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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Form 10-Q



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | ----------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2005.



or



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



For the transition period from
 to
.



Commission File Number: 000-20931



Ventana Medical Systems, Inc.

(Exact
name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 94-2976937                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer identification no.)
|                                                               | 
|1910 Innovation Park Drive Tucson, AZ                          |  | 85755                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



Registrants
telephone number, including area code: (520) 887-2155



Not Applicable

(Former name, former address and former fiscal year, if changed from last report)



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



Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes  x No ̈



Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act.): Yes ̈No  x



The number of shares outstanding of the registrants common stock,
$0.001 par value was 36,121,007 as of October 21, 2005.



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##### Table of Contents

Ventana Medical Systems, Inc.



INDEX



|         |  |                                                                                                        |  |     
|-------- |  | ------------------------------------------------------------------------------------------------------ |  | ----
|         |  |                                                                                                        |  | PAGE
|PART I.  |  | FINANCIAL INFORMATION                                                                                  |  |     
|         |  |                                                                                                       
|Item 1.  |  | Financial Statements (Unaudited)                                                                       |  |     
|         |  |                                                                                                       
|         |  | Condensed Consolidated Balance SheetsSeptember 30, 2005 and December 31, 2004                          |  | 3   
|         |  |                                                                                                       
|         |  | Condensed Consolidated Statements of OperationsThree and Nine Months Ended September 30, 2005 and 2004 |  | 4   
|         |  |                                                                                                       
|         |  | Condensed Consolidated Statements of Cash FlowsNine Months Ended September 30, 2005 and 2004           |  | 5   
|         |  |                                                                                                       
|         |  | Notes to Condensed Consolidated Financial Statements                                                   |  | 6   
|         |  |                                                                                                       
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                  |  | 13  
|         |  |                                                                                                       
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                             |  | 23  
|         |  |                                                                                                       
|Item 4.  |  | Controls and Procedures                                                                                |  | 24  
|         |  |                                                                                                       
|PART II. |  | OTHER INFORMATION                                                                                      |  |     
|         |  |                                                                                                       
|Item 1.  |  | Legal Proceedings                                                                                      |  | 25  
|         |  |                                                                                                       
|Item 2.  |  | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities                       |  | 28  
|         |  |                                                                                                       
|Item 6.  |  | Exhibits                                                                                               |  | 29  
|         |  |                                                                                                       
|         |  | Signature                                                                                              |  | 30  
|         |  |                                                                                                       
|         |  | Exhibits Index                                                                                         |  | 31  
|         |  |                                                                                                       
|         |  | Certifications                                                                                         |  | 31.1



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Ventana Medical Systems, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

(Unaudited)



|                                                                                                                                                                     |  |                    |         |   |                   |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                                     |  | September 30, 2005 |         |   | December 31, 2004 |  
|ASSETS                                                                                                                                                               |  |                    |         |   |                   |   |         |  
|                                                                                                                                                                     |  |                   
|Current assets:                                                                                                                                                      |  |                    |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                                                                            |  | $                  | 8,603   |   |                   | $ | 33,354  |  
|Short-term investments                                                                                                                                               |  |                    | 39,070  |   |                   |   | 20,149  |  
|Trade accounts receivable, net                                                                                                                                       |  |                    | 33,651  |   |                   |   | 33,292  |  
|Inventories, net                                                                                                                                                     |  |                    | 14,489  |   |                   |   | 10,877  |  
|Deferred tax assets                                                                                                                                                  |  |                    | 6,921   |   |                   |   | 6,544   |  
|Prepaids and other current assets                                                                                                                                    |  |                    | 3,306   |   |                   |   | 2,188   |  
|                                                                                                                                                                     |  |                    |         |   |                   |   |         |  
|Total current assets                                                                                                                                                 |  |                    | 106,040 |   |                   |   | 106,404 |  
|Property and equipment, net                                                                                                                                          |  |                    | 53,174  |   |                   |   | 47,679  |  
|Deferred tax assets, net of current portion                                                                                                                          |  |                    | 10,187  |   |                   |   | 11,329  |  
|Goodwill                                                                                                                                                             |  |                    | 2,804   |   |                   |   | 2,804   |  
|Intangible assets, net                                                                                                                                               |  |                    | 8,794   |   |                   |   | 7,097   |  
|Capitalized software development costs, net                                                                                                                          |  |                    | 2,569   |   |                   |   | 2,249   |  
|Other assets                                                                                                                                                         |  |                    | 1,964   |   |                   |   | 2,586   |  
|                                                                                                                                                                     |  |                    |         |   |                   |   |         |  
|Total assets                                                                                                                                                         |  | $                  | 185,532 |   |                   | $ | 180,148 |  
|                                                                                                                                                                     |  |                    |         |   |                   |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                 |  |                    |         |   |                   |   |         |  
|                                                                                                                                                                     |  |                   
|Current liabilities:                                                                                                                                                 |  |                    |         |   |                   |   |         |  
|Accounts payable                                                                                                                                                     |  | $                  | 11,748  |   |                   | $ | 10,418  |  
|Other current liabilities                                                                                                                                            |  |                    | 30,589  |   |                   |   | 25,849  |  
|                                                                                                                                                                     |  |                    |         |   |                   |   |         |  
|Total current liabilities                                                                                                                                            |  |                    | 42,337  |   |                   |   | 36,267  |  
|Long-term debt                                                                                                                                                       |  |                    | 1,802   |   |                   |   | 2,182   |  
|Other long-term liabilities                                                                                                                                          |  |                    | 564     |   |                   |   | 549     |  
|                                                                                                                                                                     |  |                   
|Commitments and Contingencies                                                                                                                                        |  |                    |         |   |                   |   |         |  
|                                                                                                                                                                     |  |                   
|Stockholders equity:                                                                                                                                                |  |                    |         |   |                   |   |         |  
|Common stock - $.001 par value; 100,000 shares authorized; 36,099 and 35,100 shares issued and outstanding at September 30, 2005 and
December 31, 2004, respectively |  |                    | 36      |   |                   |   | 35      |  
|Additional paid-in capital                                                                                                                                           |  |                    | 192,842 |   |                   |   | 176,211 |  
|Deferred stock-based compensation                                                                                                                                    |  |                    | (404    | ) |                   |   |        |  
|Accumulated earnings (deficit)                                                                                                                                       |  |                    | 1,045   |   |                   |   | (13,860 | )
|Accumulated other comprehensive (loss) income                                                                                                                        |  |                    | (629    | ) |                   |   | 40      |  
|Treasury stock - 1,978 shares and 1,189 shares at cost at September 30, 2005 and December 31, 2004, respectively                                                     |  |                    | (52,061 | ) |                   |   | (21,276 | )
|                                                                                                                                                                     |  |                    |         |   |                   |   |         |  
|Total stockholders equity                                                                                                                                           |  |                    | 140,829 |   |                   |   | 141,150 |  
|                                                                                                                                                                     |  |                    |         |   |                   |   |         |  
|Total liabilities and stockholders equity                                                                                                                           |  | $                  | 185,532 |   |                   | $ | 180,148 |  
|                                                                                                                                                                     |  |                    |         |   |                   |   |         |  



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Ventana Medical Systems, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)



|                                                      |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|----------------------------------------------------- |  | -------------------------------- | ------ | ------------------------------- | - | ------ |  | ---- | ------- |  | - | -------
|                                                      |  | Three Months Ended September 30, |        | Nine Months Ended September 30,
|                                                      |  | 2005                             |        | 2004                            |   | 2005   |  | 2004
|Sales:                                                |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Reagents and other                                    |  | $                                | 42,917 |                                 | $ | 34,308 |  | $    | 124,623 |  | $ | 99,199 
|Instruments                                           |  |                                  | 7,820  |                                 |   | 4,994  |  |      | 20,255  |  |   | 18,929 
|                                                      |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Total net sales                                       |  |                                  | 50,737 |                                 |   | 39,302 |  |      | 144,878 |  |   | 118,128
|Cost of goods sold                                    |  |                                  | 12,438 |                                 |   | 9,236  |  |      | 36,025  |  |   | 29,950 
|                                                      |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Gross profit                                          |  |                                  | 38,299 |                                 |   | 30,066 |  |      | 108,853 |  |   | 88,178 
|                                                      |  |                                  |        |                                
|Operating expenses:                                   |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Research and development                              |  |                                  | 6,487  |                                 |   | 5,421  |  |      | 19,312  |  |   | 15,741 
|Selling, general and administrative                   |  |                                  | 21,200 |                                 |   | 17,638 |  |      | 60,893  |  |   | 54,188 
|Amortization of intangible assets                     |  |                                  | 576    |                                 |   | 307    |  |      | 1,531   |  |   | 924    
|Special charges                                       |  |                                  | 5,000  |                                 |   | 1,758  |  |      | 5,000   |  |   | 1,758  
|                                                      |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Income from operations                                |  |                                  | 5,036  |                                 |   | 4,942  |  |      | 22,117  |  |   | 15,567 
|Interest and other income                             |  |                                  | 263    |                                 |   | 126    |  |      | 660     |  |   | 211    
|                                                      |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Income before taxes                                   |  |                                  | 5,299  |                                 |   | 5,068  |  |      | 22,777  |  |   | 15,778 
|Provision for income taxes                            |  |                                  | 1,748  |                                 |   | 1,004  |  |      | 7,872   |  |   | 3,118  
|                                                      |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Net income                                            |  | $                                | 3,551  |                                 | $ | 4,064  |  | $    | 14,905  |  | $ | 12,660 
|                                                      |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Net income per common share:                          |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Basic                                                |  | $                                | 0.10   |                                 | $ | 0.12   |  | $    | 0.43    |  | $ | 0.38   
|                                                      |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Diluted                                              |  | $                                | 0.10   |                                 | $ | 0.11   |  | $    | 0.40    |  | $ | 0.35   
|                                                      |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Shares used in computing net income per common share: |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Basic                                                |  |                                  | 34,489 |                                 |   | 33,611 |  |      | 34,447  |  |   | 33,512 
|                                                      |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Diluted                                              |  |                                  | 36,879 |                                 |   | 35,835 |  |      | 36,891  |  |   | 35,739 
|                                                      |  |                                  |        |                                 |   |        |  |      |         |  |   |        



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Ventana Medical Systems, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)



|                                                                                  |  |                                 |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Nine Months Ended September 30, |        
|                                                                                  |  | 2005                            |         |   | 2004 |  
|Operating activities:                                                             |  |                                 |         |   |      |   |         |  
|Net income                                                                        |  | $                               | 14,905  |   |      | $ | 12,660  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                 |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |                                 | 7,983   |   |      |   | 6,105   |  
|Non-cash litigation charge                                                        |  |                                 | 5,000   |   |      |   |        |  
|Non-cash intangibles and property and equipment charges                           |  |                                 |        |   |      |   | 1,758   |  
|Deferred income tax benefit                                                       |  |                                 | 785     |   |      |   |         |  
|Tax benefit from exercise of stock options                                        |  |                                 | 4,381   |   |      |   |        |  
|Amortization of deferred compensation                                             |  |                                 | 37      |   |      |   |        |  
|Accounts receivable                                                               |  |                                 | (359    | ) |      |   | 40      |  
|Inventories                                                                       |  |                                 | (3,612  | ) |      |   | (2,619  | )
|Other assets                                                                      |  |                                 | (1,395  | ) |      |   | (1,742  | )
|Accounts payable                                                                  |  |                                 | 336     |   |      |   | 1,128   |  
|Other liabilities                                                                 |  |                                 | (245    | ) |      |   | 5,118   |  
|                                                                                  |  |                                 |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                                 | 27,816  |   |      |   | 22,448  |  
|                                                                                  |  |                                
|Investing activities:                                                             |  |                                 |         |   |      |   |         |  
|Purchase of property and equipment                                                |  |                                 | (11,956 | ) |      |   | (11,948 | )
|Purchases and expenditures related to intangible assets                           |  |                                 | (2,301  | ) |      |   | (3,605  | )
|Purchases of short-term investments                                               |  |                                 | (46,700 | ) |      |   | (15,348 | )
|Proceeds from sale of short-term investments                                      |  |                                 | 28,300  |   |      |   | 15,135  |  
|                                                                                  |  |                                 |         |   |      |   |         |  
|Net cash used in investing activities                                             |  |                                 | (32,657 | ) |      |   | (15,766 | )
|                                                                                  |  |                                
|Financing activities:                                                             |  |                                 |         |   |      |   |         |  
|Issuance of common stock                                                          |  |                                 | 11,622  |   |      |   | 8,199   |  
|Repayments of debt                                                                |  |                                 | (162    | ) |      |   | (219    | )
|Purchases of common stock for treasury                                            |  |                                 | (30,521 | ) |      |   | (13,886 | )
|                                                                                  |  |                                 |         |   |      |   |         |  
|Net cash used in financing activities                                             |  |                                 | (19,061 | ) |      |   | (5,906  | )
|Effect of exchange rate changes on cash and cash equivalents                      |  |                                 | (849    | ) |      |   | 36      |  
|                                                                                  |  |                                 |         |   |      |   |         |  
|Net (decrease) increase in cash and cash equivalents                              |  |                                 | (24,751 | ) |      |   | 812     |  
|Cash and cash equivalents, beginning of period                                    |  |                                 | 33,354  |   |      |   | 19,711  |  
|                                                                                  |  |                                 |         |   |      |   |         |  
|Cash and cash equivalents, end of period                                          |  | $                               | 8,603   |   |      | $ | 20,523  |  
|                                                                                  |  |                                 |         |   |      |   |         |  
|Supplemental cash flow information:                                               |  |                                 |         |   |      |   |         |  
|Income taxes paid                                                                 |  | $                               | 428     |   |      | $ | 414     |  
|Interest paid                                                                     |  | $                               | 53      |   |      | $ | 55      |  
|Non-cash investing and financing activities:                                      |  |                                 |         |   |      |   |         |  
|Tendered common stock for stock option exercises                                  |  | $                               | 338     |   |      | $ |        |  



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Ventana Medical Systems, Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share data)

(Unaudited)



|1. | Basis of Presentation
|-- | ---------------------



Ventana Medical Systems, Inc. (Ventana or the Company) develops, manufactures and markets proprietary instruments and reagents
that automate diagnostic procedures used for molecular analysis of cells. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Ventana Medical Systems, S.A., Ventana Medical Systems, GmbH,
Ventana Medical Systems, Ltd., Ventana Medical Systems, Japan K.K., and Ventana Medical Systems Pty. Ltd. All significant inter-company balances and transactions have been eliminated. We do not have any subsidiaries in which we do not own 100% of
the outstanding stock.



The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ended
December 31, 2005. For further information, refer to the consolidated financial statements and footnotes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2004.



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



|2. | Stock-Based Employee Compensation
|-- | ---------------------------------



At September 30, 2005, the Company has five active stock-based employee compensation plans. All options granted under those plans had an exercise
price equal to or greater than the market value of the underlying common stock on the date of grant. The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25 (APB
25), Accounting for Stock Issued to Employees, and related Interpretations. No stock based employee compensation cost related to the stock options granted under the plans is reflected in net income.



The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (SFAS No. 123), Accounting for Stock-Based Compensation, to stock-based employee compensation.



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Ventana Medical Systems, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(in thousands, except
per share data)

(Unaudited)



|2. | Stock-Based Employee Compensation (continued)
|-- | ---------------------------------------------



|                                                                                                                                             |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                                             |  | Three Months Ended September 30 |        |   | Nine Months Ended September 30 |  
|                                                                                                                                             |  | 2005                            |        |   | 2004                           |   |       | 2005 |  |   | 2004   |  
|Net income, as reported                                                                                                                      |  | $                               | 3,551  |   |                                | $ | 4,064 |      |  | $ | 14,905 |   |  | $ | 12,660 |  
|Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax
effects |  |                                 | (1,146 | ) |                                |   | (922  | )    |  |   | (3,354 | ) |  |   | (5,769 | )
|                                                                                                                                             |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Pro-forma net income                                                                                                                         |  | $                               | 2,405  |   |                                | $ | 3,142 |      |  | $ | 11,551 |   |  | $ | 6,891  |  
|                                                                                                                                             |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Net income:                                                                                                                                  |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Basic - as reported                                                                                                                          |  | $                               | 0.10   |   |                                | $ | 0.12  |      |  | $ | 0.43   |   |  | $ | 0.38   |  
|                                                                                                                                             |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Basic - pro forma                                                                                                                            |  | $                               | 0.07   |   |                                | $ | 0.09  |      |  | $ | 0.34   |   |  | $ | 0.21   |  
|                                                                                                                                             |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Diluted - as reported                                                                                                                        |  | $                               | 0.10   |   |                                | $ | 0.11  |      |  | $ | 0.40   |   |  | $ | 0.35   |  
|                                                                                                                                             |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Diluted - pro forma                                                                                                                          |  | $                               | 0.07   |   |                                | $ | 0.09  |      |  | $ | 0.31   |   |  | $ | 0.19   |  
|                                                                                                                                             |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  



For purposes of pro
forma disclosures, the estimated fair value of stock-based compensation plans and other options is amortized to expense primarily over the vesting period.



In May 2005, the Company granted 11 restricted shares of common stock to an employee and recorded deferred compensation of $441, representing the market
price of the shares at the date of grant. The amount of deferred compensation is presented as a reduction of stockholders equity and is being amortized ratably over the service period of the employee receiving the grant. The shares become
fully vested fifty-nine months after the grant date.



Amortization of deferred compensation was approximately $22 and $37 in the three and nine month periods ended September 30, 2005 and $0 for both the three and nine month periods ended September 30, 2004. When applicable, this
expense has been included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations. The Company expects to record compensation expense related to deferred compensation of approximately $22
per quarter through March 31, 2010. Expense with respect to the grants could be reversed in the event the employee receiving the grant leaves the Company prior to vesting in the award.



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##### Table of Contents

Ventana Medical Systems, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(in thousands, except
per share data)

(Unaudited)



|3. | Inventories
|-- | -----------



Inventories consist of the following:



|                                 |  |                    |        |                   |   |       
|-------------------------------- |  | ------------------ | ------ | ----------------- | - | ------
|                                 |  | September 30, 2005 |        | December 31, 2004
|Raw material and work-in-process |  | $                  | 7,289  |                   | $ | 4,067 
|Finished goods                   |  |                    | 7,200  |                   |   | 6,810 
|                                 |  |                    |        |                   |   |       
|                                 |  | $                  | 14,489 |                   | $ | 10,877
|                                 |  |                    |        |                   |   |       



|4. | Comprehensive Income
|-- | --------------------



The components of comprehensive income, net of tax, for the three and nine months ending September 30, 2005 and 2004 are as follows:



|                                                               |  |                                 |       |                                |      |   |       |  |   |        |   |  |   |        |  
|-------------------------------------------------------------- |  | ------------------------------- | ----- | ------------------------------ | ---- | - | ----- |  | - | ------ | - |  | - | ------ | -
|                                                               |  | Three Months Ended September 30 |       | Nine Months Ended September 30 |     
|                                                               |  | 2005                            |       |                                | 2004 |   | 2005  |  |   | 2004   |  
|Net income                                                     |  | $                               | 3,551 |                                |      | $ | 4,064 |  | $ | 14,905 |   |  | $ | 12,660 |  
|Net unrealized (losses) gains on available for sale securities |  |                                 | (24   | )                              |      |   | 24    |  |   | (38    | ) |  |   | (52    | )
|Net change in cumulative translation adjustment                |  |                                 | 776   |                                |      |   | 481   |  |   | (631   | ) |  |   | 36     |  
|                                                               |  |                                 |       |                                |      |   |       |  |   |        |   |  |   |        |  
|                                                               |  | $                               | 4,303 |                                |      | $ | 4,569 |  | $ | 14,236 |   |  | $ | 12,644 |  
|                                                               |  |                                 |       |                                |      |   |       |  |   |        |   |  |   |        |  



The components of
accumulated other comprehensive income (loss), net of tax, were as follows:



|                                                       |  |                   |      |   |                  |   |     |  
|------------------------------------------------------ |  | ----------------- | ---- | - | ---------------- | - | --- | -
|                                                       |  | September 30,2005 |      |   | December 31,2004 |  
|Net unrealized losses on available for sale securities |  | $                 | (102 | ) |                  | $ | (64 | )
|Cumulative translation adjustment                      |  |                   | (527 | ) |                  |   | 104 |  
|                                                       |  |                   |      |   |                  |   |     |  
|                                                       |  | $                 | (629 | ) |                  | $ | 40  |  
|                                                       |  |                   |      |   |                  |   |     |  



|5. | Provision for Income Taxes
|-- | --------------------------



For the three and nine months ending September 30, 2005, income taxes have been provided for using the liability method in accordance with Statement
of Financial Accounting Standard No. 109, Accounting for Income Taxes. The provision for income taxes reflects managements estimate of the effective tax rate expected to be applicable for the full fiscal year. This estimate is
re-evaluated by management each quarter based on the Companys estimated tax expense for the year. The Company also evaluated the recoverability of its net deferred tax assets and determined that the balances existing at September 30,
2005, represented the amount that is more likely than not of being recovered in the foreseeable future.



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##### Table of Contents

Ventana Medical Systems, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(in thousands, except
per share data)

(Unaudited)



|5. | Provision for Income Taxes (continued)
|-- | --------------------------------------



The income tax provision for the three and nine months ending September 30, 2004 consisted of
certain state and international tax expenses. Income tax expense with respect to domestic income generated during this period was offset by the utilization of existing net operating loss carryforwards. As a result, a comparison of the effective tax
rates between September 30, 2005 and 2004 are not meaningful.



We record estimated reserves and liabilities for income taxes. The Company believes it maintains adequate tax reserves to offset potential liabilities arising upon audit. Although the Company believes its tax estimates and associated
reserves are reasonable, the final determination of tax audits and any related litigation could be materially different than the amounts established for tax contingencies. To the extent that such estimates ultimately prove to be inaccurate, the
associated reserves would be adjusted resulting in our recording a benefit or expense in the period a final determination was made.



|6. | Stock Repurchases
|-- | -----------------



On September 8, 1998, the Companys Board of Directors authorized the Company to repurchase up to 1,500 shares of its common stock in the open
market or in privately negotiated transactions. In May 2004, our Board of Directors approved an additional repurchase of an additional 2,000 shares. During the nine months ended September 30, 2005 and 2004, the Company re-purchased 803.0 and
666.4 shares of its common stock for $30,677 and $13,886, respectively. The repurchased shares were returned to the status of authorized but unissued shares. The timing and amount of any future repurchases will depend on market conditions and
corporate considerations.



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Ventana Medical Systems, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(in thousands, except
per share data)

(Unaudited)



|7. | Operating Segment and Enterprise Data
|-- | -------------------------------------



The Company has two reportable segments: North America (primarily the United States and Canada) and International (primarily France, Germany, United
Kingdom, Japan and Australia). Segment information for the three and nine months ended September 30, 2005 and 2004 are as follows:



|                                      |  |                                       |         |               |   |                |  |   |         |   |  |   |        
|------------------------------------- |  | ------------------------------------- | ------- | ------------- | - | -------------- |  | - | ------- | - |  | - | -------
|                                      |  | Three months ended September 30, 2005
|                                      |  | North America                         |         | International |   | Elimina- tions |  |   | Totals 
|Sales to external customers           |  | $                                     | 36,864  |               | $ | 13,873         |  | $ |        |   |  | $ | 50,737 
|Depreciation and amortization expense |  |                                       | 2,921   |               |   | 410            |  |   |        |   |  |   | 3,331  
|Segment profit                        |  |                                       | 2,327   |               |   | 1,224          |  |   |        |   |  |   | 3,551  
|                                      | 
|                                      |  | Three months ended September 30, 2004
|                                      |  | North America                         |         | International |   | Elimina- tions |  |   | Totals 
|Sales to external customers           |  | $                                     | 28,272  |               | $ | 11,030         |  | $ |        |   |  | $ | 39,302 
|Depreciation and amortization expense |  |                                       | 1,642   |               |   | 385            |  |   |        |   |  |   | 2,027  
|Segment profit                        |  |                                       | 1,674   |               |   | 2,390          |  |   |        |   |  |   | 4,604  
|                                      | 
|                                      |  | Nine months ended September 30, 2005 
|                                      |  | North America                         |         | International |   | Elimina- tions |  |   | Totals 
|Sales to external customers           |  | $                                     | 102,469 |               | $ | 42,409         |  | $ |        |   |  | $ | 144,878
|Depreciation and amortization expense |  |                                       | 6,741   |               |   | 1,242          |  |   |        |   |  |   | 7,983  
|Segment profit                        |  |                                       | 10,839  |               |   | 4,066          |  |   |        |   |  |   | 14,905 
|Property and equipment, net           |  |                                       | 47,342  |               |   | 5,832          |  |   |        |   |  |   | 53,174 
|Segment assets                        |  |                                       | 166,200 |               |   | 34,118         |  |   | (14,786 | ) |  |   | 185,532
|Expenditures for long-lived assets    |  |                                       | 12,632  |               |   | 1,625          |  |   |        |   |  |   | 14,257 
|                                      | 
|                                      |  | Nine months ended September 30, 2004 
|                                      |  | North America                         |         | International |   | Elimina- tions |  |   | Totals 
|Sales to external customers           |  | $                                     | 82,631  |               | $ | 35,497         |  | $ |        |   |  | $ | 118,128
|Depreciation and amortization expense |  |                                       | 4,950   |               |   | 1,155          |  |   |        |   |  |   | 6,105  
|Segment profit                        |  |                                       | 5,694   |               |   | 6,966          |  |   |        |   |  |   | 12,660 
|Property and equipment, net           |  |                                       | 43,079  |               |   | 5,621          |  |   |        |   |  |   | 48,700 
|Segment assets                        |  |                                       | 140,248 |               |   | 31,273         |  |   | (17,324 | ) |  |   | 154,197
|Expenditures for long-lived assets    |  |                                       | 13,659  |               |   | 1,894          |  |   |        |   |  |   | 15,553 



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Ventana Medical Systems, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(in thousands, except
per share data)

(Unaudited)



|8. | Commitments and Contingencies
|-- | -----------------------------



On September 21, 2005, Ventana was notified that the Court of Appeals for the Federal Circuit had upheld a lower courts 2003 finding of
infringement by our previous generation BENCHMARK®
and DISCOVERY® systems of certain of the claims of
CytoLogix U.S. Patent Nos. 6,180,061 and 6,183,693. Statement of Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies, requires the Company to record a liability in the consolidated financial statements when a
loss is known or considered probable and the amount can be reasonably estimated. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded. As a result of this litigation, the Company recorded a
liability of $5.0 million representing the Companys estimate of liability after considering the range of possible litigation outcomes. It is possible that the ultimate resolution of this litigation could require the Company to pay an amount
different from this accrual and such payments may have a material adverse effect on the results of operations or financial condition of any one interim or annual period.



In the ordinary course of business, we are involved in a number of other legal actions, both as plaintiff and defendant, and
could incur uninsured liability in any one or more of them. Although the outcome of these actions is not presently determinable, it is the opinion of the Companys management, based upon the information available at this time, that the expected
outcome of these matters, individually or in the aggregate, will not have a material adverse effect on the results of operations or financial condition of the Company.



|9. | Recently Issued Accounting Pronouncements
|-- | -----------------------------------------



On April 14, 2005, the Securities and Exchange Commission (SEC) adopted a new rule that amends the compliance dates for Financial Accounting
Standards Boards Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS No. 123R). Under the new rule, the Company is required to adopt SFAS No. 123R in the first quarter of fiscal
2006, beginning January 1, 2006. The Company has not yet determined the method of adoption or the effect of adopting SFAS No. 123R, and it has not determined whether the adoption will result in amounts that are similar to the current pro
forma disclosures under SFAS No. 123.



FASB Staff Position
(FSP) No. 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004 (FSP 109-2), provides guidance under FASB Statement No. 109, Accounting for Income
Taxes, (SFAS 109) with respect to recording the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the Jobs Creation Act) on enterprises income tax expense and deferred tax liability. The Jobs
Creation Act was enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign
earnings for purposes of applying SFAS 109. As of September 30, 2005, we were in the process of evaluating whether we will repatriate any foreign earnings under the Act and, if so, the amount that we will repatriate. However, we do not expect
to be able to complete this evaluation until later in fiscal 2006. Accordingly, as provided for in FSP 109-2, we have not adjusted our tax expense or deferred tax liability to reflect the repatriation provisions of the Jobs Creation Act. The Jobs
Creation Act also provides a deduction for income from qualified domestic production activities, to be phased in from 2005 through 2010, which is intended to replace the existing extra-territorial income exclusion for foreign sales. In FSP 109-1,
the FASB decided the deduction for qualified domestic production activities should be accounted for as a special deduction under SFAS 109, rather than as a



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Ventana Medical Systems, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(in thousands, except
per share data)

(Unaudited)



|9. | Recently Issued Accounting Pronouncements (continued)
|-- | -----------------------------------------------------



rate reduction. Accordingly, any benefit from the deduction will be reported in the period in which the deduction is claimed on the tax return and no
adjustment to deferred taxes at September 30, 2005 is required.



In December 2004, the FASB also issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4, (SFAS 151) which will become effective for us beginning January 1, 2006. This standard clarifies that
abnormal amounts of idle facility expense, freight, handling costs and wasted material should be expensed as incurred and not included in overhead. In addition, this standard requires that the allocation of fixed production overhead costs to
inventory be based on the normal capacity of the production facilities. We are currently evaluating the potential impact of this standard on our financial position and results of operations, but do not believe the impact of the change will be
material.



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Ventana Medical Systems, Inc.



|Item 2. | Managements Discussion and Analysis of Financial Conditions and Results of Operations
|------- | --------------------------------------------------------------------------------------



The following discussion of the financial condition and results of operations of the Company should be read in conjunction
with the Condensed Consolidated Financial Statements and related Notes thereto included elsewhere in this Form 10-Q. This Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements, by their very nature, contain risks and uncertainties. Accordingly, actual events or results may differ materially from those anticipated by such
forward-looking statements. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. Such factors, many of which are beyond the Companys control,
include the following: market acceptance of new automated histology products, continued success in asset management, continued improvements in our manufacturing efficiencies, on-schedule launches of our new products, currency exchange rate
variability, adverse determinations in various outstanding litigations, competition and competitive pressures on pricing and general economic conditions in the United States and in the regions served by the Company.



Results of Operations



Net Sales



Net sales for the three and nine months ended September 30, 2005 increased 29% and 23% versus the same periods in 2004 to $50.7 million and $144.9
million from $39.3 million and $118.1 million, respectively. Sales growth for the three month period is attributable to 57% and 25% increases in instrument and reagents and other sales, respectively. The sales growth for the nine month period is a
result of a 26% increase in reagents and other sales. The growth in reagent and other sales is driven by an 11% increase in our installed base to approximately 5,500 instruments in 2005 and a 12% year-over-year improvement in the average reagent
annuity stream per installed instrument to approximately $26,900 from $24,000 in 2004.



The aforementioned factors drove sales increases in the three and nine month periods of 2005 compared to 2004 across both geographic segments: 30% and 24% in North America ($36.9 million and $102.5 million compared to
$28.3 million and $82.6 million, respectively) and 26% and 19% internationally ($13.9 million and $42.4 million compared to $11.0 million and 35.5 million, respectively).



Gross Profit



Gross profit for the three and nine months ended September 30, 2005 increased to $38.3 million and $108.9 million, respectively, from $30.1 million
and $88.2 million for the same periods in 2004. The Companys gross margin for the three and nine months ended September 30, 2005 was 75.5% and 75.1% compared to 76.5% and 74.7%, respectively. The decrease in gross margin percentage for
the three month period is primarily due to the higher mix, as compared to the same period in the prior year, of lower margin instrument sales. Current quarter notwithstanding, gross margins have increased in the nine month period due to the
continued longer term trend of a shift in sales mix to higher margin reagent and other sales from instrument sales, which have a lower margin.



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|Item 2. | Managements Discussion and Analysis of Financial Conditions and Results of Operations
|------- | --------------------------------------------------------------------------------------



Research and Development



Research and development spending for the three and nine months ended September 30, 2005 increased to $6.5 million and
$19.3 million, respectively, from $5.4 million and $15.7 million for the same periods in 2004. This increase was driven by our ongoing new platform development programs and our reagent chemistry application initiatives focused primarily on the
histology market.



Selling, General and Administrative
(SG&A)



Presented below is a summary of
SG&A expense for the three and nine months ended September 30, 2005 and 2004 (dollars in thousands):



|                           |  |                                  |        |            |                                 |   |   |      |            |  |      |   |  |            |        |  |    |   |            |   |        |  |    |  
|-------------------------- |  | -------------------------------- | ------ | ---------- | ------------------------------- | - | - | ---- | ---------- |  | ---- | - |  | ---------- | ------ |  | -- | - | ---------- | - | ------ |  | -- | -
|                           |  | Three Months Ended September 30, |        |            | Nine Months Ended September 30, |  
|                           |  | 2005                             |        |            | 2004                            |   |   | 2005 |            |  | 2004 |  
|                           |  | $                                |        | % NetSales |                                 |   | $ |      | % NetSales |  |      | $ |  | % NetSales |        |  | $  |   | % NetSales |  
|Sales and marketing        |  | $                                | 14,227 |            | 28                              | % |   | $    | 11,920     |  | 30   | % |  | $          | 42,282 |  | 29 | % |            | $ | 38,355 |  | 32 | %
|General and Administration |  |                                  | 6,973  |            | 14                              | % |   |      | 5,718      |  | 15   | % |  |            | 18,611 |  | 13 | % |            |   | 15,833 |  | 14 | %
|                           |  |                                  |        |            |                                 |   |   |      |            |  |      |   |  |            |        |  |    |   |            |   |        |  |    |  
|Total SG&A                 |  | $                                | 21,200 |            | 42                              | % |   | $    | 17,638     |  | 45   | % |  | $          | 60,893 |  | 42 | % |            | $ | 54,188 |  | 46 | %
|                           |  |                                  |        |            |                                 |   |   |      |            |  |      |   |  |            |        |  |    |   |            |   |        |  |    |  



SG&A expense for
the three and nine months ended September 30, 2005 increased to $21.2 and $60.9 million, respectively, from $17.6 million and $54.2 million for the same periods in 2004. The increase is primarily attributed to increased investments in our sales
force and associated infrastructure and continued development of our marketing organization. We also continued to invest in further establishing our intellectual property position and defending ourselves in litigation matters.



Amortization of Intangible Assets



Amortization expense of intangible assets for the three and nine months
ended September 30, 2005 increased to $0.6 million and $1.5 million, respectively, from $0.3 million and $0.9 million for the same periods in 2004. The increase is due to incremental amortization associated with a higher carrying base in
intangible assets as a result of increased legal costs associated with defending our rights under patents which we own during the three and nine months ended September 30, 2005. Estimated amortization expense for intangible assets as of
September 30, 2005 for each of the five succeeding fiscal years is as follows (dollars in thousands): 2005: $2,100, 2006: $2,100, 2007: $1,900, 2008: $1,600, 2009: $1,400.



Special Charges



On September 21, 2005, Ventana was notified that the Court of Appeals for the Federal Circuit had upheld a lower courts 2003 finding of
infringement by our previous generation BENCHMARK®
and DISCOVERY® systems of certain of the claims of
CytoLogix U.S. Patent Nos. 6,180,061 and 6,183,693. Statement of Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies, requires the Company to record a liability in the consolidated financial statements when a
loss is known or considered probable and the amount can be reasonably estimated. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded. As a result of this litigation, the Company recorded a
liability of $5.0 million representing the Companys estimate of liability after



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|Item 2. | Managements Discussion and Analysis of Financial Conditions and Results of Operations
|------- | --------------------------------------------------------------------------------------



considering the range of possible litigation outcomes. It is possible that the ultimate resolution of this litigation could require the Company to pay an
amount different from this accrual and such payments may have a material adverse effect on the results of operations or financial condition of any one interim or annual period.



On September 16, 2004, we entered into an agreement with TriPath Imaging Inc. to sell and distribute worldwide a
Ventana-branded interactive histology imaging system. As a result of this transaction, we incurred a $1.8 million non-cash charge primarily associated with impairments to certain intangible and fixed assets we acquired in our 2001 transaction with
Molecular Diagnostics, Inc.



Interest and Other Income



Interest and other income for the three and nine months ended
September 30, 2005 increased to approximately $263,000 and $660,000, respectively, from $126,000 and $211,000 for the same periods in 2004. This increase is primarily due to increased investment balances generated by improving cash flow.



Provision for Income Taxes



For the three and nine months ending September 30, 2005, the provision
for income taxes reflects managements estimate of an approximate 35% effective tax rate expected to be applicable for the full fiscal year. This estimate is re-evaluated by management each quarter based on the Companys estimated income
tax expense in each jurisdiction for the year.



The income tax
provision for the three and nine months ending September 30, 2004 consisted of certain state and international tax expenses for which net operating loss carryforwards did not exist. Income tax expense with respect to U.S. income generated
during this period was offset by the utilization of existing net operating loss carryforwards. As a result, a comparison of the effective tax rates between September 30, 2005 and 2004 is not meaningful.



Critical Accounting Policies and Estimates



Our discussion of financial condition and results of operations relies on
our condensed consolidated financial statements that are prepared based on certain critical accounting policies that require management to make judgments and estimates that are subject to varying degrees of uncertainty. We believe that investors
need to be aware of these policies and how they impact our financial statements as a whole, as well as our related discussion and analysis presented herein. While we believe that these accounting policies are based on sound measurement criteria,
actual future events can and often do result in outcomes that can be materially different from these estimates or forecasts. The accounting policies and related risks described in our annual report on Form 10-K as filed with the Securities and
Exchange Commission on March 15, 2005 are those that depend most heavily on these judgments and estimates. As of July 26, 2005, there have been no material changes to any of the critical accounting policies contained therein.



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|Item 2. | Managements Discussion and Analysis of Financial Conditions and Results of Operations
|------- | --------------------------------------------------------------------------------------



Factors that Could Affect Future Results



Because of the following factors, as well as other variables affecting our operating results, including those factors set
forth in our Annual Report on Form 10-K for the year ended December 31, 2004, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future
periods.



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



Third parties may assert patent, trademark, or copyright infringement or
other intellectual property claims against us, based on their patents or other intellectual property. We may be required to pay substantial damages (including treble damages) for past infringement; if it is ultimately determined our products
infringe a third-partys intellectual property rights. Even if infringement claims against us are without merit, defending a lawsuit takes significant time, is expensive, and may divert managements attention from other business concerns.
If we are not successful in a lawsuit, we may be unable to sell our products or to continue to sell our products until we obtain a license from the owner of the relevant technology or other intellectual property rights, which may not be available to
us. Even if a license is available, it may require us to pay substantial royalties. (For further discussion of litigation matters, please refer to our annual report on Form 10-K, Part I, Item 3, Legal Proceedings, as filed with the Securities
and Exchange Commission on March 15, 2005 and Part II, Item 1, Legal Proceedingsof this document).



It is possible that we may be forced to pay damages to CytoLogix which exceed the amounts we have reserved.



As discussed in more detail in our annual report on Form 10-K, Part I,
Item 3, Legal Proceedings, as filed with the Securities and Exchange Commission on March 15, 2005 and under Part II, Item 1, Legal Proceedingsof this document, we have been involved in litigation with CytoLogix, Inc.,
pursuant to which a jury determined that we infringed certain CytoLogix patents. The patents in question relate to prior versions of our BENCHMARK® and DISCOVERY® instruments and do not apply to the current versions of the BENCHMARK XT / LT and DISCOVERY XT instruments. In September 2005, the Court of Appeals upheld certain of the jury findings of
patent infringement, and the case is expected to proceed to trial on the issue of damages. We have accrued a liability of $5 million in this regard. At trial, CytoLogix may advance arguments for damages several times higher than the amount accrued
by the Company. In view of the complexity of this case and the inherent uncertainty of patent infringement litigation, there is a possibility the amount of damages paid to CytoLogix could be substantially different from the $5 million accrued by the
Company.



If we fail to comply with the FDAs Quality
System regulations, our manufacturing operations could be delayed, and our product sales and profitability could suffer.



When manufacturing our medical devices, including Analyte Specific Reagents, we are required to adhere to Quality System regulations, which require us to
manufacture our products and maintain records in a prescribed manner. We are subject to future FDA Quality System inspections, and we cannot assure you that we will pass these inspections or maintain compliance.



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|Item 2. | Managements Discussion and Analysis of Financial Conditions and Results of Operations
|------- | --------------------------------------------------------------------------------------



Complying with international regulatory requirements is an expensive, time-consuming process, and
approval is never certain.



Sales of our products in the
European Union (EU) are subject to strict regulatory requirements, and approval is never certain. All of our products must be in compliance with the In VitroDiagnostics Directive and bear the CE mark before being imported for
sale in the EU. The CE mark is a symbol indicating the device conforms to the essential requirements of the applicable directive and can be commercially distributed throughout the EU. The In VitroDiagnostic Directive also subjects our
manufacturing facilities to compliance inspections and requires design, manufacturing, and quality process documentation and controls. Some of our products do not bear the CE mark. We cannot assure you that the CE mark will be granted for all our
products or that regulatory review will not involve delays that would harm our ability to market and sell our products in the EU.



Further, we ship our products into European markets, which are also subject to governmental environmental regulations such as the Restriction of Hazardous
Substances in Electrical and Electronic Equipment Directive (RoHS) which will be effective July 1, 2006, and the Directive on Waste Electrical and Electronic Equipment. These directives focus on limiting the amounts of certain elements, such as
lead, in electrical devices, and providing for the proper disposal of the electrical devices and their components. We cannot assure you that compliance with these regulations will not have a material adverse effect on our operating results and our
business.



Our future growth depends on our ability to
develop and successfully introduce new products, product extensions and improvements to existing products to address unmet patient and market needs.



Our future growth is dependent upon, among other factors, our ability to develop, obtain regulatory approval for, manufacture, sell and achieve market
acceptance of new products, product extensions and improvements to our existing products. The extent of, and rate at which, market acceptance and penetration are achieved by future products is a function of many variables. These variables include
price, safety, efficacy, reliability, marketing and sales efforts, the availability of third-party reimbursement for our new products, the existence of competing products and general economic conditions affecting purchasing patterns. Our ability to
market and sell new products, product extensions and improvements to our existing products may also be subject to government regulation, including clearance/approval by the FDA and foreign government agencies. Any failure in our ability to
successfully develop, obtain regulatory approval for, manufacture, sell and achieve market acceptance of our new products, product extensions or improvements to our existing products could have a material adverse effect on our operating results and
our business.



If our customers do not receive adequate
third-party reimbursement, our products may not be accepted in the market.



In the United States, our products are primarily purchased by medical institutions and laboratories that bill third-party payers, such as government health administration authorities, private health coverage insurers,
managed care organizations, and other similar organizations. Our ability to earn sufficient returns on our products will depend in part on the extent to which reimbursement for our products and related treatments will be available to our customers
from third-party payers. Third-party payers are increasingly attempting to limit both the coverage and the level of reimbursement of products to contain costs, and if successful, our ability to sustain revenue growth and profitably will be adversely
affected.



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|Item 2. | Managements Discussion and Analysis of Financial Conditions and Results of Operations
|------- | --------------------------------------------------------------------------------------



Clinical Laboratory Improvement Act (CLIA) regulations could harm our business by limiting the
potential market for our products.



Any of the customers
using our products for clinical use in the United States may be regulated under the CLIA. CLIA is intended to ensure the quality and reliability of clinical laboratories in the U.S. by mandating specific standards in the areas of personnel
qualification, administration, proficiency testing, patient test management, quality control, quality assurance, and inspections. The regulations promulgated under CLIA establish three levels of clinical tests, and the standards applicable to a
clinical laboratory depend on the level of the tests it performs. CLIA requirements may prevent some clinical laboratories from using our products. Therefore, CLIA regulations and future administrative interpretations of CLIA could harm our business
by limiting the potential market for our products.



We are
subject to a complex system of domestic and foreign taxation and unanticipated changes in our tax rates or exposure to additional tax liabilities could affect our profitability.



We are subject to income taxes in both the U.S. and various foreign jurisdictions, and our domestic and international tax
liabilities are subject to the allocation of expenses in different jurisdictions. Our effective tax rates could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, in the valuation of deferred tax
assets and liabilities or in tax laws, or by material audit assessments, which could affect our profitability. In particular, the carrying value of deferred tax assets, which are predominantly in the U.S., is dependent on our ability to generate
future taxable income in the U.S. In addition, the amount of tax we pay is subject to ongoing audits in various jurisdictions, and a material assessment by a governing tax authority could affect our profitability. Further, if we elect to repatriate
cash held outside the U.S. pursuant to The American Jobs Creation Act of 2004, our tax rate may increase even if by a lesser amount than without such legislation.



If we have problems with key suppliers, our product development and commercialization efforts could be delayed or
stopped.



Our reagent products are formulated from chemical
and biological materials using proprietary technology and standard processing techniques. We purchase components and raw materials used to make our reagent products from single-source vendors. We cannot assure the materials or reagents will be
available in commercial quantities or at acceptable prices. Any supply interruption or yield problems encountered in the use of materials from these vendors could have a significant effect on our ability to manufacture our products. Developing
alternative or additional suppliers could be time consuming and expensive.



A number of components used to manufacture instruments are made on a custom basis to our specifications and are available from a limited number of sources. If the supply of materials or components from any of these
vendors were delayed or interrupted for any reason, or if the quality or reliability of the materials or components proves inadequate for use in our instruments, our ability to make instruments in a timely fashion could be impaired, and our results
of operations would suffer.



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|Item 2. | Managements Discussion and Analysis of Financial Conditions and Results of Operations
|------- | --------------------------------------------------------------------------------------



We could bring litigation to enforce our intellectual property rights, which might result in
substantial expense.



We rely on patents to protect our
intellectual property rights. The strength of this protection, however, is uncertain. In particular, it is not certain that:



| |  |  | our patents and pending patent applications use technology that we invented first;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | we were the first to file patent applications for these inventions;
| | - |  | -------------------------------------------------------------------



| |  |  | others will not independently develop similar or alternative technologies or duplicate our technologies;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | any of our pending patent applications will result in issued patents; or
| | - |  | ------------------------------------------------------------------------



| |  |  | any patents issued to us will provide a basis for commercially viable products, will provide us with any competitive advantages, or will not face third-party challenges or be the
subject of further proceedings limiting their scope or resulting in their invalidation.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We may become involved in interference proceedings in the U.S. Patent and Trademark Office to determine the priority of our inventions. We also could
become involved in opposition proceedings in foreign countries challenging the validity of our patents. In addition, costly litigation could be necessary to protect our patent position. Patent law relating to the scope of claims in the technology
fields in which we operate is still evolving, and consequently, patent positions in our industry are generally uncertain. We may not prevail in any lawsuit, or if we do prevail, we may not receive commercially valuable remedies. Failure or inability
to protect our patent rights or intellectual property could have serious adverse effects on our business and could affect our profitability.



We also rely on trade secrets, unpatented proprietary know-how, and continuing technological innovation that we seek to protect with confidentiality
agreements with employees, consultants, and others with whom we discuss our business. These individuals may breach our confidentiality agreements, and our contractual remedies may not be adequate to enforce these agreements. Disputes may arise
concerning the ownership of intellectual property or the applicability or enforceability of these agreements, and we may not be able to resolve these disputes in our favor. Furthermore, competitors may independently develop trade secrets and
proprietary technology similar to ours. We may not be able to maintain the confidentiality of information relating to products.



We deal with hazardous materials and generate hazardous wastes and must comply with environmental laws and regulations, which can be expensive and
restrict how we do business. We could also be liable for damages or penalties, if we are involved in a hazardous material or waste spill or other accident.



Our manufacturing processes, primarily those involved in producing some of our reagent products, require the use of potentially hazardous and
carcinogenic chemicals. We are subject to federal, state, and local laws and regulations governing the use, manufacture, storage, handling, and disposal of these materials and waste. In the event of a hazardous material or waste spill or other
accident, we could also be liable for damages or penalties. In addition, we may be liable or potentially liable for injury or contamination as a result of our own, or a third partys, use of these materials, and such liability, if significant,
could seriously impair our financial position.



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|Item 2. | Managements Discussion and Analysis of Financial Conditions and Results of Operations
|------- | --------------------------------------------------------------------------------------



We cannot assure you that we will be able to fund our future capital requirements through internal
sources or from other sources.



We anticipate our existing
capital resources and borrowing capacity will be adequate to satisfy our capital requirements for the next 12 months. Our future capital requirements will depend on many factors including:



| |  |  | the extent that our products gain market acceptance;
| | - |  | ----------------------------------------------------



| |  |  | the mix of instruments placed through direct sales, rental, or through our PEP program;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | the progression of our product development programs;
| | - |  | ----------------------------------------------------



| |  |  | competing technological and market developments;
| | - |  | ------------------------------------------------



| |  |  | expansion of our sales and marketing activities;
| | - |  | ------------------------------------------------



| |  |  | the cost of manufacturing scale-up activities;
| | - |  | ----------------------------------------------



| |  |  | possible acquisitions of complementary businesses, products, or technologies; and
| | - |  | ---------------------------------------------------------------------------------



| |  |  | our ability to sustain profitability with the uncertain timing of regulatory approvals.
| | - |  | ---------------------------------------------------------------------------------------



We may require additional capital resources and cannot assure you that capital will be available to the extent required, on
terms acceptable to us, or at all. Any such future capital requirements could result in the issuance of equity securities, which may affect the market price of our common stock and would dilute the interests of our existing stockholders.



Recent legislation requires us to undertake an annual evaluation of our
internal control over financial reporting that may identify internal control weaknesses requiring remediation that could harm our reputation or subject us to investigation and sanctions by regulatory authorities.



As required by Section 404 of the Sarbanes-Oxley Act of 2002, we are
required to annually assess, test, and evaluate the design and operating effectiveness of our internal control over financial reporting, or ICFR. While we have concluded that our ICFR was effective as of December 31, 2004, we cannot predict the
outcome of our testing in future periods. If we conclude in future periods that our ICFR is not effective, we may be required to change our ICFR to remediate deficiencies, which could result in lost investor confidence in the reliability of our
financial statements, and may subject us to investigation and/or sanctions by regulatory authorities. In addition, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented, or amended from time to
time, we may not be able to ensure we can conclude on an ongoing basis that we have effective controls over financial reporting in accordance with Section 404, and our independent auditors may not be able to render the required attestation
concerning our assessment and the effectiveness of the internal controls over financial reporting. If we fail to maintain an effective internal control environment or our independent auditors are unable to render the required attestation, it could
have a material adverse effect on investor confidence in our reported financial information. Any such events could adversely affect our financial results and/or the market price of our common stock, and our reputation may be harmed.



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|Item 2. | Managements Discussion and Analysis of Financial Conditions and Results of Operations
|------- | --------------------------------------------------------------------------------------



Recent regulations related to equity compensation could adversely affect our earnings and our
ability to attract and retain key personnel.



Since our
inception, we have used stock options and other long-term equity incentives as a fundamental component of our employee compensation packages and have accounted for them using the intrinsic value method of APB No. 25, Accounting for Stock
Issued to Employees.We believe that stock options and other long-term equity incentives directly motivate our employees to maximize long-term stockholder value and, through the use of vesting, encourage employees to remain with Ventana. In
December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payments, (SFAS 123R) which changed U.S. Generally Accepted Accounting
Principles in such a way to require us to record a charge to earnings for the fair value of employee stock option grants and other share based compensation beginning in the first quarter of 2006. This regulation will negatively impact our earnings
for those share based awards that vest beginning in 2006. For example, recording a charge for employee stock options under SFAS 123 would have decreased our net income by $8.4 million in 2004 and by $3.4 million in the nine months ended
September 30, 2005. The impact on net income of SFAS 123R may differ significantly from the impact as calculated under SFAS 123. Furthermore, adoption of SFAS 123R will require us to make certain assumptions and judgments in the valuation of
stock options that we may grant in the future. A change in any of those assumptions or judgments could change the compensation expense that is charged against our earnings and, consequently, adversely affect our reported results of operations. See
also Note 2 to the Condensed Consolidated Financial Statements  Stock Based Employee Compensation.



In addition, regulations implemented by NASDAQ requiring shareholder approval for all stock option plans as well as regulations implemented by the New
York Stock Exchange prohibiting NYSE member organizations from giving a proxy to vote on equity-compensation plans unless the beneficial owner of the shares has given voting instructions could make it more difficult for us to grant equity-based
awards to employees in the future. To the extent that these or other new regulations make it more difficult or expensive to grant options to employees, we may incur compensation costs, productivity losses, change our equity compensation strategy or
find it difficult to attract, retain and motivate employees, each of which could materially and adversely affect our business.



Liquidity and Capital Resources



Cash and cash equivalents was $8.6 million at September 30, 2005. We have funded our capital requirements since inception through sales of equity
securities, debt financing and cash flows from operations. Net cash provided by operating activities was $27.8 million and $22.4 million for the nine months ended September 30, 2005 and 2004, respectively. Net cash provided by operating
activities exceeded net income in 2005 primarily due to the effect of depreciation and amortization and the tax benefit from exercises of stock options, as well as non-cash charges related to litigation.



We use cash in our investing activities primarily to fund investments in
property and equipment and to purchase short-term investments. Net cash used in investing activities for the nine months ended September 30, 2005 and 2004 was $32.7 million and $15.8 million, respectively. In the second quarter of 2005, we
purchased an additional $25.0 million in short-term investments. At September 30, 2005, we have $39.1 million in short-term investments that primarily consist of corporate and various government agency debt securities. We classify these
short-term investments as available-for-sale.



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|Item 2. | Managements Discussion and Analysis of Financial Conditions and Results of Operations
|------- | --------------------------------------------------------------------------------------



Net cash used in financing activities for the nine months ended September 30, 2005 was $19.1
million, primarily used in our stock repurchases net of proceeds received from the exercise of stock options and employee stock purchases. During the quarter, we purchased $20.9 million in stock as part of our share repurchase program. For the nine
months ended September 30, 2004 net cash used in financing activities of $5.9 million consisted primarily of our stock repurchases net of proceeds from the exercise of stock options and employee stock purchases.



We believe that our cash flow from operations together with our current cash
reserves will be sufficient to fund our projected capital requirements through 2005. In the event that additional capital is required, we will first access our short-term investments. In the event that additional capital is required, we may seek to
raise such capital through public or private equity or debt financings. Future capital funding transactions may result in dilution to current shareholders.



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|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------



For quantitative and qualitative disclosures about market risk affecting Ventana, see Item 7A, Quantitative and Qualitative Disclosures About
Market Risk, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2004, which is incorporated herein by reference. Our exposure to market risk has not materially changed since December 31, 2004.



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|Item 4. | Controls and Procedures
|------- | -----------------------



|(a) | Evaluation of Disclosure Controls and Procedures
|--- | ------------------------------------------------



Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is
defined in Rules 13a-14(c) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of September 30, 2005 (the Evaluation Date). Based on their evaluation, such officers have concluded
that, as of the Evaluation Date, our disclosure controls and procedures are effective in alerting them, on a timely basis, to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic
filings under the Exchange Act.



|(b) | Changes in Internal Controls
|--- | ----------------------------



Since the Evaluation Date, there have not been any significant changes in our internal controls or in other factors that could significantly affect such
controls.



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PART II - OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------



CYTOLOGIX v. VENTANA, Civil Action No. 01-10178 REK, was filed in January 2001 in the U.S. District Court, Eastern District of Massachusetts. The Court heard appellate arguments on the patent infringement decision in June 2005. The
Appeals Court rendered its decision in September 2005 upholding the infringement finding on most of the claims of the 061 and the 693 patents. The District Court has scheduled a status conference for November 2005 to schedule the
remaining issues of patent damages and antitrust-related claims. We recorded a liability of $5.0 million representing the Companys estimate of liability after considering the range of possible litigation outcomes. It is possible that the
ultimate resolution of this litigation could require us to pay an amount different from this accrual and such payments may have a material adverse effect on the results of operations or financial condition of any one interim or annual period.



VENTANA V. DAKOCYTOMATION, Civil Action No. 04-1522, was
filed in December 2004, in the U.S. District Court, District of Delaware, alleging infringement of U.S. Patent No. 6,827,901 (Automated Biological Reaction Apparatus) by the making, using, and selling of the ARTISAN staining
system. The suit seeks injunctive relief including a Preliminary Injunction against the continued making, using, and selling of the instrument and unspecified damages. DakoCytomation filed an answer to the complaint in January 2005. Mediation is
scheduled for December 2005 and trial is presently scheduled for July 2006.



VENTANA v. VISION BIOSYSTEMS, LTD., Civil Action No. 05-10614 GAO, was filed in March 2005, in the U.S. District Court, Eastern District of Massachusetts. This complaint alleges that Visions BOND OCR
system infringes U.S. Patent No. 6,352,861. The suit seeks injunctive relief including a preliminary injunction against the continued making, using and selling of the instrument and unspecified damages. This matter was consolidated with VISION
BIOSYSTEMS, LTD v. VENTANA, Civil Action No. 03 CV 10391-GAO for trial, presently scheduled for the week of November 28, 2005. Following the BioGenex Laboratories Inc. claim construction ruling (see VENTANA v. BIOGENEX LABORATORIES INC
legal proceedings below) and entry of Judgment in that matter in October 2005, Vision filed a motion for summary judgment of non-infringement based upon collateral estoppel. We will oppose the motion on the grounds that this Court need not be bound
by the Arizona Court ruling and move to stay the matter. We have agreed with Vision to request the Court take the trial date off calendar, and to stay the matter pending the Courts ruling on these motions.



DIGENE CORPORATION v. VENTANA, Civil Action No. 01-752, was filed in
November 2001, in the U.S. District Court, District of Delaware. This complaint alleges we infringe two U.S. patents held by Digene, U.S. 4,849,331 and 4,849,332, by activities relating to our INFORM®HPV Family 16 and Family 6 probe products. We filed an answer denying the allegations in February 2002. The parties have filed
cross-motions for summary judgment. In addition, in November 2002, Digene filed a motion to amend its Complaint to add numerous causes of action related to our September 2002 acquisition of Beckman Coulters (Beckman) HPV business
and to add Beckman as a party. Digene seeks, among other remedies, an injunction against the sale of our INFORM HPV products, unspecified monetary damages, cancellation of the Beckman HPV acquisition, and related claims. Several motions were filed
by the parties, one of them being a motion to compel arbitration submitted by Beckman and Ventana. In May 2003, the judge ordered further discovery be taken on the issues of arbitrability. In January 2004, the Court held a hearing on arbitrability.
In March 2004, the Judge dismissed without prejudice all of the pending motions in the case, and without comment. In May 2004, the Court ordered arbitration proceed as against Beckman, only, and stayed the proceedings pending in the District Court
until the conclusion of the arbitration. Digene filed a Motion for Reconsideration of the Courts order, which was denied by the Court in July 2004. In December 2004,



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|Item 1. | Legal Proceedings  (continued)
|------- | -------------------------------



Digene initiated the arbitration against Beckman before the American Arbitration Association, or AAA, in New York. In January 2005, the matter was removed to
the International Centre for Dispute Resolution, or ICDR, a division of AAA. In February 2005, we filed a Motion for Leave to Petition the Arbitral Panel to participate in the Arbitration with the District Court and notified the ICDR of this
request. The Court granted our motion, and a petition to participate in arbitration was submitted to the arbitral panel. In October 2005, the arbitral panel denied the petition to join. The arbitration hearing is anticipated in the Spring of 2006.



In June 2003, Ventana and Beckman filed a request for
arbitration with the International Chamber of Commerce, or ICC, in Paris, France, to contest the purported termination by Institut Pasteur of the Sublicense Agreement we acquired from Beckman in September 2002. Institut Pasteur responded, and the
parties selected a panel of arbitrators. In December 2003, the panel framed the Terms of Reference, the issues to be heard in the case. In February 2004, we submitted our Statement of Claim. In March 2004, Institut Pasteur filed a Statement of
Defenses. Institut Pasteur also filed a Motion to Stay the Arbitration pending the outcome of the Delaware patent litigation, and an oral hearing was conducted in May 2004. The Motion for Stay was denied, and in June 2004, we filed our Statement of
Reply and rebuttal to Institut Pasteurs defenses. In July 2004, Institut Pasteur submitted its Statement of Response and rebuttal. The ICC hearing was conducted in September, 2004. Post-hearing submissions were filed in November 2004, and a
Submission of Costs was filed in February 2005. By the decision rendered in late April 2005, the ICC decided that Institut Pasteur did not have standing to terminate the Sublicense Agreement and that Ventana was a proper licensee and sub-licensee of
the relevant HPV patents. The ICC further determined that Ventana is entitled to seek damages in an amount to be quantified. We filed notice with the ICC in August 2005 to resume the second phase of the arbitration relating to damages. The ICC has
renewed proceedings on this issue, and ordered Institut Pasteur to provide certain requested documents. We anticipate that a hearing will be scheduled in the Spring or Summer of 2006.



BIOGENEX LABORATORIES, INC. v. VENTANA, Case No. C03 03916 JF, was filed in August 2003, in the U.S. District Court,
Northern District of California, San Jose Division. This Complaint alleges we infringe three U.S. patents held by BioGenex, U.S. Patent Nos. 5,578,452, 5,244,787, and 6,451,551. BioGenex seeks, among other remedies, an injunction against our alleged
infringement and unspecified monetary damages. We filed our answer in October 2003. In June 2004, BioGenex moved to amend its complaint adding allegations that we also infringe U.S. Patent No. 6,632,598, and has also filed an action for
contempt against us arising out of previous litigation associated with BioTek Solutions Inc., which we acquired in 1996. A show cause hearing on the contempt action was originally set for August 2004 but remains to be heard. In February 2005, the
Court ruled in favor of our Motion for Summary Judgment of non-infringement of the 551 patent. The Court also found the 452 patent invalid against us for purposes of this litigation. Finally, the Court denied BioGenexs motion to
add the 598 patent to the suit. In October 2005, the Court denied entry of an order to show cause on the contempt claim, dismissing the contempt action. The Court did note, however, that the 787 infringement action remains.



BIOGENEX LABORATORIES, INC. v. VENTANA, Case No. C05 00860 WDB, was filed
in March 2005, in the U.S. District Court, Northern District of California, San Jose Division. This Complaint alleges Ventana infringes U.S. Patent No. 6,632,598 and one claim of the 452 patent held by BioGenex. BioGenex seeks, among
other remedies, an injunction against our alleged infringement and unspecified monetary damages. The matter has been joined with the other action pending before this court (see above). We have filed a motion to dismiss the case with respect to the
452 patent. The motion was heard July 2005 and at the case management conference August 2005, the Court dismissed the 452 patent claim. BioGenex infringement disclosures on the 598 patent were submitted in early September and we
have filed a motion for summary judgment of non-infringement, scheduled to be heard in January 2006.



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|Item 1. | Legal Proceedings  (continued)
|------- | -------------------------------



VENTANA v. BIOGENEX LABORATORIES INC., No. CIV-03-92-TUC-RCC, was filed in February 2003, in U.S.
District Court, District of Arizona. In late August 2005, the Court issued a claim construction (Markman) ruling favorable to BioGenex. In September 2005, the parties filed a stipulation of entry of judgment of non-infringement based
solely on the claim construction for the purpose of being able to proceed to an appeal of the ruling. In October 2005, the Court entered an appealable judgment, and we filed a notice of appeal. A hearing date is anticipated in the Spring of 2006 and
a decision in mid-Summer 2006. BioGenex has also filed a motion for costs and for attorneys fees in this matter.



For further discussion of legal proceedings affecting the Company, see Item 3, Legal Proceedings, of our Annual Report on Form 10-K for
fiscal year ended December 31, 2004.



We record contingent
liabilities resulting from claims against us when it is probable (as that word is defined in Statement of Financial Accounting Standards No. 5) that a liability has been incurred and the amount of the loss is reasonably estimable. We disclose
contingent liabilities when there is a reasonable possibility that the ultimate loss will exceed the recorded liability. Estimating probable losses requires analysis of multiple factors, in some cases including judgments about the potential actions
of third-party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. We are involved in a number of other legal actions, both as plaintiff and defendant, and could incur uninsured liability in any one or more
of them. Although the outcome of these actions is not presently determinable, it is the opinion of the Companys management, based upon the information available at this time, that the expected outcome of these matters, individually or in the
aggregate, will not have a material adverse effect on the results of operations or financial condition of the Company.



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|Item 2. | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
|------- | --------------------------------------------------------------------------------



On September 8, 1998, our Board of Directors authorized us to repurchase up to 1.5 million shares of our common
stock in the open market or in privately negotiated transactions. In May 2004, our Board of Directors approved an additional repurchase of an additional 2.0 million shares of our common stock. During the nine months ended September 30,
2005, we re-purchased 802,768 of our common stock for $30.7 million. The repurchased shares were returned to the status of authorized but unissued shares. The timing and amount of any future repurchases will depend on market conditions and corporate
considerations.



Stock Repurchases During the Third Quarter 2005



|                                 |  |                        |  |                              |  |                                                                                  |  |                                                                                 
|-------------------------------- |  | ---------------------- |  | ---------------------------- |  | -------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------
|Period                           |  | Total Number of Shares |  | Average Price Paid Per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Plans or
Programs |  | Maximum Number of Shares that may yet be Repurchased Under the Plans or Programs
|July 1, 2005 - July 31, 2005     |  |                       |  |                             |  |                                                                                 |  | 2,080,532                                                                       
|August 1 - August 31, 2005       |  | 221,800                |  | 38.33                        |  | 221,800                                                                          |  | 1,868,500                                                                       
|September 1 - September 30, 2005 |  | 328,700                |  | 37.75                        |  | 328,700                                                                          |  | 1,539,800                                                                       



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|Item 6. | Exhibits
|------- | --------



See Exhibits Index



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SIGNATURE



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



|                       |  |  |  |                               |  |                        |  |                                                             
|---------------------- |  |  |  | ----------------------------- |  | ---------------------- |  | ------------------------------------------------------------
|                       |  |  |  | Ventana Medical Systems, Inc.
|                       |  |  | 
|Date: November 8, 2005 |  |  |  | By:                           |  | /s/    NICHOLAS MALDEN
|                       |  |  |  |                               |  |                        |  | Nicholas Malden                                             
|                       |  |  |  |                               |  |                        |  | Senior Vice President, Chief Financial Officer and Secretary



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EXHIBITS



|               |  |                                                                                    |  |        
|-------------- |  | ---------------------------------------------------------------------------------- |  | -------
|Exhibit Number |  | Description                                                                        |  | Notes  
|               |  |                                                                                   
|3.1            |  | Restated Certificate of Incorporation or Registrant                                |  | (1)    
|               |  |                                                                                   
|3.2            |  | Bylaws of Registrant                                                               |  | (1)    
|               |  |                                                                                   
|3.3            |  | Certificate of Amendment to the Restated Certificate                               |  |        
|               |  |                                                                                   
|4.1            |  | Specimen Common Stock Certificate                                                  |  | (1)    
|               |  |                                                                                   
|10.1           |  | Form of Indemnification Agreement for directors and officers                       |  | (1)    
|               |  |                                                                                   
|10.2           |  | 1988 Stock Option Plan and forms of agreements thereunder                          |  | (1)    
|               |  |                                                                                   
|10.3           |  | 1996 Stock Option Plan and forms of agreements thereunder                          |  | (1)    
|               |  |                                                                                   
|10.4           |  | 1996 Employee Stock Purchase Plan                                                  |  | (1)    
|               |  |                                                                                   
|10.5           |  | 1996 Directors Option Plan                                                         |  | (1)    
|               |  |                                                                                   
|10.6           |  | 1998 Nonstatutory Stock Option Plan and forms of agreements thereunder             |  | (2),(3)
|               |  |                                                                                   
|10.7           |  | 2001 Outside Director Stock Option Plan                                            |  | (4),(5)
|               |  |                                                                                   
|10.8           |  | 2005 Equity Incentive Plan                                                         |  | (5)    
|               |  |                                                                                   
|10.9           |  | 2005 Employee Stock Purchase Plan                                                  |  | (5)    
|               |  |                                                                                   
|31.1           |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer                  |  |        
|               |  |                                                                                   
|31.2           |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer                  |  |        
|               |  |                                                                                   
|32             |  | Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer |  |        



|(1) | Filed with the Registration Statement on Form S-l (Commission File No. 333-4461), declared effective by the Commission July 26, 1996.
|--- | -------------------------------------------------------------------------------------------------------------------------------------



|(2) | Filed with the Registration Statement on Form S-8 (Commission File No. 333-92883), filed with the Commission on December 16, 1999.
|--- | ----------------------------------------------------------------------------------------------------------------------------------



|(3) | Form of 1998 Nonstatutory Stock Option Plan, as amended, agreements filed with the Registration Statement on Form S-8 (Commission File No. 333-105976), on June 10, 2003.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Filed with the Registration Statement on Form S-8 (Commission File No. 333-69658), filed with the Commission on September 19, 2001.
|--- | -----------------------------------------------------------------------------------------------------------------------------------



|(5) | Filed with the Definitive Proxy Statement on Schedule 14A (Commission File No. 000-20931) on March 31, 2005.
|--- | ------------------------------------------------------------------------------------------------------------



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