provisions of Statement of
Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of (SFAS 121), the
Company reviews long-lived assets, including property and
equipment, for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the assets
may not be fully recoverable. Under SFAS 121, an impairment
loss would be recognized when estimated undiscounted future cash
flows expected to result from the use of the asset and its
eventual disposition are less than the assets carrying
amount. Impairment, if any, is assessed using discounted cash
flows. Through December 31, 2001, there have been no such
losses.

Revenue Recognition

Revenue is recognized upon completion of tests
made on samples provided by customers and the shipment of test
results to those customers. Services are provided to certain
patients covered by various third-party payor programs,
including Medicare. Billings for services under third-party
payor programs are included in revenues net of an allowance for
contractual discounts and an allowance for differences between
the amounts billed and estimated payment amounts. We estimate
these allowances based on historical payment information and
current sales data. If the government and other third-party
payors significantly change their reimbursement policies or the
relative mix of third-party payors changes, an adjustment to the
allowance may be necessary. National Institutes of Health
(NIH) grant revenue is recorded on a reimbursement
basis as grant costs are incurred. Costs associated with NIH
grant revenue are included in research and development expenses.
Deferred revenue relates to cash received in advance of delivery
of test results.

Research and Development

The Company expenses research and development
costs as incurred. Research and development expenses consist
primarily of salaries and related personnel costs, material,
supply costs for prototypes, and include costs associated with
NIH grant revenue. In addition, research and development
expenses include costs related to clinical trials to validate
the Companys testing processes and procedures and related
overhead expenses.

Royalty Expense

The Company pays royalties under a licensing
agreement. These royalties are directly related to revenue and
are expensed to cost of product revenue at the time revenue is
recognized. For further discussion, see Equipment
Financing and Commitments note below.

Advertising Expenses

The Company expenses the costs of advertising,
which include promotional expenses, as incurred. Advertising
expenses were $4.5 million and $2.4 million for the
years ended December 31, 2001 and 2000, respectively, and
were recorded as sales and marketing expenses. Advertising
expenses were minimal for the year ended December 31, 1999.

Stock-Based Compensation

The Company accounts for employee stock option
grants using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25
(APB 25), which does not require the
recognition of compensation expense for options granted to
employees with exercise prices equal to the fair value of the
common stock at the date of grant. Deferred compensation, if
recorded, is amortized using the graded vesting method.
Note 6 includes the fair value disclosures required by
Statement of Financial Accounting Standards

F-9



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##### Table of Contents



VIROLOGIC, INC.


NOTES TO FINANCIAL STATEMENTS
(Continued)

December 31, 2001


Board Statement No. 123, Accounting
for Stock-Based Compensation (SFAS 123).
SFAS 123 requires the disclosure of pro forma information
regarding net loss and net loss per share as if the Company had
accounted for its stock options under the fair value method.

The Company accounts for stock option grants to
non-employees in accordance with the Emerging Issues Task Force
Consensus No. 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or
Services, which requires the options subject to vesting to
be periodically re-valued and expensed over their vesting
periods.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of
net loss and other comprehensive income (loss). Other
comprehensive income includes certain changes in equity that are
excluded from net income (loss). Specifically, unrealized gains
and losses on our available-for-sale securities, which are
reported separately in stockholders equity, are included
in accumulated other comprehensive income. Comprehensive income
(loss) and its components are as follows:

|                                                                                |  |                         |         |      |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                |  |                        
|                                                                                |  | Year Ended December 31,
|                                                                                |  |                        
|                                                                                |  | 2001                    |         | 2000 |  | 1999
|                                                                                |  |                         |         |      |  |     
|                                                                                |  |                        
|                                                                                |  | (In thousands)         
|Net loss                                                                        |  | $                       | (26,194 | )    |  | $    | (23,196 | ) |  | $ | (17,140 | )
|Changes in unrealized (loss) gain on
	securities available-for-sale, net of tax |  |                         | (84     | )    |  |      | 178     |   |  |   |        |  
|                                                                                |  |                         |         |      |  |      |         |   |  |   |         |  
|Comprehensive loss                                                              |  | $                       | (26,278 | )    |  | $    | (23,018 | ) |  | $ | (17,140 | )
|                                                                                |  |                         |         |      |  |      |         |   |  |   |         |  

Segment Reporting

The Company has determined that it operates in
only one segment under Statement of Financial Accounting
Standards No. 131, Disclosure about Segments of an
Enterprise and Related Information
(SFAS 131). SFAS 131 establishes annual
and interim reporting standards for an enterprises
operating segments and related disclosures about its products,
services, geographic areas and major customers.

Net Loss Per Share

Basic earnings (loss) per share is
calculated based on the weighted-average number of common shares
outstanding during the periods presented, less the
weighted-average shares outstanding which are subject to the
Companys right of repurchase. Diluted earnings per share
would give effect to the dilutive effect of common stock
equivalents consisting of convertible preferred stock and stock
options and warrants, calculated using the treasury stock
method. Potentially dilutive securities have been excluded from
the diluted earnings per share computations as they have an
anti-dilutive effect due to the Companys net loss.

F-10



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##### Table of Contents



VIROLOGIC, INC.


NOTES TO FINANCIAL STATEMENTS
(Continued)

December 31, 2001


A reconciliation of shares used in the
calculations is as follows:

|                                                                             |  |                                       |         |      |  |      |         |   |  |   |         |  
|---------------------------------------------------------------------------- |  | ------------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                             |  |                                      
|                                                                             |  | Year Ended December 31,              
|                                                                             |  |                                      
|                                                                             |  | 2001                                  |         | 2000 |  | 1999
|                                                                             |  |                                       |         |      |  |     
|                                                                             |  |                                      
|                                                                             |  | (In thousands, except per share data)
|Net loss applicable to common stockholders                                   |  | $                                     | (28,797 | )    |  | $    | (38,896 | ) |  | $ | (20,240 | )
|                                                                             |  |                                       |         |      |  |      |         |   |  |   |         |  
|Weighted-average shares of common stock
	outstanding                         |  |                                       | 20,078  |      |  |      | 14,891  |   |  |   | 4,856   |  
|Less: weighted-average shares subject to
	repurchase                         |  |                                       | (6      | )    |  |      | (39     | ) |  |   | (84     | )
|                                                                             |  |                                       |         |      |  |      |         |   |  |   |         |  
|Weighted-average shares used in basic and diluted
	net loss per common share |  |                                       | 20,072  |      |  |      | 14,852  |   |  |   | 4,772   |  
|                                                                             |  |                                       |         |      |  |      |         |   |  |   |         |  
|Basic and diluted net loss per common share                                  |  | $                                     | (1.43   | )    |  | $    | (2.62   | ) |  | $ | (4.24   | )
|                                                                             |  |                                       |         |      |  |      |         |   |  |   |         |  

The following outstanding options and warrants,
prior to the application of the treasury stock method, and
convertible preferred stock, on an as-converted basis, were
excluded from the computation of diluted net loss per share as
these potentially dilutive securities had an anti-dilutive
effect:

|                                                                          |  |                         |       |      |  |      |       |  |  |  |       | 
|------------------------------------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                                                          |  |                        
|                                                                          |  | Year Ended December 31,
|                                                                          |  |                        
|                                                                          |  | 2001                    |       | 2000 |  | 1999
|                                                                          |  |                         |       |      |  |     
|                                                                          |  |                        
|                                                                          |  | (In thousands)         
|Series A redeemable convertible preferred
	stock
	(as-if converted basis) |  |                         | 5,973 |      |  |      |      |  |  |  |      | 
|Series C convertible preferred stock (as-if
	converted basis)             |  |                         |      |      |  |      |      |  |  |  | 5,357 | 
|Stock options                                                             |  |                         | 3,079 |      |  |      | 1,665 |  |  |  | 1,241 | 
|Warrants to purchase common stock                                         |  |                         | 3,575 |      |  |      | 756   |  |  |  | 518   | 
|Warrants to purchase preferred stock (as-if
	converted basis)             |  |                         |      |      |  |      |      |  |  |  | 227   | 

Significant Concentrations

Financial instruments that potentially subject
the Company to concentrations of credit risk primarily consist
of cash equivalents and marketable securities. For further
discussion, see Short-Term Investments note below.

In 2001, two customers represented 15% and 14% of
total revenues, in 2000, two customers represented 19% and 18%
of total revenues, and in 1999, two customers represented 41%
and 33% of total revenues. The accounts receivable balances
related to these customers as of December 31, 2001 and 2000
were $0.6 million and $0.9 million, respectively.

The net increase in the allowance for doubtful
accounts balance was $0.4 million, $0.1 million and
$0.1 million in 2001, 2000 and 1999, respectively.

The Company relies on a few vendors as the sole
source of various materials in its testing process. Any extended
interruption in the supply of these materials could result in
the failure to meet customer demand.

Recent Accounting Pronouncements

In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 141
(SFAS 141) on Business Combinations and
Statement of Financial Accounting Standards No. 142
(SFAS 142) on Goodwill and Other Intangible
Assets. SFAS 141 applies to any business combinations
initiated after June 30, 2001 and also includes the
criteria for the recognition of intangible assets separately
from goodwill. SFAS 142 is effective for fiscal years
beginning after December 15, 2001 and requires that
goodwill not be amortized, but rather be subject to an
impairment test at least annually. Separately identified and
recognized intangible assets

F-11



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##### Table of Contents



VIROLOGIC, INC.


NOTES TO FINANCIAL STATEMENTS
(Continued)

December 31, 2001


resulting from business combinations completed
before July 1, 2001 that do not meet the new criteria for
separate recognition of intangible assets is subsumed into
goodwill upon adoption. In addition, the useful lives of
recognized intangible assets acquired in transactions completed
before July 1, 2001 is reassessed and the remaining
amortization periods adjusted accordingly. The adoption of
SFAS 141 and 142 is not expected to have a significant
impact on the Companys financial position.

In August 2001, the FASB issued Statement of
Financial Accounting Standards No. 144 Accounting for
the Impairment or Disposal of Long-Lived Assets
(SFAS 144). SFAS 144 addresses the financial
accounting and reporting for the impairment or disposal of
long-lived assets and supercedes SFAS No. 121
Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of. SFAS 144 will be
effective on April 1, 2002. The adoption of SFAS 144
is not expected to have a significant impact on the
Companys financial position.

In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Financial
Instruments and for Hedging Activities
(SFAS 133). SFAS 133 requires the Company
to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value
through net income. If the derivative is a hedge, depending on
the nature of the hedge, changes in the fair value of the
derivative are either offset against the change in fair value of
assets, liabilities, or firm commitments through earnings or
recognized in the other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of the
derivatives change in fair value will be immediately
recognized in earnings. SFAS 133 was adopted by the Company
on January 1, 2001. Because the Company does not currently
hold any derivatives, there was no impact on the Companys
financial position or results of operations as a result of this
adoption.

Reclassifications

Certain reclassifications of prior year amounts
have been made to conform with the current year presentation.

2.     SHORT-TERM
INVESTMENTS

The amortized cost, gross unrealized gains and
losses, and estimated fair value for available-for-sale
securities by major security type and class of security are as
follows:

|                                    |                             |                |       |            |  |            |    |           |  |            |       |            |  |   |        |       |  |   |     |     |  |   |        |       | 
|----------------------------------- | --------------------------- | -------------- | ----- | ---------- |  | ---------- | -- | --------- |  | ---------- | ----- | ---------- |  | - | ------ | ----- |  | - | --- | --- |  | - | ------ | ----- | 
|                                    |                             |               
|                                    |                             | December 31,  
|                                    |                             |               
|                                    |                             |                |       |           
|                                    |                             | 2001           |       | 2000      
|                                    |                             |                |       |           
|                                    |                             |                |       | Gross      |  |            |    |           |  | Gross      |       |           
|                                    |                             |                |       | Unrealized |  |            |    |           |  | Unrealized |       |           
|                                    |                             | Amortized      |       | Holding    |  | Estimated  |    | Amortized |  | Holding    |       | Estimated 
|                                    |                             | Cost           |       | Gain       |  | Fair Value |    | Cost      |  | Gain       |       | Fair Value
|                                    |                             |                |       |            |  |            |    |           |  |            |       |           
|                                    |                             |               
|                                    |                             | (In thousands)
|Maturing within one year:           |                             |                |       |            |  |            |    |           |  |            |       |            |  |   |        |       |  |   |     |     |  |   |        |      
|                                    | Certificate of deposit      |                | $     |           |  |            | $  |          |  |            | $     |           |  |   | $      | 308   |  |   | $   |    |  |   | $      | 308   | 
|Maturing between one and two years: |                             |                |       |            |  |            |    |           |  |            |       |            |  |   |        |       |  |   |     |     |  |   |        |      
|                                    | U.S. government obligations |                |       | 3,013      |  |            |    | 51        |  |            |       | 3,064      |  |   |        | 1,985 |  |   |     | 42  |  |   |        | 2,027 | 
|                                    | Corporate bonds and notes   |                |       | 4,456      |  |            |    | 43        |  |            |       | 4,499      |  |   |        | 8,700 |  |   |     | 136 |  |   |        | 8,836 | 
|                                    |                             |                |       |            |  |            |    |           |  |            |       |            |  |   |        |       |  |   |     |     |  |   |        |      
|Total available-for-sale securities |                             | $              | 7,469 |            |  | $          | 94 |           |  | $          | 7,563 |            |  | $ | 10,993 |       |  | $ | 178 |     |  | $ | 11,171 |      
|                                    |                             |                |       |            |  |            |    |           |  |            |       |            |  |   |        |       |  |   |     |     |  |   |        |      

F-12



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##### Table of Contents



VIROLOGIC, INC.


NOTES TO FINANCIAL STATEMENTS
(Continued)

December 31, 2001


3.     PROPERTY AND
EQUIPMENT

Property and equipment consists of the following:

|                                          |  |                |        |      |  |   |        |  
|----------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                                          |  |               
|                                          |  | December 31,  
|                                          |  |               
|                                          |  | 2001           |        | 2000
|                                          |  |                |        |     
|                                          |  |               
|                                          |  | (In thousands)
|Machinery, equipment and furniture        |  | $              | 9,425  |      |  | $ | 8,099  |  
|Leasehold improvements                    |  |                | 12,479 |      |  |   | 6,124  |  
|Capitalized software                      |  |                | 3,346  |      |  |   | 2,618  |  
|                                          |  |                |        |      |  |   |        |  
|                                          |  |                | 25,250 |      |  |   | 16,841 |  
|Accumulated depreciation and amortization |  |                | (6,869 | )    |  |   | (3,607 | )
|                                          |  |                |        |      |  |   |        |  
|Property and equipment, net               |  | $              | 18,381 |      |  | $ | 13,234 |  
|                                          |  |                |        |      |  |   |        |  

4.     ACCRUED
LIABILITIES

Accrued liabilities consists of the following:

|                                           |  |                |       |      |  |   |       | 
|------------------------------------------ |  | -------------- | ----- | ---- |  | - | ----- | 
|                                           |  |               
|                                           |  | December 31,  
|                                           |  |               
|                                           |  | 2001           |       | 2000
|                                           |  |                |       |     
|                                           |  |               
|                                           |  | (In thousands)
|Accrued royalty fee                        |  | $              | 417   |      |  | $ | 126   | 
|Accrued capital expenditures               |  |                | 355   |      |  |   | 1,514 | 
|Accrued clinical research costs            |  |                | 261   |      |  |   | 133   | 
|Accrued professional fees                  |  |                | 196   |      |  |   | 329   | 
|Property taxes payable                     |  |                | 177   |      |  |   | 141   | 
|Accrued marketing and promotional expenses |  |                | 101   |      |  |   | 169   | 
|Other                                      |  |                | 879   |      |  |   | 266   | 
|                                           |  |                |       |      |  |   |       | 
|Total accrued liabilities                  |  | $              | 2,386 |      |  | $ | 2,678 | 
|                                           |  |                |       |      |  |   |       | 

5.     EQUIPMENT
FINANCING AND COMMITMENTS

ViroLogic currently leases three buildings with
approximately 120,000 square feet of laboratory and office space
in South San Francisco, California.

ViroLogic executed an operating lease agreement
in December 1997 for laboratory and office space. The lease term
expires in November 2004. The operating lease provides for two
successive extensions of three and four years, respectively. In
January 1998, ViroLogic executed a tenant improvement agreement
for the construction of laboratory and office improvements of up
to $1.0 million. An additional obligation of approximately
$18,300 per month for 83 months commencing February 1998
has been added to the operating lease commitment.

In May and November 1999, ViroLogic entered into
two operating lease agreements for two additional facilities.
Each lease has a term of 10 years from the lease
commencement date of May 2000 and June 2001, respectively. Each
of the leases provides for two additional successive five year
extensions at the then-prevailing rate. In connection with these
facility leases, ViroLogic has two deposits securing standby
letters of credit totaling approximately $0.9 million and
$2.0 million at December 31, 2001 and
December 31, 2000, respectively. These deposits have been
recorded as restricted cash in the balance sheet.

F-13



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##### Table of Contents



VIROLOGIC, INC.


NOTES TO FINANCIAL STATEMENTS
(Continued)

December 31, 2001


In July 2001, ViroLogic sublet approximately
12,000 square feet of one of its existing facilities to a third
party for a term of 18 months with an option to extend for
an additional six months. In October 2001, ViroLogic sublet
approximately 40,000 square feet to another third party for a
term of 18 months with an option to extend for an
additional six months. In September 2001, we received
$2.6 million as an advance from one of the subtenants as
specified in the sublease agreement. This advance is recognized
over the term of the subtenants lease, offsetting the
related rental and depreciation expense with the remaining
amount recorded as other income. The rental income generated
from these subleases is expected to be $1.6 million and
$0.2 million, in 2002 and 2003, respectively, and will be
recorded as an offset to rental expense.

In March 2000, ViroLogic established an equipment
financing facility with a total commitment of $1.3 million.
ViroLogic used this entire facility to fund machinery and
equipment purchases. In August 2000, ViroLogic established a new
equipment facility of which $2.6 million was utilized as of
December 31, 2001; under the terms of this agreement,
ViroLogic sold the purchased assets and leased them back from
the lender over a period of three years. There was no material
gain or loss on this transaction and the resulting leases have
been accounted for as capital leases.

As of December 31, 2001 and 2000, ViroLogic
had $7.3 million and $5.8 million, respectively, of
property and equipment financed through long-term equipment
financing obligations. The obligations under the equipment
financings are secured by the equipment financed, bear interest
at weighted-average fixed rates of approximately 10.9% and 10.8%
for 2001 and 2000, respectively, and are due in monthly
installments through July 2005. Some of these equipment
financing agreements require a balloon payment at the end of
their respective terms. The carrying amount of the equipment
approximates the corresponding loan balance.

As of December 31, 2001, future minimum
lease payments under operating and capital leases and principal
payments on loans, excluding sublease rental income, are as
follows:

|                                    |            |                                            |   |         |        |         |       |     |       |   |       |       |       | 
|----------------------------------- | ---------- | ------------------------------------------ | - | ------- | ------ | ------- | ----- | --- | ----- | - | ----- | ----- | ----- | 
|                                    |            | Operating                                  |   | Loans   |        | Capital
|                                    |            | Leases                                     |   | Payable |        | Leases 
|                                    |            |                                            |   |         |        |        
|                                    |            |                                           
|                                    |            | (In thousands)                            
|Year ending December 31:            |            |                                            |   |         |        |         |       |     |       |   |       |      
|                                    | 2002       |                                            | $ | 2,751   |        |         | $     | 968 |       |   | $     | 1,188 |      
|                                    | 2003       |                                            |   | 2,829   |        |         |       | 179 |       |   |       | 1,133 |      
|                                    | 2004       |                                            |   | 2,870   |        |         |       |    |       |   |       | 316   |      
|                                    | 2005       |                                            |   | 2,367   |        |         |       |    |       |   |       | 3     |      
|                                    | 2006       |                                            |   | 2,448   |        |         |       |    |       |   |       |      |      
|                                    | Thereafter |                                            |   | 10,460  |        |         |       |    |       |   |       |      |      
|                                    |            |                                            |   |         |        |         |       |     |       |   |       |      
|                                    |            | Total minimum lease and principal payments |   | $       | 23,725 |         |       |     | 1,147 |   |       |       | 2,640 | 
|                                    |            |                                            |   |         |        |         |       |     |       |   |       |      
|Amount representing interest        |            |                                            |   |         |        |         | (83   | )   |       |   | (322  | )    
|                                    |            |                                            |   |         |        |         |       |     |       |   |       |      
|Present value of future payments    |            |                                            |   |         |        |         | 1,064 |     |       |   | 2,318 |      
|Current portion of loans and leases |            |                                            |   |         |        |         | (890  | )   |       |   | (977  | )    
|                                    |            |                                            |   |         |        |         |       |     |       |   |       |      
|Noncurrent portion                  |            |                                            |   |         |        | $       | 174   |     |       | $ | 1,341 |      
|                                    |            |                                            |   |         |        |         |       |     |       |   |       |      

Rental expense, net of sublease rental income,
was approximately $2.4 million, $1.8 million and
$0.9 million in 2001, 2000 and 1999, respectively.

As of December 31, 2001, ViroLogic had
purchase commitments for material and service contracts totaling
approximately $1.1 million.

F-14



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##### Table of Contents



VIROLOGIC, INC.


NOTES TO FINANCIAL STATEMENTS
(Continued)

December 31, 2001


License Agreement

ViroLogic licenses technology for performing a
step in its PhenoSense and GeneSeq tests. The license is
non-exclusive and lasts for the life of the patent term of the
licensors last to expire related patents. In general,
newly-issued patents have a term of twenty years. In exchange
for the license, ViroLogic has agreed to pay a royalty based on
the net service revenues received from product sales. Royalty
expense recorded under this agreement was $0.7 million and
$0.2 million in 2001 and 2000, respectively. Royalty
expense in 1999 was minimal.

6.     STOCKHOLDERS
EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK

Initial Public Offering

On May 1, 2000, ViroLogic completed its
initial public offering in which it sold 5,000,000 shares of
common stock at $7.00 per share. Upon the closing of the
offering, all of ViroLogics outstanding preferred stock
automatically converted into an aggregate of 9,587,769 shares of
common stock. After the offering, ViroLogics authorized
capital consisted of 60,000,000 shares of common stock and
5,000,000 shares of preferred stock. By filing a certificate
pursuant to the Delaware General Corporation Law, the board of
directors is authorized to fix or alter the designation, powers,
preferences and rights of the shares of each series of preferred
stock and the qualifications, limitations or restrictions of any
wholly unissued series of preferred stock.

Preferred Stock

Series B Redeemable Convertible Preferred
Stock

In 2002, the board of directors approved 1,022
shares of the authorized preferred stock to be designated and
issued as Series B redeemable convertible preferred stock
(Series B Preferred Stock). On March 22,
2002, the Company entered into a securities purchase agreement
with several investors to issue and sell, in a private
placement, an aggregate of 1,005 shares of Series B
Preferred Stock with warrants to purchase an aggregate of
2.2 million shares of common stock, for an aggregate
purchase price of $10.05 million. The transaction closed on
March 25, 2002. In connection with this financing, the
Company also had to grant warrants to purchase an aggregate of
637,261 shares of common stock to holders of Series A
Preferred Stock as a payment in order to secure their consent
and waiver concerning the financing and the resulting impact on
the Series A Preferred Stock. For further discussion, see
Subsequent Events note below.

Series A Redeemable Convertible Preferred
Stock

In 2001, the board of directors approved 1,625
shares of the authorized preferred stock to be designated and
issued as Series A Preferred Stock.

On June 29, 2001, the Company entered into a
securities purchase agreement with several investors to issue
and sell, in a private placement, an aggregate of 1,625 shares
of Series A redeemable convertible preferred stock
(Series A Preferred Stock) with warrants to
purchase an aggregate of 3.2 million shares of common
stock, for an aggregate purchase price of $16.25 million.
The securities purchase agreement contemplated two closings,
each for a portion of the Series A Preferred Stock and the
warrants. The first closing occurred on July 2, 2001, and
the Company received gross proceeds of $6.65 million. The
second and final closing occurred on September 27, 2001,
and the Company received gross proceeds of $9.6 million.

The Series A Preferred Stock bears an
initial 6% annual dividend rate, payable as a dividend, which
increases to an 8% annual rate after two years, then increases
by 2% every six months up to a maximum of 14%, payable twice a
year in shares of common stock. The holders of Series A
Preferred Stock may elect to

F-15



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##### Table of Contents



VIROLOGIC, INC.


NOTES TO FINANCIAL STATEMENTS
(Continued)

December 31, 2001


convert their shares into the Companys
common stock at any time, just as they may choose to exercise
their warrants at any time. Of the 1,625 shares issued in the
financing, 992 shares remain outstanding as of March 28,
2002, and the others were converted into an aggregate of
2,531,571 shares of our common stock. The Company may, at its
option, convert the Series A Preferred Stock into common
stock at any time after June 21, 2002 for Series A
Preferred Stock issued at the first closing and after
July 9, 2002 for Series A Preferred Stock issued at
the second closing, but only if its stock price exceeds $5.10
for 20 consecutive trading days. The Company may also, at
its option, convert the Series A Preferred Stock into
common stock upon a sale of common stock in a firm commitment
underwritten offering to the public if the public offering price
exceeds $5.10, the aggregate gross proceeds exceed
$40 million and the registration statements referenced
above are effective.

The holders are not subject to any limitations on
the number of conversions of Series A Preferred Stock or
subsequent sales of the corresponding common stock, that they
can effect, other than a prohibition on any holder acquiring
beneficial ownership of more than 4.99% of the outstanding
shares of the Companys common stock.

The investors of Series A Preferred Stock
have the right to require us to redeem all of the Series A
Preferred Stock for cash equal to the greater of (i) 115%
of their original purchase price plus 115% of any accrued and
unpaid dividend or (ii) the aggregate fair market value of
the shares of common stock into which such shares of
Series A Preferred Stock are then convertible, upon certain
triggering events, as defined in the Companys Certificate
of Designations, Preferences and Rights of Series A
Convertible Preferred Stock. In addition, the Company may redeem
the Series A Preferred Stock at any time after
June 29, 2003, for Series A Preferred Stock issued at
the first closing and after September 27, 2003 for
Series A Preferred Stock issued at the second closing. Due
to the nature of the redemption features of the Series A
Preferred Stock, the Company excluded the Series A
Preferred Stock from equity in the Companys financial
statements. The net proceeds attributable to the warrants of
$2.8 million are included in additional paid-in capital.

Deemed Dividends

In January and February 2000, ViroLogic
consummated the sale of 8,461,645 shares of Series C
convertible preferred stock, which converted into 4,230,823
shares of common stock effective with ViroLogics initial
public offering in May 2000. ViroLogic received proceeds of
approximately $15.6 million or $1.85 per share, or $3.70
per converted common share. In November and December 1999,
ViroLogic consummated the sale of 1,675,621 shares of
Series C convertible preferred stock, which converted into
837,810 shares of common stock effective with ViroLogics
initial public offering. ViroLogic received proceeds of
approximately $3.1 million or $1.85 per share, or $3.70 per
converted common share. At the dates of issuance, ViroLogic
believed the per share price of $1.85, or $3.70 per converted
common share, represented the fair value of the common stock.
Subsequent to the commencement of ViroLogics initial
public offering process, ViroLogic re-evaluated the fair value
of its common stock and for financial reporting purposes, deemed
it to be $11.90 per share as of January and February 2000 and
$10.50 per share as of November and December 1999. Accordingly,
the increase in fair value has resulted in a beneficial
conversion feature of $15.7 million and $3.1 million
in 2000 and 1999, respectively, that have been recorded as
deemed dividends to preferred stockholders in 2000 and 1999.
ViroLogic recorded the deemed dividends at the dates of issuance
by offsetting charges and credits to additional paid-in capital,
without any effect on total stockholders equity. The
deemed dividend increases the loss applicable to common
stockholders in the calculation of basic and diluted net loss
per common share and are limited to the amount of the proceeds
of the related financing pursuant to the guidelines set forth in
the Emerging Issues Task Force Consensus No. 98-5,
Accounting for Convertible Securities with Beneficial
Conversion Features, and No. 00-27, Application
of Issue No. 98-5 to Certain Convertible Instruments.

F-16



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##### Table of Contents



VIROLOGIC, INC.


NOTES TO FINANCIAL STATEMENTS
(Continued)

December 31, 2001


In 2001, ViroLogic sold 1,625 shares of
Series A Preferred Stock, or 6,372,561 shares of common
stock as converted, for net proceeds of approximately
$14.7 million. In accordance with Emerging Issues Task
Force Consensus No. 98-5 and No. 00-27, ViroLogic
determined that the issuance of the Series A Preferred
Stock resulted in a beneficial conversion feature of
approximately $2.3 million in 2001. The beneficial
conversion feature increases the loss applicable to common
stockholders in the calculation of basic and diluted net loss
per common share and is included in stockholders equity as
offsetting charges and credits to additional paid-in capital.

Warrants

In connection with the May 1996 sale of
Series A Preferred Stock, ViroLogic issued to four
investors warrants to purchase an aggregate of 792,188 shares of
Series A Preferred Stock at a price of $1.84 per share.
Pursuant to the conversion of all Series A Preferred Stock
in November 1997, these warrants were exercisable for 396,093
shares of common stock at an exercise price of $3.68 per share.
The value of the warrant was deemed to be insignificant,
therefore, no value was recorded. In 2001, there were 9,454
warrants exercised and the remainder expired.

Pursuant to the operating lease signed in 1997,
ViroLogic issued the landlord a warrant to purchase an aggregate
of 100,000 shares of Series A Preferred Stock, which
converted into 50,000 shares of common stock at $8.00 per share.
The value of the warrant was deemed to be insignificant,
therefore, no value was recorded. In 2000, there were 3,000
warrants exercised. The remaining 47,000 warrants expire in
August 2002.

In connection with the loan agreement signed in
January 1998, ViroLogic issued the lender a warrant to purchase
an aggregate of 34,833 shares of common stock at a price of
$8.00 per share. The warrant expires in January 2008. The value
of the warrant was deemed to be insignificant and, therefore, no
value was recorded.

In connection with tenant improvement financing
entered into in August 1998, ViroLogic issued the landlord a
warrant to purchase up to an aggregate of 10,000 shares of
common stock at a price of $8.00 per share. The warrant term is
five years and expires in August 2003. The value of the warrant
was deemed to be insignificant and, therefore, no value was
recorded.

In connection with the Series B preferred
stock issuance in August 1998, ViroLogic issued to Series B
investors warrants to purchase up to 15,890 shares of common
stock at a price of $0.02 per share. The warrant term is
10 years and was valued at $85,000. ViroLogic issued
warrants to purchase 365,000 shares of Series B preferred
stock, or as converted, 227,232 shares of common stock, at a
price of $3.68 per share, or $5.91 per converted common share.
The warrant term is 10 years and was valued at $383,000.
The fair values of these warrants were determined using the
Black-Scholes option valuation model. In 2001, there were 624
warrants exercised.

In connection with loan agreements signed in
2000, ViroLogic issued the lender warrants to purchase an
aggregate of 26,792 shares of ViroLogics common stock for
$4.24 per share. The warrant terms are 10 years and were
valued at $318,000. The fair values of these warrants were
determined using the Black-Scholes option valuation model.

In connection with the July 2001 sale of
Series A Preferred Stock, ViroLogic issued warrants to
purchase 11,800 and 1,303,928 shares of common stock at a price
of $2.66 and $2.805, respectively, per share. The warrant term
is four years expiring July 2005 and was valued at
$1.3 million using the Black-Scholes option valuation
model. The fair value of the warrants is included in additional
paid-in capital.

In connection with the September 2001 sale of
Series A Preferred Stock, ViroLogic issued warrants to
purchase 18,200 and 1,882,358 shares of common stock at a price
of $2.178 and $2.805, respectively, per

F-17



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##### Table of Contents



VIROLOGIC, INC.


NOTES TO FINANCIAL STATEMENTS
(Continued)

December 31, 2001


share. The warrant term is four years
expiring September 2005 and was valued at $1.5 million
using the Black-Scholes option valuation model. The fair value
of the warrants is included in additional paid-in capital.

Stock Option and Stock Award to Chief
Executive Officer

Pursuant to the employment agreement with the
chief executive officer, ViroLogic granted in 1999:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A stock award of 150,000 shares of fully-vested
	common stock. ViroLogic recorded compensation expense of
	$555,000 for this award in 1999, representing the fair value of
	the common stock on the grant date.                                                                                                                                                                                                                                                         
|
| |  | An incentive stock option under the Plan covering
	150,000 shares of common stock at an exercise price of $3.14.
	This option vested as to 30,000 shares on December 31, 1999
	and an additional 2,500 shares at the end of each month
	thereafter. Deferred compensation of $1.1 million was
	recorded on the date of grant. The amount is being recognized
	over the vesting period.                                                                                  
|
| |  | A non-statutory stock option, granted outside of
	the Plan, covering 250,000 shares of common stock at an exercise
	price of $3.14 per share. This option vests 25% after the first
	year of employment and the remaining 75% in equal monthly
	installments over the next three years, and may be exercised
	prior to vesting. ViroLogic recorded deferred compensation of
	$1.8 million on the date of grant. The amount is being
	recognized over the vesting period.
|
| |  | A non-statutory stock option, granted outside of
	the Plan, covering 250,000 shares of common stock at an exercise
	price of $3.14 per share. ViroLogic recorded deferred
	compensation of $1.8 million on the date of grant and such
	amount is being amortized over the vesting period, unless the
	milestones below are achieved. This option vests 100% after five
	years of employment, unless either one of the following occurs
	before that date:               



| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A merger or acquisition or initial public
	offering where the per share valuation of common stock is
	imputed to be more than $18.50, in which case 125,000 shares
	shall immediately vest, or
|
| |  | When revenue for any fiscal year exceeds
	$20.0 million, in which case 125,000 shares shall
	immediately vest                                                                                 

The chief executive officer may exercise any of
these options prior to vesting by either cash or by delivery of
a promissory note, and each of the options immediately becomes
fully vested if, within one year of a change in our control or
liquidation, the chief executive officer is terminated without
cause or resigns for good reason.

Stock Option Plans

On May 20, 1996, ViroLogics board of
directors and stockholders adopted the 1996 Stock Plan, which
was amended and renamed the 2000 Equity Incentive Plan in
February 2000 (the Plan). The Plan provides for the
granting of options to purchase common stock and other stock
awards to employees, officers, directors and consultants of
ViroLogic. ViroLogic generally grants shares of common stock for
issuance under the Plan at no less than the fair value of the
stock on the grant date; however, management is permitted to
grant non-statutory stock options at a price not lower than 85%
of the fair value of common stock on the date of grant. Options
granted under the Plan generally vest over four years at a rate
of 25% one year from the grant date and ratably monthly
thereafter. When the Plan was amended in February 2000, the
board of directors increased the shares reserved for issuance by
an additional 3,000,000 shares.

F-18



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##### Table of Contents



VIROLOGIC, INC.


NOTES TO FINANCIAL STATEMENTS
(Continued)

December 31, 2001


A summary of activity under the Plan is as
follows:

|                              |                              |                                        |           |            |   |                  |           |           |   |   |      |      | 
|----------------------------- | ---------------------------- | -------------------------------------- | --------- | ---------- | - | ---------------- | --------- | --------- | - | - | ---- | ---- | 
|                              |                              |                                       
|                              |                              | Outstanding Stock Options/Stock Rights
|                              |                              |                                       
|                              |                              | Shares                                 |           | Number of  |   | Weighted-Average
|                              |                              | Available                              |           | Shares     |   | Price Per Share 
|                              |                              |                                        |           |            |   |                 
|Balances at December 31, 1998 |                              |                                        | 146,111   |            |   |                  | 356,930   |           |   | $ | 2.83 |     
|                              | Additional shares authorized |                                        |           | 375,000    |   |                  |           |          |   |   |      |     | 
|                              | Options/rights granted       |                                        |           | (519,675   | ) |                  |           | 519,675   |   |   |      | 3.98 | 
|                              | Options/rights exercised     |                                        |           |           |   |                  |           | (31,254   | ) |   |      | 2.04 | 
|                              | Options/rights forfeited     |                                        |           | 104,484    |   |                  |           | (104,484  | ) |   |      | 2.68 | 
|                              | Options/rights repurchased   |                                        |           | 6,250      |   |                  |           |          |   |   |      | 3.20 | 
|                              |                              |                                        |           |            |   |                  |           |           |   |   |      |     
|Balances at December 31, 1999 |                              |                                        | 112,170   |            |   |                  | 740,867   |           |   |   | 3.69 |     
|                              | Additional shares authorized |                                        |           | 3,000,000  |   |                  |           |          |   |   |      |     | 
|                              | Options/rights granted       |                                        |           | (636,141   | ) |                  |           | 636,141   |   |   |      | 8.17 | 
|                              | Options/rights exercised     |                                        |           |           |   |                  |           | (88,475   | ) |   |      | 3.10 | 
|                              | Options/rights forfeited     |                                        |           | 123,894    |   |                  |           | (123,894  | ) |   |      | 6.81 | 
|                              |                              |                                        |           |            |   |                  |           |           |   |   |      |     
|Balances at December 31, 2000 |                              |                                        | 2,599,923 |            |   |                  | 1,164,639 |           |   |   | 5.85 |     
|                              | Options/rights granted       |                                        |           | (1,707,644 | ) |                  |           | 1,707,644 |   |   |      | 4.44 | 
|                              | Options/rights exercised     |                                        |           |           |   |                  |           | (33,005   | ) |   |      | 2.38 | 
|                              | Options/rights forfeited     |                                        |           | 260,497    |   |                  |           | (260,497  | ) |   |      | 5.50 | 
|                              |                              |                                        |           |            |   |                  |           |           |   |   |      |     
|Balances at December 31, 2001 |                              |                                        | 1,152,776 |            |   |                  | 2,578,781 |           |   |   | 5.00 |     
|                              |                              |                                        |           |            |   |                  |           |           |   |   |      |     

In 2001, all options were granted at fair value
and no deferred stock-based compensation was recorded. In
connection with options granted in 2000, ViroLogic recorded
deferred stock-based compensation of $1.6 million,
representing the difference between the exercise price and the
deemed fair value of the Companys common stock at the date
of grant. The amount is being amortized over the vesting period
using the graded vesting method for the individual options.
Amortization of deferred stock-based compensation of
$1.5 million, $3.6 million and $0.5 million was
recognized during 2001, 2000 and 1999, respectively. In
addition, ViroLogic recorded stock-based compensation of
$0.2 million, $0.3 million and $48,000 in 2001, 2000
and 1999, respectively, for services rendered by non-employees.

F-19



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##### Table of Contents



VIROLOGIC, INC.


NOTES TO FINANCIAL STATEMENTS
(Continued)

December 31, 2001


The following table summarizes information about
the stock options outstanding under the Plan at
December 31, 2001:

|               |  |                     |           |                     |  |                  |      |             |  |                  |       |  |  |  |         |  |  |   |       | 
|-------------- |  | ------------------- | --------- | ------------------- |  | ---------------- | ---- | ----------- |  | ---------------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|               |  |                     |           |                    
|               |  | Options Outstanding |           | Options Exercisable
|               |  |                     |           |                    
|               |  |                     |           | Weighted Average    |  |                  |      |            
|Range of       |  | Number              |           | Remaining           |  | Weighted Average |      | Number      |  | Weighted Average
|Exercise Price |  | Outstanding         |           | Contractual Life    |  | Exercise Price   |      | Exercisable |  | Exercise Price  
|               |  |                     |           |                     |  |                  |      |             |  |                 
|$0.64   2.32  |  |                     | 271,165   |                     |  |                  | 9.02 |             |  | $                | 1.61  |  |  |  | 36,516  |  |  | $ | 1.10  | 
|2.39   3.11   |  |                     | 204,129   |                     |  |                  | 9.58 |             |  |                  | 2.50  |  |  |  | 107,212 |  |  |   | 2.40  | 
|3.14           |  |                     | 315,400   |                     |  |                  | 7.84 |             |  |                  | 3.14  |  |  |  | 178,651 |  |  |   | 3.14  | 
|3.15   3.20   |  |                     | 52,515    |                     |  |                  | 6.86 |             |  |                  | 3.19  |  |  |  | 40,478  |  |  |   | 3.20  | 
|3.22           |  |                     | 363,750   |                     |  |                  | 9.54 |             |  |                  | 3.22  |  |  |  | 10,506  |  |  |   | 3.22  | 
|3.26   5.40   |  |                     | 368,382   |                     |  |                  | 8.04 |             |  |                  | 4.24  |  |  |  | 196,688 |  |  |   | 4.44  | 
|5.75           |  |                     | 10,000    |                     |  |                  | 9.09 |             |  |                  | 5.75  |  |  |  | 2,777   |  |  |   | 5.75  | 
|6.00           |  |                     | 500,490   |                     |  |                  | 9.08 |             |  |                  | 6.00  |  |  |  | 40,332  |  |  |   | 6.00  | 
|6.78   9.00   |  |                     | 287,600   |                     |  |                  | 8.87 |             |  |                  | 8.05  |  |  |  | 78,414  |  |  |   | 7.88  | 
|9.53  22.13   |  |                     | 205,350   |                     |  |                  | 8.64 |             |  |                  | 13.04 |  |  |  | 80,223  |  |  |   | 12.84 | 
|               |  |                     |           |                     |  |                  |      |             |  |                  |       |  |  |  |         |  |  |   |       | 
|               |  |                     | 2,578,781 |                     |  |                  |      |             |  |                  |       |  |  |  | 771,797 |  |  |   |       | 
|               |  |                     |           |                     |  |                  |      |             |  |                  |       |  |  |  |         |  |  |   |       | 

Common Stock Subject to Repurchase

Certain stock options granted pursuant to the
Plan may be exercised prior to vesting, subject to
ViroLogics right to repurchase at the original exercise
price if the holder terminates employment. The right to
repurchase lapses over the original option vesting period, which
is generally four years. From inception through
December 31, 2001, employees purchased 344,250 shares
of common stock subject to repurchase. ViroLogic has repurchased
41,040 shares in accordance with these rights. As of
December 31, 2001, there were no remaining shares subject
to repurchase.

Employee Stock Purchase Plan

In February 2000, the board of directors adopted
the 2000 Employee Stock Purchase Plan (the Stock
Plan). ViroLogic has reserved a total of 500,000 shares of
common stock for issuance under the Stock Plan. The Stock Plan
permits eligible employees to acquire shares of ViroLogics
common stock through payroll deductions of up to 15% of their
eligible earnings. All full-time employees of ViroLogic, except
5% stockholders, are eligible to participate in the Stock Plan.
The initial offering period began May 1, 2000, the
effective date of the initial public offering. The purchase
price of the shares is the lesser of 85% of the fair value of
the shares at the offering date or purchase date, as defined by
the Stock Plan. Of the 500,000 shares of common stock reserved
for issuance under the Stock Plan, 324,039 shares were issued as
of December 31, 2001.

401(k) Plan

ViroLogics 401(k) Plan covers
substantially all employees. Employees may contribute up to 15%
of their eligible compensation, subject to certain Internal
Revenue Service restrictions. ViroLogic matches employee
contributions in the form of ViroLogic common shares. In 2000,
the 401(k) Plan was amended to increase the matching
percentage to 25% of the employee contribution. In 1999 the
matching percentage was 5% of the employee contribution. The
match is effective December 31 of each year and is fully
vested when made. ViroLogic recorded 401(k) matching expense of
$0.2 million in both 2001 and 2000. 401(k) matching

F-20



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##### Table of Contents



VIROLOGIC, INC.


NOTES TO FINANCIAL STATEMENTS
(Continued)

December 31, 2001


expense was minimal in 1999. As of
December 31, 2001, ViroLogic had issued approximately
104,000 shares under the 401(k) Plan.

Pro Forma Information

SFAS 123 requires pro forma information regarding
net loss, which has been determined as if ViroLogic accounted
for its employee stock options under the fair value method of
SFAS 123. ViroLogic estimates the fair value of these
options at the date of grant using the Black-Scholes option
valuation model with the following weighted-average assumptions
used for the grants in 2001, 2000 and 1999: risk-free interest
rate of 4% in 2001 and 5.5% in 2000 and 1999; a weighted-average
expected life of the option from grant date of four years;
volatility factor of the expected market price of
ViroLogics common stock of 65% from May 2000 through
December 2001 and volatility factor of zero for the period prior
to May 2000 as required by the minimum value method; and a
dividend yield of zero. The weighted-average fair value of stock
options granted in 2001, 2000 and 1999 was $2.89, $7.82 and
$6.90, respectively.

For pro forma purposes, the estimated fair value
of ViroLogics stock-based awards to its employees is
amortized over the option vesting period. ViroLogics pro
forma information is as follows:

|             |                                            |                           |   |         |   |      |   |         |   |  |   |         |  
|------------ | ------------------------------------------ | ------------------------- | - | ------- | - | ---- | - | ------- | - |  | - | ------- | -
|             |                                            |                          
|             |                                            | December 31,             
|             |                                            |                          
|             |                                            | 2001                      |   | 2000    |   | 1999
|             |                                            |                           |   |         |   |     
|             |                                            |                          
|             |                                            | (In thousands,           
|             |                                            | except per share amounts)
|As reported: |                                            |                           |   |         |   |      |   |         |   |  |   |        
|             | Net loss applicable to common stockholders |                           | $ | (28,797 | ) |      | $ | (38,896 | ) |  | $ | (20,240 | )
|             |                                            |                           |   |         |   |      |   |         |   |  |   |        
|             | Net loss per share                         |                           | $ | (1.43   | ) |      | $ | (2.62   | ) |  | $ | (4.24   | )
|             |                                            |                           |   |         |   |      |   |         |   |  |   |        
|Proforma:    |                                            |                           |   |         |   |      |   |         |   |  |   |        
|             | Net loss applicable to common stockholders |                           | $ | (31,611 | ) |      | $ | (39,498 | ) |  | $ | (20,491 | )
|             |                                            |                           |   |         |   |      |   |         |   |  |   |        
|             | Net loss per share                         |                           | $ | (1.57   | ) |      | $ | (2.66   | ) |  | $ | (4.29   | )
|             |                                            |                           |   |         |   |      |   |         |   |  |   |        

The above pro forma effect may not be
representative of the pro forma effect to be expected in future
years.

Reserved Shares

As of December 31, 2001, ViroLogic had
reserved shares of common stock for future issuance as follows:

|                                                                |  |          |            | 
|--------------------------------------------------------------- |  | -------- | ---------- | 
|                                                                |  | Shares  
|                                                                |  | Reserved
|                                                                |  |         
|Redeemable convertible preferred stock (as if
	converted basis) |  |          | 5,972,563  | 
|Stock options                                                   |  |          | 4,231,557  | 
|Warrants                                                        |  |          | 3,575,160  | 
|Employee Stock Purchase Plan                                    |  |          | 175,961    | 
|                                                                |  |          |            | 
|                                                                |  |          | 13,955,241 | 
|                                                                |  |          |            | 

The reserved shares shown above do not include
additional indeterminate amounts reserved for issuance pursuant
to penalty, anti-dilution, dividend payments and other
provisions relating to the Companys Series A
Preferred Stock and the related warrants.

F-21



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##### Table of Contents



VIROLOGIC, INC.


NOTES TO FINANCIAL STATEMENTS
(Continued)

December 31, 2001


7.     INCOME
TAXES

At December 31, 2001, ViroLogic had federal
and state net operating loss carryforwards of approximately
$68.0 million and $26.0 million, respectively. At
December 31, 2001, ViroLogic also had federal and state
research and development tax credits of approximately
$0.7 million and $0.7 million, respectively. The
federal net operating loss and credit carryforwards will expire
at various dates between the years 2010 and 2021, if not
utilized. The State of California net operating losses will
expire at various dates between the years 2003 and 2006, if not
utilized. The California research and development tax credits
can be carried forward indefinitely.

Utilization of the federal and state net
operating loss and credit carryforwards may be subject to a
substantial annual limitation due to the change in
ownership provisions of the Internal Revenue Code of 1986.
The annual limitation may result in the expiration of net
operating losses and credits before utilization.

Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
for financial reporting purposes and the amount used for income
tax purposes. Significant components of ViroLogics
deferred tax assets for federal and state income taxes are as
follows:

|                                     |  |                |         |      |  |   |         |  
|------------------------------------ |  | -------------- | ------- | ---- |  | - | ------- | -
|                                     |  |               
|                                     |  | December 31,  
|                                     |  |               
|                                     |  | 2001           |         | 2000
|                                     |  |                |         |     
|                                     |  |               
|                                     |  | (In thousands)
|Deferred tax assets:                 |  |                |         |      |  |   |         |  
|Net operating loss carryforwards     |  | $              | 24,600  |      |  | $ | 17,400  |  
|Research and other credits           |  |                | 1,200   |      |  |   | 1,100   |  
|Capitalized research and development |  |                | 1,500   |      |  |   | 600     |  
|Other                                |  |                | 2,100   |      |  |   | 500     |  
|                                     |  |                |         |      |  |   |         |  
|Total deferred tax assets            |  |                | 29,400  |      |  |   | 19,600  |  
|Valuation allowance                  |  |                | (29,400 | )    |  |   | (19,600 | )
|                                     |  |                |         |      |  |   |         |  
|Net deferred taxes                   |  | $              |        |      |  | $ |        |  
|                                     |  |                |         |      |  |   |         |  

Due to ViroLogics lack of earnings history,
the net deferred tax assets have been fully offset by a
valuation allowance. The valuation allowance increased by
$9.8 million, $7.9 million and $6.3 million in
2001, 2000 and 1999, respectively.

8.     SUBSEQUENT
EVENTS

Series B Redeemable Convertible Preferred
Stock

On March 22, 2002, the Company entered into
a securities purchase agreement with several investors to issue
and sell, in a private placement, an aggregate of
1,005 shares of Series B Preferred Stock with warrants
to purchase an aggregate of 2.2 million shares of common
stock, for an aggregate purchase price of $10.05 million.
The transaction closed on March 25, 2002. In connection
with this financing, the Company also had to grant warrants to
purchase an aggregate of 637,261 shares of common stock to
holders of Series A Preferred Stock as a payment in order
to secure their consent and waiver concerning the financing and
the resulting impact on the Series A Preferred Stock.

The Series B Preferred Stock bears an
initial 6% annual dividend rate, payable semi-annually as a cash
dividend, which increases to an 8% annual rate after
18 months, then increases by 2% every six months up to a
maximum of 14%. The holders of Series B Preferred Stock may
elect to convert their shares into common stock at any time,
just as they may choose to exercise their warrants at any time.
The Company may, at its option, convert the Series B
Preferred Stock into common stock at any time after the date
270 days following the effectiveness of the registration
statement covering the Series B Preferred Stock, but only
if the

F-22



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##### Table of Contents



VIROLOGIC, INC.


NOTES TO FINANCIAL STATEMENTS
(Continued)

December 31, 2001


Companys stock price exceeds $4.56 for
20 consecutive trading days. The Company may also, at its
option, convert the Series B Preferred Stock into common
stock upon a sale of common stock in a firm commitment
underwritten offering to the public if the public offering price
exceeds $4.56 and the aggregate gross proceeds exceed
$40 million, provided the registration statement the
Company is required to file, to register for resale the common
stock underlying the Series B Preferred Stock and the
related warrants and other securities, is effective.

The holders are not subject to any limitations on
the number of conversions of Series B Preferred Stock or
subsequent sales of the corresponding common stock, that they
can effect, other than a prohibition on any holder acquiring
beneficial ownership of more than the greater of (i) 4.99%
of the outstanding shares of our common stock, or (ii) the
number of shares of our common stock beneficially owned by the
holder as of immediately prior to the Series B Preferred
Stock financing.

The Company expects to record a deemed dividend
of approximately $2.9 million, in the first quarter of
2002, relating to the beneficial conversion feature of the
Series B Preferred Stock and the additional warrants issued
to the holders of the Series A Preferred Stock in
connection with the Series B Preferred Stock financing. The
deemed dividend will increase the loss applicable to common
stockholders in the calculation of basic and diluted net loss
per common share and will be included in stockholders
equity as offsetting charges and credits to additional paid-in
capital. This accounting result is similar to accounting
implications of our issuance of Series A Preferred Stock,
which resulted in us recording a deemed dividend of
$2.3 million in the third quarter of 2001.

The investors of Series B Preferred Stock
have the right to require us to redeem all of the Series B
Preferred Stock for cash equal to the greater of (i) 120%
of their original purchase price plus 120% of any accrued and
unpaid dividend or (ii) the aggregate fair market value of
the shares of common stock into which such shares of
Series B Preferred Stock are then convertible, upon certain
triggering events, as defined in our Certificate of
Designations, Preferences and Rights of Series B
Convertible Preferred Stock. In addition, the Company may redeem
the Series B Preferred Stock at any time after
March 25, 2004. Due to the nature of the redemption
features of the Series B Preferred Stock, the Company will
exclude the Series B Preferred Stock from equity in its
financial statements, just as with the Companys
Series A Preferred Stock. The net proceeds of approximately
$2.6 million attributable to the warrants issued to the holders
of Series B Preferred Stock at the time of the financing
will be included in additional-paid-in capital.

F-23



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##### Table of Contents






Item 9.     Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure

Not applicable.




Part III




Item 10.     Directors
and Executive Officers of the Registrant

Information required by this item with respect to
executive officers and directors is incorporated by reference to
the proxy statement to be filed with the SEC pursuant to
Regulation 14A in connection with ViroLogic Inc.s
2002 annual meeting.

Directors.As of
March 28, 2002, our board of directors consisted of:
William D. Young, Edmon Jennings, William Jenkins,
Cristina H. Kepner and David H. Persing, M.D., PhD.
Until recently, we had a sixth director, Anders Hove M.D., who
resigned in March 2002. The information with respect to
directors required by this item is incorporated herein by
reference from the information under the caption of
Election of Directors, contained in the proxy
statement for its Annual Meeting of Stockholders, scheduled to
be held on May 16, 2002, which shall be filed with the SEC
within 120 days from the end of our fiscal year.

Executive Officers.The information with respect to
executive officers required by this item is set forth in
Part I of this report.




Item 11.     Executive
Compensation

The information required by this item is
incorporated by reference to the information under the caption
Executive Compensation contained in the proxy
statement.




Item 12.     Security
Ownership of Certain Beneficial Owners and
Management

The information required by this item is
incorporated by reference to the information under the caption
Security Ownership of Certain Beneficial Owners and
Management contained in the proxy statement.




Item 13.     Certain
Relationships and Related Transactions

The information required by this item is
incorporated by reference to the information under the caption
contained in Certain Transactions contained in the
proxy statement.

42



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##### Table of Contents






Part IV




Item 14.     Exhibits,
Financial Statement Schedules and Reports on
Form 8-K

(a)(1) Index to Financial Statements

Reference is made to the Index to Financial
Statements under Item 8 in Part II hereof, where these
documents are listed.

(a)(2) Financial Statement Schedules:The following schedule is filed as part of this
Form 10-K:



| |                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Schedule II  Valuation and
	Qualifying Accounts for the years ended December 31, 2001,
	2000 and 1999                                                                                                                                                                 
|
| | All other schedules have been omitted because
	they are not applicable or required, or the information required
	to be set forth therein is included in the Financial Statements
	or notes thereto included in Item 8 (Financial
	Statements and Supplementary Data).

(a)(3) Index to Exhibits 
See (c) below.

(b) Reports on Form 8-K

Not applicable.

(c) Exhibits

|         |     |         |  |  |      |  |  |                                                                                                                                          
|-------- | --- | ------- |  |  | ---- |  |  | -----------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |     | Exhibit |  | 
|Footnote |     | Number  |  | 
|         |     |         |  | 
|         | (1) |         |  |  | 3.1  |  |  | Amended and Restated Certificate of
	Incorporation, as currently in effect.                                                              
|         | (4) |         |  |  | 3.2  |  |  | Bylaws, as currently in effect.                                                                                                          
|         | (5) |         |  |  | 3.3  |  |  | Certificate of Designations, Preferences and
	Rights of Series A Convertible Preferred Stock.                                            
|         | (7) |         |  |  | 3.4  |  |  | Certificate of Designations, Preferences and
	Rights of Series B Convertible Preferred Stock.                                            
|         | (3) |         |  |  | 4.1  |  |  | Reference is made to Exhibits 3.1, 3.2, 3.3 and
	3.4.                                                                                    
|         | (1) |         |  |  | 4.2  |  |  | Specimen Stock Certificate.                                                                                                              
|         | (1) |         |  |  | 4.3  |  |  | Amended and Restated Investors Rights Agreement
	by and among the Company and certain stockholders of the Company
	dated August 23, 1999.
|         | (1) |         |  |  | 4.4  |  |  | Form of Indemnity Agreement between the Company
	and its directors and officers.                                                         
|         | (1) |         |  |  | 4.5  |  |  | Warrant Agreement by and between ViroLogic and
	Lease Management Services, Inc. dated as of October 16,
	1996.                           
|         | (1) |         |  |  | 4.6  |  |  | Warrant Agreement by and between ViroLogic and
	MMC/ GATX Partnership No. 1 dated as of January 30, 1998.(2)                             
|         | (1) |         |  |  | 4.7  |  |  | Form of Warrant to purchase Common Stock.                                                                                                
|         | (1) |         |  |  | 4.8  |  |  | Form of Warrant to purchase Common Stock.                                                                                                
|         | (1) |         |  |  | 4.9  |  |  | Form of Warrant to purchase Series A
	Preferred Stock (automatically converted to warrants to purchase
	Common Stock in May 2000).       
|         | (1) |         |  |  | 4.10 |  |  | Form of Warrant to purchase Series A
	Preferred Stock (automatically converted to warrants to purchase
	Common Stock in May 2000).       
|         | (1) |         |  |  | 4.11 |  |  | Form of Warrant to purchase Series B
	Preferred Stock (automatically converted to warrants to purchase
	Common Stock in May 2000).       
|         | (1) |        |  |  | 4.12 |  |  | 2000 Equity Incentive Plan, as amended.                                                                                                  

43



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##### Table of Contents



|         |     |         |  |  |       |  |  |                                                                                                                                                    
|-------- | --- | ------- |  |  | ----- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |     | Exhibit |  | 
|Footnote |     | Number  |  | 
|         |     |         |  | 
|         | (1) |        |  |  | 4.13  |  |  | Form of Stock Option Agreement under the 2000
	Equity Incentive Plan for options granted prior to May 1,
	2000.                                    
|         | (1) |        |  |  | 4.14  |  |  | Form of Stock Option Agreement Pursuant to the
	2000 Equity Incentive Plan for options granted after May 1,
	2000.                                 
|         | (1) |         |  |  | 4.15  |  |  | Form of Warrant to Purchase Series C
	Preferred Stock (automatically converted to warrants to purchase
	Common Stock in May 2000).                 
|         | (6) |         |  |  | 4.16  |  |  | Form of (Common) Stock Purchase Warrant issued to
	holders of Series A Redeemable Convertible Preferred Stock.                                     
|         | (7) |         |  |  | 4.17  |  |  | Form of (Common) Stock Purchase Warrant issued to
	holders of Series B Redeemable Convertible Preferred Stock.                                     
|         | (7) |         |  |  | 4.18  |  |  | Form of (Common) Stock Purchase Warrant issued to
	holders of Series A Redeemable Convertible Preferred Stock.                                     
|         | (2) | *       |  |  | 10.1  |  |  | Agreement with Roche Molecular Systems, Inc.
	dated July 29, 1997.                                                                                 
|         | (1) |         |  |  | 10.2  |  |  | Office Lease by and between ViroLogic and Oyster
	Point Tech Center LLC dated as of May 25, 1999.                                                  
|         | (1) |         |  |  | 10.3  |  |  | Office Lease by and between ViroLogic and
	Trammell Crow Northern California Development, Inc. dated as of
	November 23, 1999.                     
|         | (1) |         |  |  | 10.4  |  |  | Equipment Financing Agreement by and between
	ViroLogic and Lease Management Services, Inc. dated as of
	October 16, 1996.                         
|         | (1) |         |  |  | 10.5  |  |  | Loan and Security Agreement by and between
	ViroLogic and MMC/ GATX Partnership No. 1 dated as of
	January 30, 1998.                               
|         | (1) |        |  |  | 10.6  |  |  | Employment Agreement by and between ViroLogic and
	William D. Young dated September 29, 1999.                                                      
|         | (1) |        |  |  | 10.7  |  |  | Employment Agreement by and between ViroLogic and
	Martin H. Goldstein dated February 7, 1996.                                                     
|         | (1) |         |  |  | 10.8  |  |  | Equipment Financing Agreement dated
	March 28, 2000 with Pentech Financial Services, Inc.                                                          
|         | (2) |         |  |  | 10.9  |  |  | ViroLogic, Inc. 2000 Equity Incentive Plan, as
	amended.                                                                                           
|         | (3) |         |  |  | 10.10 |  |  | Form of Executive Severance Benefits Agreement.                                                                                                    
|         | (3) |         |  |  | 10.11 |  |  | Master Lease Agreement dated September 14,
	2000 by and between ViroLogic, Inc. and General Electric Capital
	Corporation.                         
|         | (4) |         |  |  | 10.12 |  |  | Equipment Financing Agreement by and between
	ViroLogic and De Lage Landen Financial Services, Inc. dated as
	of January 29, 2001.                 
|         | (5) |         |  |  | 10.13 |  |  | Equipment Schedule No. 4 to Master
	Lease Agreement dated as of August 14, 2000 by and between
	ViroLogic and General Electric Capital Corporation.
|         | (5) |         |  |  | 10.14 |  |  | Sublease by and between ViroLogic, Inc. and
	DiaDexus, Inc.                                                                                        
|         | (5) |         |  |  | 10.15 |  |  | Sublease by and between ViroLogic, Inc. and Raven
	Biotechnologies, Inc.                                                                           
|         | (6) |         |  |  | 10.16 |  |  | Securities Purchase Agreement, dated as of
	June 29, 2001, by and among ViroLogic, Inc. and each of the
	Purchasers.                               
|         | (6) |         |  |  | 10.17 |  |  | First Registration Rights Agreement, dated as of
	June 29, 2001, by and between ViroLogic, Inc. and each of
	the Purchasers.                       
|         | (6) |         |  |  | 10.18 |  |  | Second Registration Rights Agreement, dated as of
	June 29, 2001 by and between ViroLogic, Inc. and each of
	the Purchasers.                       
|         |     |         |  |  | 10.19 |  |  | Equipment Schedule No. 5 to Master
	Lease Agreement dated as of August 14, 2000 by and between
	ViroLogic and General Electric Capital Corporation.

44



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##### Table of Contents



|         |     |         |  |  |       |  |  |                                                                                                                        
|-------- | --- | ------- |  |  | ----- |  |  | -----------------------------------------------------------------------------------------------------------------------
|Exhibit  |     | Exhibit |  | 
|Footnote |     | Number  |  | 
|         |     |         |  | 
|         | (7) |         |  |  | 10.20 |  |  | Securities Purchase Agreement, dated as of
	March 22, 2002, by and among ViroLogic, Inc. and each of
	the Purchasers.  
|         | (7) |         |  |  | 10.21 |  |  | Registration Rights Agreement, dated as of
	March 22, 2002, by and between ViroLogic, Inc. and each of
	the Purchasers.
|         |     |         |  |  | 23.1  |  |  | Consent of Ernst & Young LLP, Independent
	Auditors.                                                                   
|         |     |         |  |  | 24.1  |  |  | Power of Attorney is contained on the signature
	page.                                                                 




|  |                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------
| | Indicates management or compensatory plan or
	arrangement required to be identified pursuant to
	Item 14(c).



|    |                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(*) | Certain confidential portions deleted pursuant to
	Order Granting Application Under the Securities Act of 1933 and
	Rule 406 Thereunder Respecting Confidential Treatment dated
	May 1, 2000.
|   
|(1) | Filed as an exhibit to the Registrants
	Registration Statement on Form S-1 (No. 333-30896) or
	amendments thereto and incorporated herein by reference.                                     
|   
|(2) | Filed as an exhibit to the Registrants
	Quarterly Report on Form 10-Q for the quarter ended
	September 30, 2000 and incorporated herein by reference.                                       
|   
|(3) | Filed as an exhibit to our Annual Report on
	Form 10-K for the year ended December 31, 2000 filed
	with the Commission and incorporated herein by reference.                                 
|   
|(4) | Filed as an exhibit to the Registrants
	Quarterly Report on Form 10-Q for the quarter ended
	March 31, 2001 and incorporated herein by reference.                                           
|   
|(5) | Filed as an exhibit to the Registrants
	Quarterly Report on Form 10-Q for the quarter ended
	June 30, 2001 and incorporated herein by reference.                                            
|   
|(6) | Filed as an exhibit to our Current Report on
	Form 8-K filed on July 6, 2001 and incorporated herein
	by reference.                                                                          
|   
|(7) | Filed as an exhibit to our Current Report on
	Form 8-K filed on March 26, 2002 and incorporated
	herein by reference.                                                                        

45



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) 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.



| |                
| | ---------------
| | ViroLogic, Inc.



| |     |                     
| | --- | --------------------
| | By: | /s/ WILLIAM D. YOUNG

| |                        
| | -----------------------
| |                        
| | William D. Young       
| | Chief Executive Officer

Date: March 29, 2002

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
William D. Young, Kathy L. Hibbs and Karen J. Wilson, and each
of them, as his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for
him or her and in his or her name, place, and stead, in any and
all capacities, to sign any and all amendments to this Report,
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming that all said attorneys-in-fact and
agents, or any of them or their or his substitute or
substituted, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

|                                                               |  |                                                                                          |  |               
|-------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | --------------
|Signatures                                                     |  | Title                                                                                    |  | Date          
|                                                               |  |                                                                                          |  |               
|/s/ WILLIAM D. YOUNGWilliam D. Young                           |  | Chairman, Chief Executive Officer and Director
	(Principal Executive Officer)            |  | March 29, 2002
|/s/ KAREN J. WILSONKaren J. Wilson                             |  | Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer) |  | March 29, 2002
|/s/ EDMON JENNINGSEdmon Jennings                               |  | Director                                                                                 |  | March 29, 2002
|/s/ WILLIAM JENKINSWilliam Jenkins                             |  | Director                                                                                 |  | March 29, 2002
|/s/ CRISTINA H. KEPNERCristina H. Kepner                       |  | Director                                                                                 |  | March 29, 2002
|/s/ DAVID H. PERSING, M.D., PH.D.David H. Persing, M.D., Ph.D. |  | Director                                                                                 |  | March 29, 2002

46



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##### Table of Contents



EXHIBIT INDEX

|         |      |         |  |  |      |  |  |                                                                                                                                          
|-------- | ---- | ------- |  |  | ---- |  |  | -----------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |      | Exhibit |  | 
|Footnote |      | Number  |  | 
|         |      |         |  | 
|         | (1)  |         |  |  | 3.1  |  |  | Amended and Restated Certificate of
	Incorporation, as currently in effect.                                                              
|         | (4)  |         |  |  | 3.2  |  |  | Bylaws, as currently in effect.                                                                                                          
|         | (5)  |         |  |  | 3.3  |  |  | Certificate of Designations, Preferences and
	Rights of Series A convertible Preferred Stock.                                            
|         | (7)  |         |  |  | 3.4  |  |  | Certificate of Designations, Preferences and
	Rights of Series B Convertible Preferred Stock.                                            
|         | (3)  |         |  |  | 4.1  |  |  | Reference is made to Exhibits 3.1 and 3.2.                                                                                               
|         | (1)  |         |  |  | 4.2  |  |  | Specimen Stock Certificate.                                                                                                              
|         | (1)  |         |  |  | 4.3  |  |  | Amended and Restated Investors Rights Agreement
	by and among the Company and certain stockholders of the Company
	dated August 23, 1999.
|         | (1)  |         |  |  | 4.4  |  |  | Form of Indemnity Agreement between the Company
	and its directors and officers.                                                         
|         | (1)  |         |  |  | 4.5  |  |  | Warrant Agreement by and between ViroLogic and
	Lease Management Services, Inc. dated as of October 16,
	1996.                           
|         | (1)  |         |  |  | 4.6  |  |  | Warrant Agreement by and between ViroLogic and
	MMC/GATX Partnership No. 1 dated as of January 30,
	1998.(2)                             
|         | (1)  |         |  |  | 4.7  |  |  | Form of Warrant to purchase Common Stock.                                                                                                
|         | (1)  |         |  |  | 4.8  |  |  | Form of Warrant to purchase Common Stock.                                                                                                
|         | (1)  |         |  |  | 4.9  |  |  | Form of Warrant to purchase Series A
	Preferred Stock (automatically converted to warrants to purchase
	Common Stock in May 2000).       
|         | (1)  |         |  |  | 4.10 |  |  | Form of Warrant to purchase Series A
	Preferred Stock (automatically converted to warrants to purchase
	Common Stock in May 2000).       
|         | (1)  |         |  |  | 4.11 |  |  | Form of Warrant to purchase Series B
	Preferred Stock (automatically converted to warrants to purchase
	Common Stock in May 2000).       
|         | (1) |         |  |  | 4.12 |  |  | 2000 Equity Incentive Plan, as amended.                                                                                                  
|         | (1) |         |  |  | 4.13 |  |  | Form of Stock Option Agreement under the 2000
	Equity Incentive Plan for options granted prior to May 1,
	2000.                          
|         | (1) |         |  |  | 4.14 |  |  | Form of Stock Option Agreement Pursuant to the
	2000 Equity Incentive Plan for options granted after May 1,
	2000.                       
|         | (1)  |         |  |  | 4.15 |  |  | Form of Warrant to Purchase Series C
	Preferred Stock (automatically converted to warrants to purchase
	Common Stock in May 2000).       
|         | (6)  |         |  |  | 4.16 |  |  | Form of (Common) Stock Purchase Warrant to
	holders of Series A Redeemable Convertible Preferred Stock.                                  
|         | (7)  |         |  |  | 4.17 |  |  | Form of (Common) Stock Purchase Warrant issued to
	holders of Series B Redeemable Convertible Preferred Stock.                           
|         | (7)  |         |  |  | 4.18 |  |  | Form of (Common) Stock Purchase Warrant issued to
	holders of Series A Redeemable Convertible Preferred Stock.                           
|         | (2)  | *       |  |  | 10.1 |  |  | Agreement with Roche Molecular Systems, Inc.
	dated July 29, 1997.                                                                       
|         | (1)  |         |  |  | 10.2 |  |  | Office Lease by and between ViroLogic and Oyster
	Point Tech Center LLC dated as of May 25, 1999.                                        
|         | (1)  |         |  |  | 10.3 |  |  | Office Lease by and between ViroLogic and
	Trammell Crow Northern California Development, Inc. dated as of
	November 23, 1999.           
|         | (1)  |         |  |  | 10.4 |  |  | Equipment Financing Agreement by and between
	ViroLogic and Lease Management Services, Inc. dated as of
	October 16, 1996.               
|         | (1)  |         |  |  | 10.5 |  |  | Loan and Security Agreement by and between
	ViroLogic and MMC/ GATX Partnership No. 1 dated as of
	January 30, 1998.                     
|         | (1) |         |  |  | 10.6 |  |  | Employment Agreement by and between ViroLogic and
	William D. Young dated September 29, 1999.                                            

47



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##### Table of Contents



|         |      |         |  |  |       |  |  |                                                                                                                                                    
|-------- | ---- | ------- |  |  | ----- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |      | Exhibit |  | 
|Footnote |      | Number  |  | 
|         |      |         |  | 
|         | (1) |         |  |  | 10.7  |  |  | Employment Agreement by and between ViroLogic and
	Martin H. Goldstein dated February 7, 1996.                                                     
|         | (1)  |         |  |  | 10.8  |  |  | Equipment Financing Agreement dated
	March 28, 2000 with Pentech Financial Services, Inc.                                                          
|         | (2)  |         |  |  | 10.9  |  |  | ViroLogic, Inc. 2000 Equity Incentive Plan, as
	amended.                                                                                           
|         | (3)  |         |  |  | 10.10 |  |  | Form of Executive Severance Benefits Agreement.                                                                                                    
|         | (3)  |         |  |  | 10.11 |  |  | Master Lease Agreement dated September 14,
	2000 by and between ViroLogic, Inc. and General Electric Capital
	Corporation.                         
|         | (4)  |         |  |  | 10.12 |  |  | Equipment Financing Agreement by and between
	ViroLogic and De Lage Landen Financial Services, Inc. dated as
	of January 29, 2001.                 
|         | (5)  |         |  |  | 10.13 |  |  | Equipment Schedule No. 4 to Master
	Lease Agreement dated as of August 14, 2000 by and between
	ViroLogic and General Electric Capital Corporation.
|         | (5)  |         |  |  | 10.14 |  |  | Sublease by and between ViroLogic, Inc. and
	DiaDexus, Inc.                                                                                        
|         | (5)  |         |  |  | 10.15 |  |  | Sublease by and between ViroLogic, Inc. and Raven
	Biotechnologies, Inc.                                                                           
|         | (6)  |         |  |  | 10.16 |  |  | Securities Purchase Agreement, dated as of
	June 29, 2001, by and among ViroLogic, Inc. and each of the
	Purchasers.                               
|         | (6)  |         |  |  | 10.17 |  |  | First Registration Rights Agreement, dated as of
	June 29, 2001, by and between ViroLogic, Inc. and each of
	the Purchasers.                       
|         | (6)  |         |  |  | 10.18 |  |  | Second Registration Rights Agreement, dated as of
	June 29, 2001 by and between ViroLogic, Inc. and each of
	the Purchasers.                       
|         |      |         |  |  | 10.19 |  |  | Equipment Schedule No. 5 to Master
	Lease Agreement dated as of August 14, 2000 by and between
	ViroLogic and General Electric Capital Corporation.
|         | (7)  |         |  |  | 10.20 |  |  | Securities Purchase Agreement, dated as of
	March 22, 2002, by and among ViroLogic, Inc. and each of
	the Purchasers.                              
|         | (7)  |         |  |  | 10.21 |  |  | Registration Rights Agreement, dated as of
	March 22, 2002, by and between ViroLogic, Inc. and each of
	the Purchasers.                            
|         |      |         |  |  | 23.1  |  |  | Consent of Ernst & Young LLP, Independent
	Auditors.                                                                                               
|         |      |         |  |  | 24.1  |  |  | Power of Attorney is contained on the signature
	page.                                                                                             




|  |                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------
| | Indicates management or compensatory plan or
	arrangement required to be identified pursuant to
	Item 14(c).



|  |                                                                                                                                                                                              
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Certain confidential portions deleted pursuant to
	Order Granting Application Under the Securities Act of 1933 and
	Rule 406 Thereunder Respecting Confidential Treatment dated
	May 1, 2000.



|    |                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Filed as an exhibit to the Registrants
	Registration Statement on Form S-1 (No. 333-30896) or
	amendments thereto and incorporated herein by reference.    
|   
|(2) | Filed as an exhibit to the Registrants
	Quarterly Report on Form 10-Q for the quarter ended
	September 30, 2000 and incorporated herein by reference.      
|   
|(3) | Filed as an exhibit to our Annual Report on
	Form 10-K for the year ended December 31, 2000 filed
	with the Commission and incorporated herein by reference.
|   
|(4) | Filed as an exhibit to the Registrants
	Quarterly Report on Form 10-Q for the quarter ended
	March 31, 2001 and incorporated herein by reference.          
|   
|(5) | Filed as an exhibit to the Registrants
	Quarterly Report on Form 10-Q for the quarter ended
	June 30, 2001 and incorporated herein by reference.           
|   
|(6) | Filed as an exhibit to our Current Report on
	Form 8-K filed on July 6, 2001 and incorporated herein
	by reference.                                         
|   
|(7) | Filed as an exhibit to our Current Report on
	Form 8-K filed on March 26, 2002 and incorporated
	herein by reference.                                       

48