UNITED
STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-Q  xQUARTERLY REPORT PURSUANT TO SECTION 13 OR
  15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934For
  the quarterly period ended March 31, 2001ORoTRANSITION REPORT PURSUANT TO SECTION 13
  OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934
 Commission File No. 0-23659  VYSIS,
INC.(Exact name of registrant as
specified in its charter)  DELAWARE
  36-3803405(State or other jurisdiction
  of
  (I.R.S. Employer
  Identification Number)incorporation or
  organization)
  3100 Woodcreek Drive
  60515-5400Downers Grove,
  Illinois
  (Zip Code)(Address of principal executive offices)
 Registrants telephone number, including area
code:  (630) 271-7000  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.
Yesx       No 
o Number
of shares of Common Stock, par value $.001 per share, outstanding as of May 3,
2001:  10,171,253    VYSIS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 2001

TABLE OF CONTENTS



PART I:  FINANCIAL
  INFORMATIONItem 1:
  Financial StatementsConsolidated Balance Sheets
  As of March 31, 2001 and December 31, 2000Consolidated
  Statements of Operations For the three months ended March 31, 2001 and 2000Consolidated
  Statements of Comprehensive Operations For the three months ended March 31,
  2001 and 2000Consolidated
  Statements of Cash Flows For the three months ended March 31, 2001 and 2000Notes
  to Consolidated Financial StatementsItem
  2:
  Managements
  Discussion and Analysis of Financial Condition and Results of OperationsItem
  3:
  Quantitative
  and Qualitative Disclosure About Market RiskPART II:  OTHER
  INFORMATIONItem 1:
  Legal ProceedingsItem 6:
  Exhibits and
  Reports on Form 8-KSignature

PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS

VYSIS, INC.
(An indirect subsidiary of BP p.l.c.)

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and
per share amounts)
(unaudited)



March
  31, 2001
  December
  31, 2000ASSETSCurrent assets:Cash and cash equivalents
  $3,904
  $715Short-term investments
  6,907
  10,673Accounts receivable, net
  4,804
  3,728Other receivables
  14
  321Inventories
  1,691
  1,652Other current assets
  1,446
  528Total current
  assets
  18,766
  17,617Property and
  equipment, net
  2,421
  2,503Other assets
  1,449
  1,370Total assets
  $22,636
  $21,490LIABILITIES AND STOCKHOLDERS
  EQUITYCurrent liabilities:Accounts payable and accrued
  liabilities
  $6,663
  $6,975Deferred revenue
  300
  200Total current liabilities
  6,963
  7,175Long-term liabilities:Deferred revenues
  1,334
  972Other long-term liabilities
  100
  100Total long-term liabilities
  1,434
  1,072Contingency (Note 13)Stockholders equity:Convertible preferred stock, $0.001
  par value; 10,000,000 shares authorized:Series A; 6,200,000 shares
  designated; none issued and outstanding at March 31, 2001 and December 31,
  2000
  ---
  ---Series B; 553,126 shares
  designated; none issued and outstanding at March 31, 2001 and December 31,
  2000
  ---
  ---Common stock, $0.001 par value;
  35,000,000 shares authorized; 10,169,242 issued and outstanding at March 31,
  2001; 10,150,992 issued and outstanding at December 31, 2000
  10
  10Additional paid-in capital
  72,714
  72,625Accumulated other comprehensive
  loss:Cumulative translation
  adjustment
  (642)
  (464)Accumulated deficit
  (57,843)
  (58,928)Total stockholders equity
  14,239
  13,243Total liabilities and
  stockholders equity
  $22,636
  $21,490See
notes to the consolidated financial statements.



VYSIS, INC.(An
indirect subsidiary of BP p.l.c.)

CONSOLIDATED STATEMENTS OF
OPERATIONS



(in thousands, except per share
amounts)
(unaudited)

Three
  Months Ended March 31,2001
  2000Revenues:Product revenue
  $6,977
  $4,950License and other revenue
  242
  181Total revenues
  7,219
  5,131Cost of goods sold
  1,645
  1,214Gross profit
  5,574
  3,917Operating expenses:Research and development
  1,534
  1,809Selling, general and administrative
  3,132
  3,536Total operating expenses
  4,666
  5,345Income (loss) from
  operations
  908
  (1,428)Interest income
  177
  109Income (loss) before
  provision for income taxes
  1,085
  (1,319)Provision for income
  taxes
  ---
  ---Net income (loss)
  $1,085
  $(1,319)Net income (loss) per
  share:Basic
  $0.11
  $(0.13)Diluted
  $0.10
  $(0.13)

See
notes to the consolidated financial statements.

VYSIS, INC.
(An indirect subsidiary of BP p.l.c.)

CONSOLIDATED STATEMENTS OF
COMPREHENSIVE OPERATIONS



(in thousands)
(unaudited)

Three
  Months Ended March 31,2001
  2000Net income (loss)
  $1,085
  $(1,319)Other comprehensive
  income (loss):Cumulative translation adjustment
  (178)
  (109)Unrealized holding gain on
  investment
  ---
  777Total other comprehensive
  income (loss)
  (178)
  668Comprehensive income
  (loss)
  $907
  $(651)

See
notes to the consolidated financial statements.

VYSIS, INC.(An
indirect subsidiary of BP p.l.c.)

CONSOLIDATED STATEMENTS OF CASH
FLOWS



(in thousands)
(unaudited)

Three
  Months Ended March 31,2001
  2000CASH FLOWS FROM
  OPERATING ACTIVITIES:Net income (loss)
  $1,085
  $(1,319)Reconciliation of net loss to net
  cash used in operating activities:Depreciation and
  amortization
  235
  377Effects of changes in
  foreign currency
  37
  26Changes in assets and
  liabilities:Accounts receivable
  (1,234)
  206Inventories
  (86)
  (115)Other current
  assets
  (949)
  (671)Other assets
  (121)
  10Accounts payable
  and accrued liabilities
  (262)
  252Deferred revenue
  462
  (75)Net cash used in operating
  activities
  (833)
  (1,309)CASH FLOWS FROM
  INVESTING ACTIVITIES:Proceeds, net of cash sold, from
  French distributor
  92
  651Proceeds, net of transaction-related
  expenses, from sale of Imaging business
  250
  39Proceeds from maturities of
  short-term investments
  5,625
  3,585Purchases of short-term investments
  (1,859)
  (3,244)Purchases of property and equipment
  (152)
  (191)Proceeds from sale of property and
  equipment
  ---
  23Increase in other assets
  ---
  (53)Net cash provided by
  investing activities
  3,956
  810CASH FLOWS FROM
  FINANCING ACTIVITIES:Proceeds from option plan exercises
  89
  125Expenses funded by BP
  ---
  115Net cash provided by
  financing activities
  89
  240Effect of exchange
  rate changes on cash
  (23)
  (49)Net decrease in cash
  and cash equivalents
  3,189
  (308)Cash and cash equivalents
  at beginning of period
  715
  4,818Cash and cash
  equivalents at end of period
  $3,904
  $4,510

See
notes to the consolidated financial statements.

VYSIS, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(unaudited)

NOTE 1ORGANIZATION AND BUSINESS:

Vysis, Inc. (Vysis or the
Company) is a Genomic Disease Management company that develops,
commercializes and markets clinical products that provide information critical
to the evaluation and management of cancer, prenatal disorders and other genetic
diseases.  Vysis currently markets six
U.S. Food and Drug Administration (FDA) or foreign cleared or approved
clinical (Clinical) products in addition to distributing over 300 Analyte
Specific Reagent and research (ASR/Research) products through its direct
sales operations in the United States and Europe and a worldwide distribution
network covering 59 countries. The Company's wholly owned subsidiary, Gene-Trak
Systems Industrial Diagnostics Corporation, manufactures and markets food
testing kits based on Deoxyribonucleic Acid (DNA) probes.

The
Company was incorporated in Delaware on April 18, 1991. The Company's
business represents the consolidation of multiple research units and programs
of the former Amoco Corporation.On
December 31, 1998, Amoco Corporation merged with the former British Petroleum
Corporation, and as a result of the merger became a wholly-owned subsidiary of
BP p.l.c.

On
February 10, 1998, the Company completed the initial public offering of 3
million shares of its Common Stock, par value $0.001 per share, at a price of
$12.00 per share (the Offering). The net proceeds of the Offering after
deducting expenses were approximately $32.1 million.  Concurrent with the consummation of the Offering, the Company
issued 675,000 shares of Common Stock at $12.00 per share to BP in exchange for
a reduction of $8.1 million in the Companys note payable to BP.  As of May 3, 2001, BP beneficially owned
approximately 66 percent of the Companys outstanding Common Stock.

NOTE 2FINANCIAL INFORMATION:

The
unaudited interim consolidated financial statements of the Company have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission.  Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted.  These interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Companys
Annual Report on Form 10-K for the year ended December 31, 2000, as filed with
the Securities and Exchange Commission.

In
the opinion of management, the interim consolidated financial statements
reflect all adjustments necessary for a fair presentation of the interim
periods.  All such adjustments are of a
normal, recurring nature.  Certain
amounts in fiscal 2000 have been reclassified to conform to the fiscal 2001
presentation.  These changes had no
impact on previously reported results of operations or stockholders
equity.  The results of operations for
the interim periods are not necessarily indicative of the results of operations
to be expected for a full year.

NOTE 3RECENT ACCOUNTING PRONOUNCEMENTS:

Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, is effective for all fiscal years beginning
after June 15, 2000.  SFAS No. 133, as
amended, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. 
Under SFAS No. 133, certain contracts that were not formerly considered
derivatives may now meet the definition of a derivative.  The Company has adopted SFAS No. 133
effective January 1, 2001.  Management
has determined that the adoption of SFAS No. 133 did not have an impact on the
financial position, results of operations, or cash flows of the Company.

NOTE 4COMPOSITION OF BALANCE SHEET COMPONENT:

Inventories
consisted of the following (in thousands):



March 31,2001
  December 31,2000Raw
  materials and supplies
  $851
  $522Finished
  goods
  840
  1,130$1,691
  $1,652



NOTE 5SHORT-TERM INVESTMENTS CLASSIFIED
AS HELD TO MATURITY:

Short-term
investments are classified as held to maturity, are carried at amortized cost
and are summarized as follows (in thousands):

March 31, 2001Amortized Cost
  UnrealizedLoss
  FairValueU.S. government agencies
  $4,122
  $2
  $4,120Corporate debt
  securities
  2,785
  9
  2,776$6,907
  $11
  $6,896



December 31, 2000Amortized Cost
  Unrealized Gain
  FairValueU.S. government agencies
  $3,307
  $5
  $3,312Corporate debt
  securities
  7,366
  3
  7,369$10,673
  $8
  $10,681

A
summary of securities classified as held to maturity at March 31, 2001 are as
follows (in thousands):

Due In
  Amortized Cost
  FairValue1-90 Days
  $6,423
  $6,41391-180 Days
  484
  483$6,907
  $6,896

NOTE 6INCOME TAXES:

Prior
to the completion of the Companys Offering, the results of operations were
included in the consolidated income tax returns of BP; accordingly, the
domestic net operating losses through February 10, 1998 have been utilized by
BP in its consolidated income tax returns and are not available to offset the
Company's future taxable income. 
Subsequent to the Offering, the Company has filed separate federal
income tax returns.  For state income
taxes, the Companys results of operations will continue to be included with
BP, due to its 66 percent ownership interest in the Company, in those states
where required by state tax law. Under state tax laws in a number of states,
including Illinois (the state in which much of the Companys business is
taxed), the Company is required by law to be included in BPs unitary state tax
returns as long as BP owns or controls 50 percent or more of the voting equity.
For unitary state filings, the tax sharing agreement with BP requires BP to pay
the Company the incremental tax savings, if any, received by BP as a result of
including the Companys results of operations in such filings. The agreement
also requires the Company to pay BP the incremental tax liability, if any,
incurred by BP as a result of including the Companys results of operations in
such filings. As a result of BPs apportionment factors combined with minimal
U.S. based taxable income, the Company has not recorded any state income tax
expense for the three months ended March 31, 2001.  For federal and state income taxes in non-unitary states, the
Company has not recorded any income tax expense due to the availability of net
operating loss carry-forwards.  Ultimate
utilization or availability of net operating losses and certain deferred tax
assets may be limited if a significant change in ownership occurs, as defined
by rules enacted with the United States Tax Reform Act of 1986.

A full
valuation allowance has been provided for all deferred tax assets (net of
liabilities) at March 31, 2001 as management does not consider realization of
such amounts more likely than not.

NOTE 7GAIN ON SALE OF FRENCH DISTRIBUTOR:

On
December 31, 1999, the Company sold its wholly-owned French distribution
subsidiary to Applied Genetics Services, Ltd. for a purchase price in French
francs the equivalent of $1,272,000 in U.S. dollars as of December 31, 1999,
resulting in a gain of $166,000.  At
March 31, 2001, the Company and its foreign subsidiaries have received the U.S.
dollar equivalent of $1,168,000.  The
Company received during April 2001 the remaining payment in French francs,
which translated into the equivalent of $14,000 in U.S. dollars.

NOTE
8GAIN ON SALE OF THE IMAGING BUSINESS:

During
July 1999, the Company sold its Quips cytogenetic imaging instrumentation
(Imaging) business, which represented nearly all of the Companys current
genetic instrument product line, to Applied Imaging Corp. (AI) for a purchase
price of $2,278,000 plus additional consideration of $749,000 for the purchase
of certain Imaging component inventory, resulting in a gain of $1,700,000.  Of the $3,027,000 in total consideration,
the Company has received $2,499,000 in cash and 497,368 shares of AI common
stock that was valued upon its receipt at $528,000.  During July 2000, the Company sold the AI common stock for
$1,718,000 resulting in a realized gain of $1,190,000.

NOTE
9RELATED PARTY TRANSACTION:

During
the three months ended March 31, 2000, the Company received certain consulting
services provided for and paid by BP valued at $115,000.  The Company has recorded the benefit of
these services as a capital contribution with a corresponding charge to
selling, general and administrative expense.

NOTE 10SEGMENT AND GEOGRAPHIC INFORMATION:

The
Company operates in two reportable business segments:  genetic and food testing products.  The genetics business develops, commercializes, manufactures and
markets products that use nucleic acid probes for the evaluation and management
of cancer, prenatal disorders and other genetic diseases.  The food business manufactures and markets
food testing kits based on DNA probes.

The
tables below present information (in thousands) about reported segments for the
three months ended March 31, 2001 and 2000:

March 31, 2001Genetics
  Food
  TotalRevenues from
  external customers
  $6,533
  $686
  $7,219Segment income
  950
  135
  1,085Segment assets
  21,971
  665
  22,636March 31, 2000Genetics
  Food
  TotalRevenues from external customers
  $4,412
  $719
  $5,131Segment income
  (loss)
  (1,339)
  20
  (1,319)Segment assets
  20,270
  754
  21,024

The Companys
revenues by product line for the three months ended March 31, 2001 and 2000 are
as follows (in thousands):

Three Months Ended March 31,2001
  2000FDA/ADM
  approved clinical genetic testing products
  $2,013
  $1,297ASR/Research
  genetic testing products
  3,536
  2,642Genetic
  instrument products
  742
  292License and
  other revenue
  242
  181Food testing
  products.
  686
  719Consolidated
  total revenues
  $7,219
  $5,131

The
Companys revenues by geographic area based on location of customers are as
follows (in thousands):

Three Months Ended March 31,2001
  2000United States
  $3,947
  $2,612Europe, Middle East and Africa
  2,372
  1,888Other
  900
  631Consolidated total revenues
  $7,219
  $5,131

NOTE 11NET INCOME (LOSS) PER SHARE:

Basic
net income (loss) per share is computed by dividing net income (loss)
(numerator) by the weighted average number of common shares outstanding
(denominator) during the period and excludes the dilutive effect of stock
options.  Diluted net income (loss) per
share gives effect to all dilutive potential common shares outstanding during a
period.  In computing diluted net income
(loss) per share, the average stock price for the period is used in determining
the number of shares assumed to be purchased from exercise of stock options.

The
following is a reconciliation of the numerators and denominators of the basic
and diluted net income (loss) computations (in thousands, except per share
amounts) for the three months ended March 31, 2001 and 2000:

Three Months Ended March 31,2001
  2000Numerator:Net income (loss)
  $1,085
  $(1,319)Denominator:Denominator for basic net income (loss)  per share  weighted-average shares
  10,154
  10,007Dilutive potential common shares  
  stock options
  1,026
  ---Denominator for diluted net income (loss) per share
  11,080
  10,007Basic
  net income (loss) per share
  $0.11
  $(0.13)Diluted net income (loss) per share
  $0.10
  $(0.13)Options
to purchase 191,476 shares of common stock were outstanding at March 31, 2001,
but were not included in the computation of diluted net income per share for
the three months ended March 31, 2001 as their effect was antidilutive.  Options to purchase 2,179,635 shares were
outstanding at March 31, 2000, but were not included in the computation of
diluted loss per share for the three ended March 31, 2000 as their effect was
antidilutive.

NOTE 12DISTRIBUTION AND SUPPLY AGREEMENT:

On
March 30, 2001, the Company entered into a five-year, renewable distribution
and supply agreement (the Agreement) with Abbott Laboratories
(Abbott).  The Agreement provides
Abbott with the exclusive distribution rights in North America and Europe for
the Companys PathVysionTM breast cancer product and its UroVysion
bladder cancer product.  The Agreement
also gives Abbott an exclusive option for distribution rights in Asia/Pacific
(except Japan) and South America for both products.  All payments will be recognized by the Company over the periods
to which they apply.

NOTE 13CONTINGENCY:

As previously reported, the Company is named as the
defendant in a declaratory judgment suit filed in the United States District
Court in the Southern District of California (San Diego) by Gen-Probe
Incorporated (Gen-Probe).  The suit
seeks a declaration that the Companys U.S. Patent No. 5,750,338 (the 338
patent) is invalid, unenforceable and not infringed by certain products for
detecting the presence of hepatitis C virus and human immunodeficiency virus in
blood specimens.  The Company
understands that Chiron Corporation (Chiron) is currently marketing the
products in various countries outside the U.S. pursuant to licenses granted by
the Company to Gen-Probe and Chiron. 
The suit also seeks an injunction restraining the Company from
interfering with activities by Gen-Probe and its partners regarding these and
other products in development; damages and other relief for unfair competition;
and a declaration of Gen-Probes rights and obligations under its license to
the 338 patent.  The parties are taking
discovery.  The trial is projected to
occur in about January 2002.  The
Company believes Gen-Probes claims are without merit and is defending its
rights vigorously.

As also reported previously, the Company has filed an
application to reissue the 338 patent with the United States Patent &
Trademark Office seeking clarification of certain matters concerning the '338
patent.  The reissue application also
requests the Patent Office to supplement the claims of the issued patent with
new claims of intermediate scope.  The
application remains pending.

Neither
loss of the suit filed by Gen-Probe nor an adverse ruling by the Patent Office
to the reissue application would limit the sales or marketing of any of the Companys
present or planned products, but either result could result in the loss of
revenue resulting from the licenses granted to Gen-Probe and its partners and
other potential licenses granted under the 338 patent.  Although there can be no assurance as to the
ultimate outcome of the suit, based upon the information available at this time
it is the opinion of the Companys management that the outcome of this suit
will not have a material adverse effect on the Companys business, results of
operations and financial condition.

ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The
following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Companys
results and financial condition.  The
discussion should be read in conjunction with the audited consolidated
financial statements of the Company and notes thereto, which were included in
the Companys Annual Report on Form 10-K for the year ended December 31, 2000
as well as the financial statements of the Company and notes thereto.  This Quarterly Report on Form 10-Q contains
certain statements which describe the Companys beliefs concerning future
business conditions and the outlook for the Company based on currently
available information.  Whenever
possible, the Company has identified these forward-looking statements (as
defined in Section 21E of the Securities Exchange Act of 1934) by words such as
anticipates, believes, estimates, expects, and similar expressions.
These forward-looking statements are subject to risks and uncertainties which
could cause the Companys actual results, performance and achievements to
differ materially from those expressed in or implied by these statements.  These risks and uncertainties, which could
cause actual results to differ materially from those expressed or implied by
the forward-looking statements, include: 
the market acceptance of the Companys clinical products; the extent to
which the clinicians or laboratories performing procedures with the Companys
products are able to obtain third-party reimbursement; the ability of the
Company to successfully market and sell its clinical products, other products
and equipment; competition; compliance by the Company with regulatory
requirements and the timely receipt of necessary governmental approvals; the
Companys ability to manufacture products in sufficient quantities; the
Companys ability to maintain intellectual property protection for its
proprietary products, to defend its existing intellectual property rights from
challenges by third parties, and to avoid infringing intellectual property
rights of third parties; product liability claims; the success of the Companys
collaborators and licensees; and the Companys cost control efforts.   In addition, a detailed discussion of risks
and uncertainties may be found in the Companys periodic filings with the
Securities and Exchange Commission.  The
Company disclaims any intent or obligation to update these forward-looking
statements.

OVERVIEW

Vysis
is a Genomic Disease Management company that develops, commercializes and
markets clinical products that provide information critical to the evaluation
and management of cancer, prenatal disorders and other genetic diseases.  Vysis currently markets six Clinical
products in addition to distributing over 300 ASR/Research products through its
direct sales operations in the United States and Europe and a worldwide
distribution network covering 59 countries. The Company's wholly owned
subsidiary, Gene-Trak Systems Industrial Diagnostics Corporation, manufactures
and markets food testing kits based on DNA probes.

RESULTS OF OPERATIONS

For
the three months ended March 31, 2001, total revenues were $7.2 million, an increase
of $2.1 million, or 41 percent, from the prior year.  For the three months ended March 31, 2001, product revenues
increased $2.0 million, or 41 percent, to $7.0 million, from 2000 while grant
and other revenue of $0.2 million was slightly improved from the prior year
quarter.  The increase in 2001 product
revenue was primarily attributable to a $0.7 million, or 55 percent, increase
in Clinical product sales, a $0.9 million, or 34 percent, increase in
ASR/Research product sales, and a $0.4 million, or 154 percent, increase in
Genetic Instrument Product (Instrument) sales.  The increase in Clinical sales was primarily due to growth in the
U.S. adoption rate of the Companys PathVysion breast cancer product and worldwide
growth of the AneuVysion® prenatal product. 
The increase in ASR/Research sales was primarily attributable to the
worldwide increase in shipments of previously developed ASR/Research products,
as well as the worldwide sales of 19 new ASR/Research products introduced
within the last year.  The increase in
Instrument revenue was primarily related to an increase in U.S. shipments of
the Companys VP2000 Processor, a high throughput instrument that automates the
specimen preparation steps of FISH (fluorescent in site hybridization) assays,
and the worldwide increase in shipments of its GenoSensorTMReader,
a proprietary reader designed to quickly capture fluorescent image data from
the Companys microarray.

Cost
of goods sold were $1.6 million for the three months ended March 31, 2001, an
increase of $0.4 million, or 36 percent, from the prior year quarter primarily
as a result of the increase in the volume of the products sold during the first
quarter of 2001 as compared to the prior year period.  As a percentage of product revenue, 2001 product gross profit
increased to 76.4 percent for the first quarter of 2001 as compared to 75.5
percent for the prior year quarter due to the Companys continuing focus on its
higher margin Clinical and ASR/Research products.   As a result, the product gross profit for the first quarter of
2001 was $5.3 million, an increase of $1.6 million, or 43 percent, over the
prior year.

Research
and development expense, including clinical trial costs, decreased to $1.5
million for the three months ended March 31, 2001 from $1.8 million in the
prior year quarter.  The $0.3 million
decrease was primarily due to lower clinical trial related costs during the
first quarter of 2001.

Selling,
general and administrative expense decreased to $3.1 million for the three
months ended March 31, 2001 from $3.5 million in the prior year quarter.  The $0.4 million decrease was due to a
decrease of $0.5 million in general and administrative expense primarily
related to lower sales and use tax expense resulting from the Company implementing
a sales and use tax compliance program during the first quarter of 2001, offset
by an increase of $0.1 million in selling expense primarily attributable to
additional employee-related costs.

Interest
income was $0.2 million for the three months ended March 31, 2001, an increase
of $0.1 million over the prior year quarter primarily as a result of the
Companys higher average cash, cash equivalents and short-term investment
balances during the first quarter of 2001 as compared to the prior year.

LIQUIDITY AND CAPITAL RESOURCES

Net
cash used in operating activities for the three months ended March 31, 2001 was
$0.8 million, a decrease of $0.5 million over the prior year quarter, driven
primarily by a $2.4 million improvement in net income and an increase of $0.5
million in deferred revenues, offset by a $2.2 million increase in working
capital requirements during the first quarter of 2001 as compared to the prior
year quarter.

Net
cash provided by investing activities for the three months ended March 31, 2001
was $4.0 million, resulting primarily from $3.8 million in proceeds from
maturities of short-term investments, net of purchases, and $0.3 million in
proceeds from the sale of the Imaging business.  During the prior year quarter, the $0.8 million of net cash
provided by investing activities resulted primarily from $0.7 million in
proceeds from the sale of the French distribution subsidiary.

Net
cash provided by financing activities for the three months ended March 31, 2001
was $0.1 million, a decrease of $0.2 million from the prior period primarily
due to BPs nonrecurring contribution of services during the first quarter of
2000 as well as the decrease in proceeds from stock option exercises.

At
March 31, 2001, the Company had cash, cash equivalents and short-term
investments of $10.8 million and an accumulated deficit of $57.8 million.  Since its inception, the Company has
experienced negative cash flows from operations.  As indicated above, the Companys net cash used in operating
activities for the first quarter of 2001 has decreased by $0.5 million, or 36
percent, in comparison to the prior year primarily as a result of the
improvement in operating results.  For
the three months ended March 31, 2001, the Companys operating income of $0.9
million represented an improvement of $2.3 million over the first quarter of
2000.

In order to preserve the Companys cash position and to
reduce cash used in operating activities, the Company implemented during the
first quarter of 1999 a restructuring plan that resulted in the elimination of
20 positions, including open positions, thereby reducing ongoing expenditures
by approximately $1.6 million.  In
addition, the Company sold its investment in Incyte Pharmaceutical common stock
for $0.5 million.During
the third quarter of 1999 the Company sold its Imaging business to Applied
Imaging Corp. (AI) for total consideration of $3.0 million.  Of the $3.0 million in total consideration,
the Company has received $2.5 million in cash and 497,368 shares of AI common stock
that was valued upon its receipt at $0.5 million.  The AI stock was subsequently sold for $1.7 million during July
2000.  Upon completion of the Imaging
business sale, the Company refocused on its core technologies and during the
fourth quarter of 1999 eliminated 37 positions, including open positions as
well as certain positions previously associated with the Imaging business,
thereby reducing ongoing annual cash expenditures by approximately $2.7
million.  In addition, the Company sold during December 1999 its French
distribution subsidiary for approximately $1.2 million, which has been adjusted
for the effect of foreign currency translation.  At March 31, 2001, the Company has received substantially all of
the $1.2 million adjusted purchase price.

The
Company believes that its current cash and short-term investment position, and
the interest to be earned thereon, will be sufficient to fund the Company's
operations through the end of year 2002. The Company's estimate of the time
period for which cash funds will be adequate to fund its operations is a
forward looking estimate subject to risks and uncertainty, and actual results
may differ materially.  The Company's
requirements for additional capital will depend on many factors, including
growth in product revenues, payments received under potential collaborative
agreements; the progress of the Company's collaborative and independent
research and development projects; the costs of preclinical and clinical trials
for the Company's products; the prosecution, defense and enforcement of patent
claims and other intellectual property rights; costs of product liability
claims; and the development of manufacturing, sales and marketing capabilities.
To the extent capital resources together with cash flow from operations are not
sufficient to meet future capital requirements, the Company will have to raise
additional funds to continue the development of its technologies. There can be
no assurance that such funds will be available on favorable terms, or at all.
To the extent that additional capital is raised through the sale of equity or
convertible debt securities, the issuance of such securities could result in
dilution to the Company's shareholders. If adequate funds are not available,
the Company may be required to curtail operations significantly or to obtain
funds through entering into collaborative agreements on unattractive terms. The
Company's inability to raise capital as and when needed would have a material
adverse effect on the Company's business, financial condition and results of
operations.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

The
Company is subject to market risk associated with changes in foreign currency
exchange rates and interest rate.  The
Companys exchange rate risk is limited to its European operations.  The Companys foreign currency exchange rate
risk results primarily from the foreign currency translation of its foreign
operations financial results and from the foreign operations intercompany
purchases of inventory.  The majority of
the intercompany purchases are paid for within standard payment terms of 30
days.  Sales throughout the rest of the
world are denoted in U.S. dollars.  For
the three months ended March 31, 2001, the foreign exchange rates utilized to
translate the Companys international subsidiaries local currency financial
results into U.S. dollars declined five percent as compared to the prior
quarter due to the strengthening of the U.S. dollar against the local currency
of these subsidiaries which resulted in a $0.1 million reduction in operating
results in comparison to the prior year. 
The foreign currency translation loss included in shareholders equity
resulting from the translation of the financial statements of the Companys
international subsidiaries into U.S. dollars increased by $0.2 million for the
three months ended March 31, 2001. 
Interest rate exposure is primarily limited to the $6.9 million of
short-term investments owned by the Company. 
Such securities are debt instruments which generate interest income for
the company on excess cash balances. 
The Company does not actively manage the risk of interest rate
fluctuations; however, such risk is mitigated by the relatively short term,
less than 12 months, nature of these investments.

The
Company does not consider the present rate of inflation to have a significant
impact on its business.



PART
II.  OTHER INFORMATION

ITEM
1.  LEGAL PROCEEDINGS

See
Note 13 to the Consolidated Financial Statements.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

The exhibit filed as part of this 10-Q is listed in the
Exhibit Index immediately preceding the exhibit.

There
were no Form 8-K reports filed during the quarter.

SIGNATURE

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

VYSIS,
INC.

Date:  May 15, 2001
  By:
  /s/
  JOHN R. SLUISName: John R. SluisTitle:Senior Vice President and ChiefFinancial OfficerEXHIBIT
INDEX

Exhibit Number
  Description of Document** 2.1 (5)
  Asset Purchase, License, and Distribution Agreement
  Between Vysis, Inc. and Applied Imaging Corp. dated July 16, 1999.3.1.1 (1)
  Certificate of Incorporation of Vysis, Inc. (formerly
  Framingham Development Company) filed April 18, 1991.3.1.2 (1)
  Certificate of Amendment of Certificate of
  Incorporation filed March 30, 1994.3.1.3 (1)
  Certificate of Merger filed February 1, 1996.3.1.4 (1)
  Certificate of Amendment of Certificate of
  Incorporation filed February 29, 1996.3.1.5 (1)
  Certificate of Correction of Certificate of Amendment
  filed July 22, 1996.3.1.6 (1)
  Certificate of Amendment of Certificate of
  Incorporation filed September 16, 1997.3.1.7 (1)
  Certificate of Designations of Series B Preferred
  Stock, filed September 17, 1997.3.1.8 (1)
  Certificate of Amendment of Certificate of
  Incorporation filed November 21, 1997.3.2 (3)
  Amended and Restated Bylaws of Vysis, Inc.4.1 (1)
  Form of Common Stock Certificate.* 10.1 (1)
  Vysis, Inc. 1996 Stock Incentive Plan.10.2 (1)
  Industrial Building Lease between American National
  Bank and Trust Company of Chicago and Vysis, Inc. dated November 29,
  1994.10.3 (1)
  License Agreement for Chromosome Analysis Technology
  with Chromosome-Specific Probes between ATC and The Regents of The University
  of California dated August 15, 1989, as amended October 6, 1989;
  July 1, 1991; April 15, 1992; June 1, 1994; June 6, 1994;
  June 28, 1994; July 1, 1994; September 1, 1994.10.4 (1)
  Exclusive License Agreement between The Regents of The
  University of California and Imagenetics for Inventions made in the field of
  Molecular Cytogenetics dated July 1, 1994.10.5 (1)
  Option Agreement between The Regents of The University
  of California and Imagenetics for Inventions made in the field of Molecular
  Cytogenetics dated July 1, 1994.10.6 (1)
  Exclusive Option Agreement between Vysis and the
  University of California for the Glass Chromosome.10.7 (1)
  Exclusive License Agreement between the Regents of the
  University of California and Vysis, Inc. for Molecular Cytogenetics Software
  dated June 1, 1995.

10.8 (1)
  Exclusive License Agreement between the Regents of The
  University of California and ATC dated July 30, 1992, as amended,
  December 7, 1994.10.9 (1)
  License Agreement between The Trustees of Columbia
  University, The Salk Institute for Biological Studies and Gene-Trak Systems
  dated October 7, 1988, as amended June 15, 1996.10.10 (1)
  Research and License Agreement between Gene-Trak Inc.
  and Public Health Research Institute dated July 14, 1994 and Letter re:
  Research and License Agreement dated July 18, 1994.10.11 (1)
  Exclusive Distributor Agreement between Vysis, Inc. and
  Fujisawa Pharmaceutical Co., Ltd. dated July 31, 1995.**10.12 (1)
  Sublicense Agreement between Ciba Corning Diagnostics
  Corp. and Vysis, Inc. dated May 24, 1996.**10.13 (8)
  License agreement between the Company and Yale
  University.10.14 (1)
  Cooperation Agreement between the Company and Amoco
  Technology Company.10.15 (2)
  Registration Rights Agreement between the Company and
  Amoco Technology Company.10.16 (1)
  Amended and Restated Tax Allocation Agreement between
  the Company and Amoco Technology Company.* 10.17 (6)
  Amended and Restated Vysis, Inc. 1998 Long Term
  Incentive Plan.* 10.18 (4)
  1999 Outside Directors Stock Option Plan.* 10.19 (7)
  1998 Stock Option Agreement with Dr. Kenneth Melmon.* 10.20 (9)
  Directors Agreement with Dr. Richard A. Lerner* 10.21
  Directors Agreement with Thomas L. Dewey21.1 (1)
  Subsidiaries of Vysis, Inc.23.1 (1)
  Independent Auditors Consent.





(1)         Previously
filed under the corresponding exhibit number in the Companys S-1 Registration
Statement No. 333-38109 and incorporated herein by reference.

(2)         Previously filed as Exhibit 10.15 to
the Companys Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by reference.

(3)         Previously filed as Exhibit 3.2 to the
Companys Annual Report on Form 10-K for the year ended December 31, 1998 and
incorporated herein by reference.

(4)         Previously filed as Exhibit A to the
Companys Definitive Proxy Statement for the 1999 Annual Meeting of
Stockholders and incorporated herein by reference.

(5)         Previously filed as Exhibit 2.1 to the
Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and
incorporated herein by reference.

(6)         Previously filed as Exhibit 10.17 to
the Companys Annual Report on Form 10-K for the year ended December 31, 1999
and incorporated herein by reference.

(7)         Previously filed as Exhibit 10.19 to
the Companys Annual Report on Form 10-K for the year ended December 31, 1999
and incorporated herein by reference.

(8)         Previously filed as Exhibit 10.13 to
the Companys Annual Report on Form 10-K for the year ended December 31, 2000
and incorporated herein by reference.

(9)         Previously filed as Exhibit 10.20 to
the Companys Annual Report on Form 10-K for the year ended December 31, 2000
and incorporated herein by reference.

*           Management contract or compensatory
plan or arrangement.

**    Confidential information contained in this
Agreement has been omitted.