Digene Corp (DIGE) - Description of business

Overview

     We develop, manufacture and market our proprietary gene-based diagnostic tests for the screening, monitoring and diagnosis of human diseases. Our primary focus is in women’s cancers and infectious diseases. We have applied our proprietary Hybrid Capture ® technology to develop a successful diagnostic test for human papillomavirus (HPV), which is the primary cause of cervical cancer and is found in greater than 99% of all cervical cancer cases. Our HPV testing products, which are the only Food and Drug Administration (FDA)-approved tests for the detection of HPV, are each a reproducible, objective test for the primary cause of cervical cancer. We have created, and are continuing to expand, the worldwide market for HPV testing.

     Our patented Hybrid Capture platform has been optimized for high-throughput, cost-effective cervical cancer screening and other gynecologic applications. Hybrid Capture is a signal amplification technology that combines the convenience of a direct probe test with the sensitivity of an amplification test, requires minimal sample preparation and provides objective test results.

     In creating the worldwide market for HPV testing we have focused our activities on four aspects of the market: seeking FDA approval for our products, supporting the clinical validation of HPV testing, including pursuit of clinical practice guidelines from recognized professional associations, educating healthcare professionals and womens’ health leaders as to the benefits of HPV testing, and seeking reimbursement approval for the use of our tests, both in the United States and internationally. We continue to focus our activities on increasing access to and use of our HPV test products in the United States and internationally.

     In fiscal 2006, revenue from our HPV testing products was approximately $134,361,000.

     Our goal is to become a global leader in gene-based testing systems for women’s cancers and infectious diseases. Our strategy is to leverage both our position as a pioneer in the HPV testing market, and our Hybrid Capture technology to develop additional tests for the early detection of disease. We have established relationships with clinical laboratories, physicians and other healthcare professionals, developed primarily through our HPV test product marketing efforts, which will help us sell our products.

     For the future, we intend to focus our activities in the following four areas:

	•		building our U.S. HPV testing business to increase our share of the potential market
	•		capitalizing on international opportunities for HPV testing in Europe and the rest of the world
	•		investing in research and development of our next generation products
	•		building our pipeline and portfolio of diagnostic tests through in-licensing and acquisitions

     In addition to our HPV test products, our diagnostic test product portfolio includes gene-based tests for the detection of chlamydia (CT), gonorrhea (GC), cytomegalovirus (CMV) and hepatitis B virus (HBV). We also develop and sell to clinical laboratories the equipment, instrumentation and accessories

used to perform clinical specimen testing with our diagnostic tests, including the Rapid Capture Ò System, an automated specimen processing system. During fiscal 2006 we also acquired the exclusive rights to market and distribute the Signature ® cystic fibrosis (CF) screening products being developed by Asuragen, Inc.

Recent Developments

     In June 2006, we announced that Evan Jones, our Chairman and Chief Executive Officer, will be retiring from Digene during fiscal 2007 after selection of a new Chief Executive Officer. Mr. Jones will remain as a member of our Board of Directors through 2008. In August 2006, we announced that Charles Fleischman, our President, Chief Operating Officer, Chief Financial Officer and a director has resigned from such offices, with the effective date of his resignation as Chief Financial Officer on October 1, 2006, and his resignation from the other offices and as a director on October 31, 2006. On October 1, 2006, Joseph P. Slattery will become Chief Financial Officer. He is currently our Senior Vice President, Finance and Information Services.

     The Nominating and Corporate Governance Committee of our Board of Directors is serving as a search committee for candidates for our Chief Executive Officer position. The committee has retained SpencerStuart, an executive search firm, to assist in the identification of candidates for such position.

Our Products

     Diagnostic tests are used to inform physicians of the presence of a disease or a disease-causing agent and provide critical information necessary for treatment. Diseases today are primarily classified based on physiological symptoms and indirect measurements that are obtained using conventional diagnostic methods that may bear little relationship to the underlying mechanism or cause of the disease.

     In many cases, conventional diagnostic tests also lack the clinical sensitivity and specificity to provide definitive diagnoses during the early stages of disease. Clinical sensitivity is typically regarded as the measure of a test’s ability to accurately detect the presence of disease. A false negative test result can lead to providing a negative or normal diagnosis to a patient who has the disease. Clinical specificity is typically regarded as the measure of a test’s ability to correctly identify the absence of disease when it is not present. A false positive test result can lead to providing a positive or abnormal diagnosis to a patient who does not have disease. We believe clinical sensitivity and specificity can be greatly enhanced by using gene-based information.

     We expect gene-based diagnostic tests to create a fundamental shift in both the practice of medicine and the economics of the diagnostics industry. Gene-based diagnostic tests are expected to create an increased emphasis on preventative and predictive molecular medicine. Physicians will be able to use these tests for the early detection of disease and to treat patients on a personalized basis, allowing them to select the most effective therapy with the fewest side effects. In addition, the relatively straight-forward format and significant automation capabilities of our tests allow ease of laboratory use, reducing overall processing costs.

     The following tables describe the diagnostic test kit products and principal instrumentation we market and sell, and our products in development.

Diagnostic Test Kits:

Product		Target		Market		Marketed Since
The Digene HPV Test (hc2 High-Risk HPV DNA Test) (1)(2)		HPV		Worldwide		2000 in U.S. (from June 2003 as the “DNAwithPap Test” also known as the hc2 High-Risk HPV DNA Test) July 2003 in Europe
hc2 HPV Test (3)		HPV		Worldwide		1995
hc2 CT Test		Chlamydia		Worldwide		1998 in Europe; 1999 in U.S.
hc2 GC Test		Gonorrhea		Worldwide		1999
hc2 CT/GC Test		Chlamydia and Gonorrhea from same sample		Worldwide		1999 in Europe; 2000 in U.S.
hc1 CMV Test		Cytomegalovirus		U.S., Asia/Pacific (4)		1998
hc2 HBV Test		Hepatitis B virus		Asia, primarily Korea; U.S. (4)		1995

Instrumentation and Accessories:

Product		Market		Marketed Since:
Rapid Capture System		U.S., Europe		May 2004 in U.S.; March 2005 in Europe
Hybrid Capture Microplate System		Worldwide		1995

Products in Development:

Product		Description
hc4		Fully automated screening and genotyping platform. Development work ongoing.
HPV genotyping products		Potential uses of these products include HPV genotyping in connection with HPV vaccines and revised patient care management. First product launched in fiscal 2006; others expected to be available over the next few years.
Automated sample preparation processor		Automates the front-end processing of relevant types of cervical specimens from ThinPrep® PreservCytTM Solution (Cytyc Corporation). Expected commercial launch in calendar 2007.
Signature® Cystic Fibrosis tests (5)		Molecular diagnostic tests for Cystic Fibrosis. Expected FDA submission in fiscal 2007.
FAST HPV Test		HPV screening test for use in resource-constrained countries being developed by Digene under the product development and commercialization agreement with PATH.

(1)		Detects high-risk HPV types only.
(2)		Outside of the United States, this test is marketed under the name DNAPap and in this Form 10-K when we refer to “The Digene HPV Test” we also mean the DNAPap Test.

(3)		Detects high-risk and low-risk HPV types.
(4)		In December 2003 we ceased all marketing and sales in Europe and Canada of our diagnostic test products for cytomegalovirus and Hepatitis B virus, and in June 2005 we ceased sales of the hc2 HBV Test in the United States.
(5)		In March 2006 we entered into an exclusive worldwide agreement with Asuragen, Inc. to market and distribute Asuragen’s Signature Cystic Fibrosis screening products.

      Our HPV Tests. There are more than 70 distinct HPV types, approximately 23 of which are specific to the female genital tract. HPV types that infect the genital tract can be divided into two categories, high-risk and low-risk, which indicate the relative chances of developing cervical cancer. Cancer-causing HPV types have been found in more than 99% of cervical cancers.

     Our hc 2 HPV Test contains individual RNA probes that are mixed into cocktails of the thirteen most significant cancer-causing, high-risk papillomavirus types (types 16, 18, 31, 33, 35, 39, 45, 51, 52, 56, 58, 59 and 68), and low-risk HPV types which are not linked to the development of cervical cancer (types 6, 11, 42, 43 and 44). The Digene HPV Test contains individual RNA probes of the thirteen most significant cancer-causing, high-risk HPV types. Each of our HPV test products use a signal amplification process to detect small amounts of the HPV DNA collected from the cells of the cervix. Each test kit consists of RNA probes to specific HPV types, antibodies, detection reagents and a 96-well microplate coated with antibodies.

     Each of our HPV test products is prescribed by a gynecologist or other healthcare professional. The healthcare professional collects the specimen by inserting a collection brush into the cervix, rotating the brush to collect cells, removing it and placing it into a transport tube device. The device is then sent to the laboratory, where it is processed and tested with our test kits by a lab technician and specialized software programs provided with our Hybrid Capture 2 systems to generate qualitative patient test results indicating presence or absence of HPV DNA in the cervical specimen. The laboratory subsequently reports these test results to the physician using standard reporting procedures and the physician advises the woman of the test results and the appropriate follow-up action or treatment, if any. The entire process can be completed in one day but is typically performed in two to three days. When our test is used with an FDA-approved liquid-based Pap test, the entire process is the same except that only one specimen is collected for both our HPV test and the Pap test, permitting the laboratory to perform HPV testing without the need for additional specimen collection.

     Since infection with HPV is necessary for the development of essentially all cervical cancer, testing with our HPV test products identifies women at high risk for the development of cervical disease and cervical cancer. This predictive nature of HPV testing permits healthcare professionals to classify women who test negative for HPV as being unlikely to develop cervical disease in the foreseeable future. Such classification may safely permit increased screening intervals, within the current guidelines, for such women, saving costs for the healthcare provider and permitting the allocation of resources to those women who currently have cervical disease or are at significant risk for developing cervical disease in the future.

     We believe the higher clinical sensitivity and negative predictive value (the measure of how often a negative test result correctly identifies the absence of disease) of our HPV tests may reduce the overall patient management costs and eliminate costs associated with late diagnosis of disease, equivocal test results and false negative diagnoses. This potential for cost reduction arises because the higher accuracy reduces the need for follow-up exams, allows healthcare resources to focus on patients who have, or are at an increased risk of developing disease and minimizes the expenditure of resources on those patients at least risk.

      Our Chlamydia and Gonorrhea Tests. Chlamydia is the most common bacterial sexually transmitted disease in the United States and is a major health problem worldwide, with approximately 89 million new cases reported annually. Genital chlamydia infection, if left untreated, has serious potential consequences, including infertility, ectopic pregnancy, cervicitis and pelvic inflammatory disease. Gonorrhea, with approximately 62 million new cases reported annually worldwide, is the second-most common bacterial sexually transmitted disease in the United States and may result in severe genital complications in both women and men if left untreated. If properly detected, both chlamydia and gonorrhea are easily treatable with low-cost antibiotic therapy. Nevertheless, routine and broad-based screening for chlamydia and gonorrhea has been limited by the insufficient sensitivity of some culture methods, the invasive and cumbersome specimen collection methods frequently used and the time and cost associated with performing these tests.

     Our chlamydia and gonorrhea tests are prescribed and performed by a gynecologist or other healthcare professional using the same methods used to perform our HPV tests. We have the only test cleared by the FDA (our hc 2 CT/GC Test) for the simultaneous detection of chlamydia and gonorrhea infections from a single patient sample from which HPV may also be detected using our HPV tests. We believe the ability to perform multiple tests from a single patient specimen provides greater convenience to patients and their physicians and reduces healthcare costs by decreasing the frequency of patient visits and testing. Clinical studies on women have indicated that our hc 2 CT Test is capable of detecting chlamydia in up to 98% of the cases in which the bacterium is present and our hc 2 GC Test is capable of detecting gonorrhea in up to 92% of the cases in which the bacterium is present. We also offer our hc 2 CT/GC Test which can be used to test for both infections from the same sample, needing only to confirm the presence of chlamydia and/or gonorrhea by follow-up testing of CT/GC positive specimens with our hc 2 CT Test and hc 2 GC Test.

      Our Blood Virus Tests. Blood viruses, such as hepatitis B virus and cytomegalovirus, are leading causes of morbidity and death. Antiviral therapies have been developed to treat the diseases caused by these viruses. To maximize the efficacy of these expensive and sometimes toxic therapies, physicians rely on viral load monitoring to measure the level of virus present in the patient. By measuring viral load and identifying patients who are not responding to therapy early in their treatment, physicians can tailor antiviral therapies through monitoring of individual responses, recognize when a patient develops drug resistance and project how quickly the infection will progress to chronic disease. Rapid, accurate and ongoing detection of blood viruses and monitoring of viral load are essential for effective patient management.

     We have developed unique testing products using our Hybrid Capture technology to detect the presence of cytomegalovirus and hepatitis B virus. Our hc 1 CMV Test is the only DNA test cleared for the detection of cytomegalovirus by the FDA. Our hc 2 HBV Test is currently available primarily in Asia.

      Our Instrumentation and Accessory Products. We manufacture, or have manufactured for us, instrumentation and accessories for performing our tests in clinical laboratories. For our hc 1 and hc 2 tests, we offer a manual Hybrid Capture system that includes a DML 2000 luminometer, plate washers, microplate heaters and additional accessories. We also offer our Rapid Capture System, which is an automated pipetting and microplate handling platform developed for high volume diagnostic testing using our Hybrid Capture technology. In 2001 we received FDA clearance for use of the Rapid Capture System with our diagnostic tests for chlamydia and gonorrhea and in May 2004 we received FDA approval for use of the Rapid Capture System for HPV testing. Using our Rapid Capture System, a single laboratory technician can perform over 350 tests in a single laboratory shift. Our HPV test products are approved, and our chlamydia and gonorrhea tests products are 510(k)-cleared, by the FDA for use with the Rapid Capture System.

      Our Products in Development. Please see below under the headings “Research and Development of Next Generation Products” and “In-Licensing and Acquisitions” for a description of our products in development.

Cervical Cancer Screening

      Traditional Diagnostic Testing in Cervical Cancer Screening. Worldwide, cervical cancer affects over 400,000 women annually and, after breast cancer, is the second most common malignancy found in women. The treatment of cervical cancer after it reaches the advanced stage may require chemotherapy, radiation treatment or surgery, including hysterectomy. If detected in the precancerous stage, a vast majority of cervical cancer cases are preventable. In the United States, there are approximately 10,000 newly diagnosed cases of cervical cancer per year. The United States has a relatively low incidence of cervical cancer due to widespread use of cervical cancer screening methods and significant expenditures on screening infrastructure, which includes sophisticated laboratory facilities, highly trained cytotechnologists and extensive regulatory oversight. Nonetheless, approximately 3,700 women in the United States die annually of this preventable disease. Outside the United States, limited resources and underdeveloped or non-standardized testing infrastructure often lead to underdiagnosis of cervical disease, resulting in a significantly higher incidence of cervical cancer.

     Pap tests have been the principal method for cervical cancer screening since the 1940s. Between 50 and 55 million Pap tests are performed annually in the United States, and we believe that an additional 60 to 100 million are performed annually in the rest of the world. Pap test results fall into three broad categories: normal, abnormal and equivocal, or ASC-US (Atypical Squamous Cells of Undetermined Significance). An equivocal classification is given to Pap test results that cannot be definitively classified as either normal or abnormal; this classification occurs in approximately 5% to 7% of all cases.

     Women with normal Pap test results typically do not undergo follow-up treatment beyond routine Pap testing, unless there are other indicators of increased risk for disease such as being HPV-positive, which could necessitate more frequent follow-up testing for women over 30. A diagnostic follow-up alternative for women with abnormal Pap tests is a colposcopic examination (visual examination of the cervix with the aid of a colposcope). Many women also undergo biopsy at the time of colposcopy, and may go on to have any suspected lesions ablated (physically removed with a scalpel or cauterizing instrument). Women with equivocal Pap test results may undergo HPV testing and/or repeat Pap testing; thereafter, an abnormal or positive result from either would necessitate a follow-up colposcopy.

     Although the use of the Pap test has been successful in reducing deaths due to cervical cancer in the United States, Pap testing has significant limitations, including results leading to false negative diagnoses, failure to identify cervical disease in a significant number of women, limited predictive value and inability to detect the presence of the cancer-causing types of HPV, the primary cause of cervical cancer. Consequently, Pap testing does not allow the clinician to identify women with no overt signs of cervical disease but who are at increased risk for developing cervical disease or cervical cancer in the future.

      HPV Testing in Cervical Cancer Screening. In 1999, the Journal of Pathology reported that HPV, a sexually transmitted virus, is the primary cause of cervical cancer and that 99.7% of cervical cancers contain cancer-causing HPV. Persistent infection with cancer-causing HPV types is a necessary precursor to virtually all cervical cancer. A positive HPV test result is more meaningful with increasing age because HPV infection is more likely to be persistent in more mature women. Clinical studies have shown that approximately 20% of women age 30 and older with cancer-causing HPV have high-grade

cervical disease. Additionally, women age 30 and older with persistent HPV infection and who do not have cervical disease are at significant risk of developing cervical disease in the future.

     In 2002, the Journal of the American Medical Association, (JAMA), published Consensus Guidelines recommending testing for HPV in the management of women with ASC-US Pap test results. These “2001 Consensus Guidelines” were sponsored by the American Society for Colposcopy and Cervical Pathology (ASCCP), and state that for managing women with ASC-US results, HPV testing is the “preferred approach” when it can be performed directly from a liquid-based Pap test, also known as “reflex” HPV testing, or when the HPV testing specimen can be collected during the initial office visit. Since the publication of these guidelines in 2002, we believe that the use of HPV testing as a follow-up to an ASC-US Pap test result has become the standard of care and that HPV testing is used in approximately 75% of such cases in the United States.

     In July 2003, the American College of Obstetricians and Gynecologists (ACOG) published recommendations for cervical cancer screening that include the use of an FDA-approved high-risk HPV DNA test for women age 30 and older. The Digene HPV Test is the only FDA-approved high-risk HPV DNA test. In April 2005, ACOG issued a “Level A” designation – ACOG’s highest level of recognition – that HPV testing together with a Pap test is more sensitive than a Pap test alone.

     We believe The Digene HPV Test, when used in conjunction with the Pap test for women age 30 and over, or as a follow-up to an equivocal Pap test for women independent of age, enhances cervical cancer screening by overcoming the shortcomings of the Pap test alone. The Digene HPV Test:

	•		demonstrates increased clinical sensitivity for high-grade cervical disease, thereby increasing the number of women correctly diagnosed with disease;
	•		detects the presence of the cancer-causing types of HPV and allows the clinician to identify women who, despite no overt signs of cervical disease, are at higher risk for developing cervical disease or cervical cancer in the future;
	•		is a reproducible and objective test method that reduces or eliminates the subjectivity inherent with Pap testing; and
	•		with its increased clinical performance, may also permit the healthcare professional to contain or reduce costs associated with cervical cancer screening by more accurately identifying women with cervical disease, or those who are at increased risk for cervical disease, permitting healthcare professionals to more accurately direct diagnostic screening and follow-up medical intervention.

Clinical Validation of HPV Testing in Cervical Cancer Screening

     Over the last several years, many general population screening studies using our HPV test products have been conducted by prominent medical professionals and academic and government institutions throughout the world, including the National Cancer Institute, Columbia University, Kaiser Permanente Medical Group and the Cleveland Clinic Foundation. Many of these studies assessed the usefulness of our HPV test products in comparison to the Pap test for women age 30 and older. These studies demonstrate the superior performance of our HPV test products when used for primary general population screening alone, or in combination with Pap test, to detect underlying cervical disease as compared with the Pap test alone. A meta-analysis of multiple studies published in the August 2003 Archives of Pathology and Laboratory Medicine shows that women age 30 and older who test negative for HPV and have normal Pap test results are not likely to have cervical disease currently and are at very

low risk of developing cervical disease in the future. Women age 30 and older who test positive for high-risk HPV are at significant risk of developing cervical disease or cancer. A second, independently conducted meta-analysis published in the April 2006 International Journal of Cancer , comprising eleven European and North American studies involving more than 60,000 women, shows that testing for high-risk types of HPV is a consistently more sensitive tool for cervical cancer screening as compared to the Pap test alone. Other examples of published clinical validation studies have been described in our prior Form 10-K filings, which are available on the SEC’s website at www.sec.gov .

U.S. HPV Testing

     The FDA has approved two separate uses for our HPV testing products:

	•		In March 2003, the FDA approved the use of our hc2 High-Risk HPV DNA â Test as a primary adjunctive screening test to be performed in conjunction with the Pap test for women age 30 and older and used as an aid in cervical cancer screening programs to assess patient risk of developing disease caused by high-risk HPV infection. We market this high-risk HPV test under a number of product names in the United States and abroad, including the DNAwithPap â, the DNAPap™ and The Digene® HPV Test. All references in this Form 10-K using these product names refer to our hc2 High-Risk HPV DNA Test.
	•		In March 1999, the FDA approved the use of our hc2 HPV Test, an earlier version of The Digene HPV Test, as a follow-up to an equivocal Pap test result for women, independent of age.

     Over the last several years, and particularly in fiscal 2006, the majority of our sales and marketing investments have been directed to the launch of The Digene HPV Test in the United States for both FDA-approved indications.

     Increasing awareness of the benefits of HPV testing, including the ability to use our HPV testing products as part of an accurate assessment of the risk of developing cervical disease or cancer, is the key step in our demand-creation marketing campaign for our HPV test products. Our strategy has involved:

	•		improving and refining our clinician sales organization’s effectiveness in increasing the knowledge base of healthcare professionals;
	•		establishing widespread laboratory distribution for our HPV test products through direct sales programs, strategic alliances with major diagnostic companies and co-marketing programs with clinical reference laboratories;
	•		continuing a direct-to-consumer advertising campaign in the United States, designed to create awareness of the HPV-cervical cancer link and the beneficial role of The Digene HPV Test;
	•		investing in accredited continuing medical education (CME) programs and hospital grand rounds to build understanding of the clinical utility of HPV testing among clinicians;
	•		sponsoring, or participating in, major multi-center clinical trials to establish the clinical utility and cost effectiveness of our tests;
	•		promoting the presentation and publication of clinical trial results at prestigious meetings and in leading medical and healthcare journals, while communicating the results to the public and healthcare professionals;

	•		working with managed care providers, national governments and reimbursement agencies to establish reimbursement; and
	•		supporting women’s health advocacy groups to call for widespread use of HPV testing and to educate consumers about the benefits of such testing.

     The following table provides information regarding our revenues and assets. For further information regarding our product sales, including revenues from our principal products, our HPV test products, as well as profits and losses from operations for the last three fiscal years, see our consolidated financial statements in Item 8 of this Form 10-K.

Significant Product Revenues and Assets

		Fiscal 2004		%		Fiscal 2005		%		Fiscal 2006		%
		($ in thousands)
Product revenues from U.S. operations		$	65,655				74	%		$	86,928				77	%		$	121,392				80	%
Product revenues from Non U.S. operations			23,160				26	%			26,291				23	%			29,436				20	%
Revenues from HPV test products worldwide			74,581				84	%			97,437				86	%			134,361				88	%
Assets located in U.S.			92,506				90	%			92,654				87	%			217,082				94	%
Assets located outside U.S.			10,764				10	%			14,191				13	%			14,804				6	%

     Our commercialization plan for the United States consists of five key activities, all of which progressed significantly in fiscal 2006.

     First, we continue to pursue and receive support of governmental agencies, medical societies and physician groups regarding the efficacy of HPV testing using The Digene HPV Test (DNAwithPap). Second, we have established formalized programs to co-market The Digene HPV Test with our laboratory partners to physicians and payors. Third, we have implemented physician education programs, which are driven by our physician detailing organization and third-party organizations, working independently, to educate physicians and women about the proper use of the combined tests. Fourth, we have established, and continue to work to establish, comprehensive health insurance reimbursement for our products. And fifth, we partner with women’s advocacy groups, and have continued our own direct-to-consumer awareness campaigns to educate the public about the benefits of HPV testing. These five key elements of our Digene HPV Test commercialization plan are coordinated and balanced with our overall demand creation marketing plan.

     Acceptance of our HPV and other testing products by clinical reference laboratories, hospitals and integrated health networks is key to helping to increase clinician use of our testing products. We have developed strong relationships with these important customers through a direct laboratory-focused sales force supported by internal and field-based technical and customer service representatives. At the end of fiscal 2006, we had existing contracts with the majority of the major U.S. national and regional reference laboratory providers, and estimate that more than 300 clinical laboratories in the United States provided testing using our HPV, chlamydia, gonorrhea and cytomegalovirus testing products. The largest laboratory providers in the United States, such as Quest Diagnostics and Laboratory Corporation of America (LabCorp), all have active programs for automatic (or “reflex”) HPV testing for women with equivocal results from specimens collected using Cytyc Corporation’s ThinPrep Pap ® Test. In addition, several national and regional reference and hospital clinical laboratories are actively working to build awareness of the clinical value of primary HPV testing with a Pap test in women age 30 and over.

     To enhance the knowledge base of clinicians and to provide for physician-directed marketing of our products, in May 2003 we entered into an agreement with PDI, Inc. (“PDI”), under which PDI established a Digene sales organization dedicated to educating U.S. physicians, nurses and other healthcare professionals about the benefits of The Digene HPV Test. Under the PDI agreement, our sales

force grew from 32 sales professionals in fiscal 2003 to 64 sales professionals and seven field-based managers in 2005. Beginning in fiscal 2005 we assumed responsibility for the direct management of this sales team, by hiring the managers and all of the representatives, a process we completed during fiscal 2006. Our sales force, as of June 30, 2006, consisted of 63 sales professionals and seven field-based managers. The efforts of our sales force are supplemented by a diverse educational-outreach program. In fiscal 2006, approximately 8,000 practicing clinicians participated in one or more Digene-sponsored CME and/or grand round programs. In fiscal 2007, we plan to continue these activities.

     Our ability to secure adequate reimbursement from government and third-party payors is an important element of our sales and marketing plan. In the United States, all of our FDA-approved products have some level of reimbursement coverage for their FDA-approved indications. This has been supported by the American Medical Association, which assigned specific Current Procedural Terminology (CPT) codes – necessary for reimbursement – for HPV testing. The Centers for Medicare and Medicaid Services also has established Medicaid and Medicare reimbursement for our HPV test products. In terms of indication, coverage for HPV testing as a follow-up test for equivocal Pap results is estimated at 80% penetration. Coverage for HPV primary screening testing in women age 30 and older, in conjunction with a Pap test is available from payors that provide health insurance to an estimated 225 million “covered lives” in the United States. Our effort to extend access to HPV testing has been helped by Women in Government, a bipartisan, non-profit organization representing the nation’s more than 1,600 elected state-level women legislators, which in 2004 launched a 10-year campaign to eliminate cervical cancer. Women in Government is supporting initiatives by state legislators to introduce and pass bills and resolutions calling for greater education and access to new technologies such as HPV testing. By the end of fiscal 2006, 39 of these laws and resolutions had passed, including five that call for mandated coverage of primary HPV testing.

     In March 2005, we launched a direct-to-consumer (DTC) advertising campaign designed to educate women about the link between HPV and cervical cancer and the availability of The Digene HPV Test. To date, the DTC campaign has included advertisements placed in nine national magazines and a 30-second television ad aired in ten major metropolitan markets — Atlanta, Baltimore, Philadelphia, Boston, Chicago, Houston, Dallas, New York City, San Francisco and Washington, D.C. We believe, based on our product ordering patterns, that our DTC campaign has been successful in increasing awareness among women in the targeted markets about the benefits of HPV testing and has had a direct impact on the increase of orders by clinical laboratories. We plan to continue the DTC campaign during fiscal 2007 — the extent of the campaign will be determined on a quarter-by-quarter basis.

     We are also analyzing and planning for the impact HPV vaccines will have on the HPV testing market. In June 2006, Merck & Co., Inc. received FDA approval for its HPV vaccine product, and is now in the process of launching its marketing campaign in the U.S. to clinicians and consumers. GlaxoSmithKline has an HPV vaccine product candidate in the FDA approval process. We expect that there will be an increased awareness of the causal link between HPV infection and the risk of developing cervical cancer as a result of these marketing campaigns. Even with the availability of HPV vaccines, we believe the need for HPV testing and screening will remain for the foreseeable future because the vaccines do not cover all cancer-causing HPV types, and the vaccines are approved for women younger than the approved population for adjunctive screening. There may also be a use for pre- or post-vaccination HPV testing; such use will need to be determined through additional clinical research. We believe our HPV technologies, including our HPV genotyping products in development, position us to be a leader in such HPV testing.

International Markets

     Internationally, we continue to make progress in increasing the market penetration of our HPV testing products in cervical cancer screening programs throughout Europe, Latin America, and the Asia/Pacific region. In such markets we sell The Digene HPV Test under the DNAPap test trademark. We have direct, company-controlled sales operations in Europe and Brazil, and also make extensive use of independent distributors in other international markets. In fiscal 2006, we increased overall international revenue from our HPV test products by approximately 12% over the prior year.

     We have established reimbursement for HPV (triage) testing in major European countries and continue to work towards our goal of establishing available reimbursement for HPV primary stand-alone screening. We have also established reimbursement for our marketed products in major European countries, Mexico, Brazil, Australia and major Asian countries. We also work with our distribution networks in smaller markets to establish reimbursement from third-party payors in their respective territories, and with government and ministry officials to establish appropriate reimbursement coverage for our marketed products.

     As we continue to grow the international sales of our products, we anticipate that changes in the rate of exchange for foreign currencies into U.S. dollars may have an adverse impact on our revenues.

      Europe. We believe that approximately 45 to 55 million Pap tests are performed annually in Europe, and that cervical cancer screening using stand-alone HPV testing has potential for more widespread acceptance. In fiscal 2002 we made the decision to establish our own sales, marketing, distribution, warehousing and customer support infrastructure in Europe for the sale of our HPV test products. Since that time, we have established Digene subsidiaries in Germany, France, Italy, Spain, the United Kingdom and Switzerland, which currently sell our products into 13 European countries. We also have established an extensive, third-party distributor network that markets our products in 25 additional countries in Europe, the Middle East and Africa.

     In the European market we face a number of challenges including: the lack of clinical guidelines and/or government public funding for HPV primary screening; strong resistance from some current participants in the pathology, cytology and gynecology infrastructure to HPV testing; limited reimbursement in certain countries; and competition from emerging, non-validated technologies. Although we sustained losses from our European operations as a whole in fiscal 2006, we believe the transition from a distributor sales model to a combination of Digene-managed direct sales and a third-party distributor network under company control will be a key to accelerating our market penetration in the future. This approach should allow for better control of our marketing programs, higher test kit margins and improved customer support. In addition, we believe that progress in Europe will be driven by our coordinated sales and marketing programs, which include comprehensive physician and laboratory marketing and education, continued support of primary screening trials, public awareness campaigns and lobbying public health and government contacts for acceptance and funding of HPV primary screening.

     As part of an ongoing effort, we are involved in several clinical studies throughout Europe designed to demonstrate the clinical utility of HPV testing for primary screening. In June 2006, a large randomized study of more than 33,000 women was published in the Journal of the National Cancer Institute by Ronco et al. The study, which was funded in part by the European Union and The Italian Ministry of Health, demonstrated that The Digene HPV Test was approximately 40% more sensitive than conventional cytology, and approximately 30% more sensitive than liquid cytology, for the detection of high grade cervical disease and cancer. We are aware that a similar study (called ARTISTIC) of 24,500 women is underway in the United Kingdom. Initial data have been published showing that The Digene HPV Test detected 96% of high-grade cervical disease and cancers. The authors concluded that HPV

testing is practicable as a primary routine screening test. Another example of our progress in Europe is the January 2006 announcement by Deutsche BKK, a major public-health insurance provider in central Germany, of the decision to implement the first cervical cancer screening program in the Wolfsburg region. The protocol being used for this screening requires the use of The Digene HPV Test as an adjunct to cytology for all women 30 years of age and older.

      Latin America. In Brazil, we market our products directly through our majority-owned subsidiary, Digene do Brasil LTDA. The products we market include our gene-based diagnostic test products and our proprietary Universal Collection Medium (UCM™), which enables both cytology and HPV DNA testing to be done from one patient sample. This product was launched in 2002. In other countries in Latin America we contract with specific distributors to sell our products. We first began to market our products in these regions during 2003. Our primary markets are Mexico, Colombia and Costa Rica and secondary markets include Peru, Argentina, Chile, Ecuador, and Venezuela.

     We believe we have potential for growth in Latin America, due to the high cervical cancer rates in the population, the key relationships we are building with governments in various countries, a growing government awareness that current methods of detection are not successful in the population, and the lack of alternative HPV testing products. The challenges we face include the lack of direct control that results from reliance on distributor relationships, the cost of our test compared to conventional cytology and colposcopy, the lack of general consumer awareness about HPV, a lack of screening infrastructure, and the reluctance of distributors and laboratories to invest in instrumentation.

      Asia/Pacific. The Asia/Pacific market encompasses approximately 770 million women age 30 to 60. We are concentrating our efforts in Korea, Japan, China, Australia, Taiwan and Hong Kong, and work in these countries through established distributor arrangements. Some OB/GYN societies within the region have recognized the potential role of HPV testing in cervical cancer screening, but no organizations have published guidelines as of yet. Reimbursement is highly varied in the Asia/Pacific region. In Japan, there is regulatory approval for marketing our hc 2 HPV, chlamydia and gonorrhea tests. Our hc 2 HPV Test also is registered with the People’s Republic of China State Food and Drug Administration, and HPV testing reimbursement has been established in Beijing, Shanghai and Guangzhou. In Australia, there are currently recommendations for post-disease treatment management using our HPV test products.

     Historically, the Asia/Pacific region suffers from a lack of screening infrastructure and cytology expertise. The female population is becoming increasingly aware of the benefits of cervical cancer screening. Alternatives, including liquid cytology and polymerase chain reaction (PCR) HPV testing, are becoming available in the Asia/Pacific region. We have implemented a series of programs and activities focused on key markets in this region and intend to coordinate speaker programs to help increase awareness of HPV testing and its advantages, to conduct focused lobbying activities along with direct government contact, and may explore direct-to-consumer activities and educational events. There also are opportunities in the region for sales of our tests for chlamydia and gonorrhea.

Research and Development of Next Generation Products

     One of our key goals is to continually expand our core technology and expertise in molecular diagnostics in order to remain at the forefront of DNA testing for infectious diseases and to capture new high-growth and high-margin market opportunities. To achieve this goal, we have invested aggressively in research and development and particularly in clinical trials to validate the performance of our products, product candidates and new indications for our products.

     Our core research efforts for next generation technologies include research programs for improved molecular diagnostic assay systems for detection of HPV and other targets in the area of women’s cancers and infectious diseases, and research on our next generation nucleic acid detection technology. During fiscal 2006, our research and development activities were concentrated on platform technology, including adaptations of such technology, and improvements to our diagnostic test and equipment products. We focused on four areas: (1) core research efforts for next generation technologies; (2) new product development activities; (3) support and improvement of existing product lines and equipment offerings; and (4) support of regulatory submissions seeking approval to market our existing products with procedural improvements and/or for additional uses and indications in the U.S. and abroad. Because our research and development expenditures tend to benefit multiple product offerings, we do not track and maintain research and development expenses on a per-product or per-disease target basis.

     We are developing HPV genotyping products, the first of which was introduced in 2006, and others of which are planned for commercialization over the next few years. We believe HPV genotyping products provide healthcare professionals with additional diagnostic assistance for women with HPV positive, Pap test negative results. HPV genotyping products allow the clinician to determine the presence of the specific HPV type, which allows for more specific assessment of the risk of developing cervical disease.

     In 2003, we entered into a collaborative product development and commercialization agreement with PATH (Program for Appropriate Technology in Health) to develop a rapid-batch HPV test product for resource-constrained countries and that program is ongoing. In conjunction with PATH, we jointly fund the efforts subject to certain maximum funding obligations and we perform the product development and commercialization activities. We expect to have a prototype for initial clinical evaluation during calendar 2006.

     Product development activities are currently focused on simplifying and improving the efficiency of cervical specimen processing procedures and thereby increasing Hybrid Capture 2 assay throughput; these development efforts include a new batch preparation method for processing liquid-based cytology specimens for Hybrid Capture testing. In support of this new method, we collected data supporting a pre-market approval supplement (PMAS) for hc 2 HR HPV testing of ThinPrep ® PreservCyt TM Solution (Cytyc Corporation) specimens processed with this new method; the PMAS was submitted to the FDA on June 30, 2006. Work is also progressing on a specimen preparation system which automates the front-end processing of relevant types of cervical specimens. This specimen preparation system is being developed to provide clinical laboratories with a streamlined means to prepare samples for transfer to our Rapid Capture System and is expected to be commercialized in calendar 2007.

     We remain active in our efforts to expand HPV testing capabilities for additional liquid-based cytology media, including the SurePath TM collection and preservative medium (TriPath Imaging). The FDA review process is ongoing with regard to TriPath Imaging’s PMAS supporting the use of SurePath specimens with the hc2 HR HPV Test that was submitted to the FDA in December 2005, and TriPath Imaging is responding to the FDA’s request for information. Other activities relevant to this program continue as part of the collaboration between Digene and TriPath Imaging.

     We spent approximately $10,744,000, or 12% of total revenues, $12,964,000, or 11% of total revenues, and $17,922,000, or 12% of total revenues, on research and development in fiscal 2004, 2005 and 2006 respectively.

     In-Licensing and Acquisitions

     We continually explore opportunities to acquire related businesses or in-license products or technologies. Our activities in this area are primarily focused on women’s health and molecular diagnostics companies, products and technologies that can leverage our global distribution infrastructure, expand the product offerings for our laboratory and physician sales force in the United States, or provide additional targets for our next-generation nucleic acid detection technology platform.

     In May 2005, we signed a license agreement with Luminex Corporation under which we acquired non-exclusive worldwide rights to commercialize certain in vitro clinical diagnostic tests using Luminex’s xMAP ® multiplex liquid bead-based array technology, which enables testing for multiple markers or diseases at a single time. We believe this license agreement marks an important milestone in the development of our hc4 platform. For example, one of our HPV genotyping products in development is a Luminex-based multiplex genotyping test for up to 19 HPV types employing a modified configuration of our GP5+/6+ primers, and we intend to use the xMAP technology with respect to the Asuragen Signature Cystic Fibrosis products described below.

     To continue expanding our product portfolio offerings, in March 2006 we entered into an exclusive, worldwide agreement with Asuragen, Inc. to market and distribute Asuragen’s Signature Cystic Fibrosis (CF) screening products. Under the agreement, we have the exclusive rights to market and distribute Asuragen’s Signature CF products worldwide. In addition, Asuragen will develop, for our exclusive distribution, the next generation CF test, Signature CF Expand, which expands the mutation panel to include ethnic-specific mutations that can be adapted for use in carrier screening and may find additional utility for neonatal and newborn testing. We will have the right of first refusal on future genetic test products developed by Asuragen. The Signature products utilize the Luminex xMAP technology.

     Cystic fibrosis is the most common autosomal recessive disease in the Caucasian population with a prevalence estimate of 1 in every 2,500 to 3,300 live births. In April 2001, the American College of Medical Genetics and ACOG issued statements and developed guidelines for population CF carrier screening. Those guidelines include recommendations for genetic screening for CF mutations should be offered to identify carriers among adults with a positive family history of CF, partners of individuals with CF, women planning a pregnancy and women seeking prenatal care.

     We believe that the Signature CF screening products represent an important and useful addition to our portfolio offerings to the OB/GYN healthcare professionals targeted by our sales force professionals and to our laboratory partners. In fiscal 2007, we anticipate that Asuragen will conduct the clinical trials necessary to support the submission of a 510(k) pre-market notification to the FDA.

     On June 30, 2006, we entered into a non-exclusive sublicense agreement with Abbott Laboratories pursuant to which we obtained sublicense rights in the field of human in vitro diagnostics under U.S. Patent No. 5,582,989 and foreign counterparts that generally disclose and claim certain inventions characterized as “Multiplex Genomic DNA Amplification for Deletion Detection.” We anticipate this technology may be important in future multiplex applications.

     Our ability to continue to grow may depend upon identifying and successfully acquiring attractive acquisition opportunities, effectively integrating such opportunities, achieving cost efficiencies and managing these acquisitions as part of our business. In November 2005 we completed a capital raising transaction in an underwritten public offering of our common stock. Part of the proceeds of that offering may be used for such potential acquisition and in-licensing opportunities.

Our Markets and Competition

     Globally, The Digene HPV Test holds a strong competitive position due to our clinically validated and patent-protected Hybrid Capture platform and high-volume automation instrumentation, the breadth of our intellectual property rights to high-risk HPV types, our ability to test for HPV, chlamydia and gonorrhea from the same sample, our strong regulatory position, our success in obtaining reimbursement for our products, and our marketing focus that includes programs designed to educate healthcare professionals and consumers about the benefits of HPV testing. Digene is currently the only market participant with FDA-approved HPV DNA test products. For detection of HPV, we sell our products in the United States for the two FDA-approved indications: adjunctive primary screening with a Pap test for women age 30 and older, and follow-up testing of equivocal Pap test results in women of any age. In Europe and the rest of the world, HPV testing is in varying stages of research and adoption, with most use limited to follow-up for equivocal Pap tests. We are aware of an increasing number of clinical trials being conducted to explore use of HPV testing for primary screening, both with a Pap test or as a stand-alone initial test, as well as for proof of clearance or cure after treatment for diagnosed cervical disease or cancer.

     We believe we have a competitive advantage because our HPV test products are FDA-approved for two indications and because, as clinical studies have shown, our HPV test products, used in conjunction with the Pap test, enable excellent diagnostic capabilities due to high clinical sensitivity and high negative predictive value. None of our competitors methodologies have demonstrated similar clinical sensitivity. Some of our competitors stress the analytical sensitivity of their product offerings, but we believe it is important to distinguish between clinical sensitivity and analytical sensitivity. Clinical sensitivity is a measure of a test’s ability to accurately detect the presence of disease. Analytical sensitivity is simply the lower limit of a test’s ability to detect a given analyte, in this case HPV DNA. Although clinical sensitivity is a function of analytical sensitivity, analytical sensitivity alone is not a sufficient measure of a test’s clinical value. Cervical cancer is generally not present unless HPV DNA has reached a critical limit of viral load in tissues, thus the cutoff value of a test is a very important attribute relating to clinical sensitivity and specificity. Due to the high prevalence of HPV infection in specific populations and the transient nature of this infection in those populations, most of which does not lead to disease, HPV tests should not have excessive analytical sensitivity as this has the potential to increase the number of clinical false positive results. A large volume of clinical validation data exists which has shown that obtaining a positive result with our HPV test reflects the presence of clinically relevant HPV infection, which is a very strong indicator of the risk of developing cervical disease or cancer. Conversely, but equally as important, the high negative predictive value of our HPV test demonstrates that a negative HPV test result is a strong indicator that neither cervical cancer nor its cause is present, offering greater reassurance to women and their physicians, alleviating patient anxiety, and reducing healthcare costs.

     We compete with well established diagnostic technologies such as cytology and, particularly in Europe, from emerging alternative HPV testing approaches such as research-based PCR, other indicators of disease and other “home brew” testing methods developed by laboratories. With the increasing acceptance of the importance of HPV testing, we expect such competition will intensify. In the United States, which is our largest market, our competitors include molecular diagnostic companies such as Roche Diagnostics, Third Wave Technologies, Inc. and Ventana Medical Systems, Inc., which are developing or marketing HPV products that have not been approved by the FDA, and manufacturers of liquid-based Pap tests, such as Cytyc Corporation and TriPath Imaging. The Pap test, and related follow-up diagnostic procedures, such as colposcopy and biopsy, have a long history of use, are widely accepted, inexpensive (in the case of the Pap test) and, with regular use, may be adequate screening tests for cervical cancer. When The Digene HPV Test is marketed as an adjunct to the Pap test for primary screening, it is sometimes perceived as adding unnecessary expense and counseling time to such accepted

cervical cancer screening methodology. In addition, technological advancements designed to improve the quality of sample collection and preservation, as well as to reduce Pap testing’s susceptibility to human error, may increase physician reliance on the Pap test and solidify its market position. These factors may inhibit significant market acceptance of The Digene HPV testing products for primary cervical cancer screening, and many of our sales and marketing programs are focused on educating healthcare professionals and consumers about the advantages of HPV testing.

     Approximately 55 million Pap tests are performed annually in the United States. We believe the potential U.S. HPV testing market is approximately 35 million tests conducted annually, either adjunctively with a Pap test, as follow-up testing for women with abnormal or equivocal Pap test results, or as “proof of cure.” We assume some extension of screening intervals as part of this market estimation, but believe the size of the overall market potential may grow in the future if we pursue approval for use of our HPV test product for stand-alone primary cervical cancer screening. At the end of fiscal 2006, we estimated our penetration of this potential HPV testing market to be approximately 18% in the United States.

     We estimate that an additional 60 to 100 million Pap tests are performed annually in the rest of the world, in those countries where a cytology infrastructure exists. We believe the current HPV testing market is limited to follow-up testing for women with equivocal or abnormal Pap test results. However, in the future, we expect such global HPV testing market to expand as primary cervical cancer screening, either with a Pap test or as a stand-alone, gains acceptance on a country-by-country basis, particularly in countries without existing cytology infrastructure.

     In June 2002, Institut Pasteur announced that it had transferred its HPV intellectual property estate to F. Hoffman-La Roche Ltd. (Roche), including assignment of a cross-license agreement between Digene and Institut Pasteur. Based on Roche’s description of the virus types it has acquired or otherwise has access to, and despite our continuing exclusive access to several high-risk HPV types, we believe Roche has the ability to develop an HPV test that could be competitive with Digene products in the future. Roche currently is marketing a PCR-based HPV testing product in Europe, as well as technology for HPV genotyping. Roche is substantially larger and better capitalized than Digene, can offer an HPV test as part of a broader menu, and has existing customer relationships in the gene-based probe diagnostics business. If Roche receives FDA approval for an HPV test, we may not be able to compete in a way that will allow us to substantially increase our share of the HPV testing market. However, we believe there are a number of technical hurdles that Roche must overcome before its HPV testing products can become truly competitive and that we retain advantages in the clinical validation of our products and our success in obtaining product-specific reimbursement approvals. In February 2005, Roche entered into an agreement with Gen-Probe Incorporated (Gen-Probe), under which Roche will manufacture and supply DNA probes for use in Gen-Probe HPV test kits. According to publicly available filings with the Securities and Exchange Commission, the agreement calls for Gen-Probe to pay Roche up to $30 million for access to Roche proprietary HPV types, including those transferred from Institut Pasteur. Such agreement may also lead to increased competition in our market.

     With respect to our other diagnostic test products, the medical diagnostics and biotechnology industries are subject to intense competition. Some of our products, such as our tests for chlamydia, gonorrhea, hepatitis B virus and cytomegalovirus, compete against existing screening, monitoring and diagnostic technologies, including tissue culture and antigen-based diagnostic methodologies. Our competitors in the United States and abroad for gene-based diagnostic probes include Roche Diagnostics, Abbott Laboratories, Bayer Corporation, Chiron Corporation and Gen-Probe. Other companies, including large, well-capitalized pharmaceutical and biotechnology companies, may enter the market in the future. We believe the primary competitive factors in the market for gene-based probe diagnostics and other screening devices are clinical validation, performance and reliability; ease of use; standardization; cost;

proprietary position; the competitor’s share of the existing market; access to distribution channels; regulatory approvals; and availability of reimbursement. For the CT/GC market specifically, the key challenge for Digene is our current lack of a urine-based indication for our test, which we intend to address as part of our next generation platform offering.

     Our existing and potential competitors may be in the process of seeking FDA or foreign regulatory approvals for their respective products and/or may enjoy substantial advantages over us in terms of research and development expertise, experience in conducting clinical trials, experience in regulatory matters, manufacturing efficiency, name recognition, sales and marketing expertise, and distribution channels. In addition, many of these companies may have established third-party reimbursement for their existing products. We may not be able to continue to compete effectively against existing or future competitors, which may have a material adverse effect on our business, financial condition and results of operations.

Intellectual Property

     Patents and other proprietary rights are essential to our business. We own or have license rights to over 150 patents and patent applications. Our most significant patent rights relate to our Hybrid Capture technology and HPV types.

      Hybrid Capture Technology

     Our Hybrid Capture technology combines two of the most significant technologies in the life sciences industry, DNA/RNA probes and monoclonal/polyclonal antibodies, to allow rapid, standardized gene-based testing in virtually any laboratory setting. In May 2001, we received a United States patent for our Hybrid Capture assay from the United States Patent and Trademark Office. Foreign counterparts of this patent application have been granted to us in Europe, Japan and Australia. We have also filed United States patent applications relating to other aspects of our Hybrid Capture technology. The earliest of these Hybrid Capture assay patents will expire in the United States in 2018 and in Europe in 2012. In addition, in connection with our settlement of litigation with Enzo Biochem, Inc. and Enzo Life Sciences, Inc. in October 2004, we obtained an irrevocable non-exclusive license to use certain technologies in connection with our Hybrid Capture products. We had an exclusive license with the University of Hawaii for two patents covering monoclonal antibodies for the detection of RNA:DNA hybrid complexes, which patents expired in March 2005. We have non-exclusive reseller rights to the chemiluminescent substrates (used to create a chemical reaction that produces light in connection with our Hybrid Capture signal amplified molecular technology) included in our Hybrid Capture test products under our long-term supply agreement with Applied Biosystems. Such agreement includes certain license rights to manufacture the product in the event the manufacturer is not able to do so.

     We believe our Hybrid Capture patent estate provides us with exclusivity, and that expiration of individual patents, including the expiration of the University of Hawaii patents, will not have a material adverse impact on our business. We have not out-licensed our Hybrid Capture technology to any third party and believe our know-how and the complexity of our technology make it difficult for others to replicate our Hybrid Capture technology.

      Rights to HPV Types

     There are more than 70 distinct HPV types, approximately 23 of which are specific to the female genital tract. HPV types that infect the genital tract can be divided into two categories, high-risk (potentially cancer-causing) and low-risk. Of the 23 HPV types specific to the female genital tract, 13 are commonly recognized as high-risk. High-risk HPV types have been found in more than 99% of cervical cancers.

     The following table provides information regarding the HPV types included in our HPV test products.

HPV Type(s)		Summary Description		Status		Patents
HPV 16, 18, 31, 45, 51, 59		In public domain; Digene has ownership of unique genetic material		high-risk		Not applicable.
HPV 33, 39		Institut Pasteur issued patents; cross-licensed to Digene		high-risk		Cross-license rights under multiple patents for HPV 33 and HPV 39. U.S. and European patents will expire between 2007 and 2017.
HPV 35, 56		Digene issued patents; cross-licensed to Institut Pasteur		high-risk		Digene holds one U.S. patent to HPV 35 (expires May 2007) and multiple patents related to HPV 56 (expire between October 2007 and May 2008).
HPV 52		Georgetown-issued patents; exclusively licensed to Digene		high risk		License under multiple issued patents. U.S. patent expires in 2014, European patents in October 2009 and Japanese patent in 2009.
HPV 58		Kanebo issued patent; exclusively licensed to Digene		high-risk		Patent expires in February 2009.
HPV 68		Institut Pasteur issued U.S. patent; exclusively licensed to Digene		high-risk		Patent expires in February 2017.
HPV 6, 11		In public domain; Digene has ownership of unique genetic material		low-risk		Not applicable.
HPV 42		Institut Pasteur issued patents; cross-licensed to Digene		low-risk		Cross-license rights under multiple issued patents. U.S. patents will expire between 2012 and 2016 and European patents will expire between 2007 and 2012.
HPV 43, 44		Digene issued patents; cross-licensed to Institut Pasteur		low-risk		Digene held one U.S. patent to HPV 43 (expired June 2006), and holds one patent to HPV 44 (expires June 2007).

     Through our owned patents, license agreements described further below and access to other HPV types, we have rights to or access to the 13 commonly recognized high–risk HPV types. We believe we have access to more high–risk HPV types than other companies currently offering or developing HPV tests. Some of these HPV types are the subject of multiple patents. As our issued patents and exclusive license rights expire, or are terminated, other companies will gain access to such high–risk HPV types, but we do not believe the expiration of the earliest to expire patents will have a material impact on us.

     We are party to a cross license agreement with Institut Pasteur, under which we obtained a worldwide non-exclusive license to United States patents and patent applications and corresponding

foreign patents and patent applications, relating to HPV types 33, 39 and 42. In return, we granted to Institut Pasteur a worldwide non-exclusive license to our three owned United States patents and corresponding foreign patents and applications relating to HPV types 35, 43 and 56. We granted Institut Pasteur the right to extend the scope of its non-exclusive license to include the United States patent and corresponding patent applications relating to HPV type 44 at such time as Institut Pasteur discovers and develops an additional HPV type which is equivalent in value to HPV type 44. If such extension is granted, we will receive a license to the new HPV type discovered and developed by Institut Pasteur. Under the cross license agreement, Institut Pasteur has the right to grant a sublicense of its rights under the cross license agreement, without the right to grant further sublicenses, to Beckman Instruments (now known as Beckman Coulter, Inc.) and to affiliates of Institut Pasteur. Under the cross license agreement, both parties are restricted from granting any additional licenses to the HPV types subject to the cross licenses but are entitled to assign their rights, subject to all restrictions. We believe that the cross license agreement terminates on the last to expire of the underlying patent rights. Any prior termination of the cross license could have a material adverse effect on our business, financial condition and results of operations. In June 2002, we were notified by Institut Pasteur that it had transferred to F. Hoffman-La Roche Ltd. (Roche) the HPV intellectual property estate of Institut Pasteur, which included an assignment of the cross license agreement to Roche. On September 25, 2002, Ventana Medical Systems, Inc. publicly announced that it had acquired Beckman Coulter, Inc.’s HPV business and corresponding assets, including the assignment of the HPV intellectual property portfolio acquired by Beckman Coulter, Inc. from Institut Pasteur through a 1991 sublicense agreement. We are currently party to a patent infringement action with Ventana Medical Systems and Beckman Coulter related to these matters. Please see Item 3. “Legal Proceedings,” for a description of such litigation.

     On April 5, 2000, we entered into an exclusive worldwide license with Institut Pasteur relating to the genetic sequence of HPV types 68 and 70 (including the use of the United States patent relating thereto issued November 9, 1999 and expiring in 2017) and the detection of HPV types 68 and 70 using DNA testing methods. Under the license we can use our rights to develop and sell products using the licensed technology and pay royalties on such products. The term of the license expires upon expiration of the licensed patent, except that it continues for the commercial life of the products in countries where there is no licensed patent.

     Through a Settlement and License Agreement with Georgetown University, which replaces a previous license between us and Georgetown University, we obtained exclusive, irrevocable, worldwide rights to a U.S. patent and corresponding foreign patents and patent applications relating to HPV type 52 and to a U.S. patent and corresponding foreign patents relating to the use of the L1 gene sequence to detect specific HPV types. The licenses granted under the Settlement and License Agreement with Georgetown will terminate upon the last to expire of the licensed patent rights. The L1 gene sequence-related patent will expire in 2008 in the United States and expired in March 2006 in Europe. We are obligated to make royalty payments to Georgetown University based on the percentage of net sales (as defined in the Settlement and License Agreement) of products incorporating the licensed technologies. The Settlement and License Agreement was entered into in connection with the settlement of litigation between us and Georgetown University in July 2005. Please see Item 3. “Legal Proceedings,” for a description of such settlement.

     Through a license with Kanebo, Ltd., we have obtained exclusive worldwide rights (except for Japan where Kanebo retained the right to grant a non-exclusive sublicense to Toray Industries, Inc.) to use HPV type 58 provided by Kanebo to develop, manufacture, use, distribute and sell products. Unless terminated earlier, the Kanebo license agreement will expire on January 1, 2010.

      Other Intellectual Property

     In May 2005, through an agreement with Luminex Corporation, we acquired non-exclusive worldwide rights to commercialize certain in vitro clinical tests for use in women’s health diagnostics using Luminex’s xMAP multiplex liquid bead-based array technology, which enables testing for multiple markers or diseases at a single time. As described above, under “Research and Development of Next Generation Products,” we are using the xMAP technology in our next generation of Hybrid Capture products. This license agreement represents an important element in our hc4 platform development efforts. The term of the license expires upon expiration of the last of the licensed patents under the agreement.

     The use of trademarks is important to help promote name recognition for us and our product offerings. We have developed a portfolio of trademarks for which we are pursuing or have received registrations, in the U.S. and elsewhere. We have programs in place to monitor any unauthorized use of our trademarks, or the use of marks confusingly similar to our marks. To date we have not experienced any significant issues related to our trademark estate.

     Our principal trademarks include:

Registered Trademarks:		DIGENE
		DIGENE DESIGN
		DNA WITH PAP
		HC2 HIGH-RISK HPV DNA TEST
		HYBRID CAPTURE
		RAPID CAPTURE
Additional Trademarks:		DNAPAP
		UCM
		HC2
		THE DIGENE HPV TEST & logo
		THE HPV TEST & logo

Facilities and Manufacturing

     We lease a facility in Gaithersburg, Maryland, comprising a total of 111,000 square feet for our corporate headquarters and manufacturing operations pursuant to a Lease Agreement dated March 2, 1998, as amended, between Digene and ARE-Metropolitan Grove I, LLC, as Landlord. Approximately 45% of such space is dedicated to our manufacturing, quality control and shipping activities. We currently run one manufacturing and product shipment shift per workday and have the capacity to add additional shifts as required.

     On November 15, 2005, we and the Landlord executed the Fourth Amendment to the Lease. The Amendment provides for us to expand the rented premises to 143,585 rentable square feet. The additional space will be used for manufacturing and research and development space. Under the Amendment, we and the Landlord are contributing financing to fund the expansion construction and outfitting, for which construction is expected to be substantially completed by September 20, 2006. In addition, the initial term of the Lease has been extended until ten years after the earlier of substantial completion of the expansion work or September 20, 2006, and we have the ability to extend the lease for two additional five-year terms. We believe that we have sufficient manufacturing capacity to satisfy demand through the

completion of this expansion and, post expansion, we expect to be able to expand our production capability to satisfy demand for the foreseeable future.

     We lease office and sales operations facilities in the United Kingdom, Germany, Switzerland, France, Brazil and Italy, which leases run in length from one year to ten years, and Spain which runs month-to-month. We also utilize a third-party warehouse facility in Germany to support our European operations.

     We have established a quality control program, including a set of standard manufacturing and documentation procedures, intended to ensure that our products are manufactured and tested in accordance with the FDA’s Quality System Regulations, which imposes current Good Manufacturing Practice requirements. We received ISO 9001 certification in 1999, transitioned to ISO 13485 certification in 2003 and obtained ISO 13485:2003 certification in November 2005. As part of our quality assessment procedures, we periodically evaluate the performance of our raw material suppliers, potential new alternative sources of such materials, and the risks and benefits of reliance on our existing suppliers.

     We combine more than 200 biological reagents, inorganic and organic reagents and kit components to manufacture our finished diagnostic test kits. Biological reagents include DNA and RNA probes, antibodies and detection reagents. These biological reagents are currently manufactured in our Gaithersburg facility, which received validation approval from the FDA in September 2000 or by third-party vendors. We purchase many of these components and reagents, which are readily available from a variety of manufacturers and outside suppliers.

     Several key components of our products come from, or are manufactured for us by, a single supplier or limited number of suppliers. This applies in particular to the following items: chemiluminescent substrates included in our diagnostic test kits (used to create a chemical reaction that causes light in connection with our Hybrid Capture signal amplified molecular technology), our Rapid Capture System that serves as the automation platform developed for large-scale diagnostic testing using our Hybrid Capture technology, the 96-well microplate used by laboratories to run our diagnostic test products, the Digene Microplate Luminometer that provides the results of all of our microplate-based diagnostic tests, and the collection tubes, plus cervical sampler brushes we provide as part of cervical sampler kits that we sell with our HPV testing products. We have been able, to date, to enter into long-term contracts with these single source or key suppliers. In some cases, however, the supplier of a key component is not required to supply us with specified quantities over longer periods of time or set-aside part of its inventory for our forecasted requirements. We have not arranged for alternative supply sources for these components and it may be difficult to find alternative suppliers, if at all. If our product sales increase beyond the forecast levels, or if our suppliers are unable or unwilling to supply us key components on a timely basis, we may be unable to satisfy product demand.

     In addition, if any of the components of our products are no longer available in the marketplace, we may be forced to further develop our products or technology to incorporate alternate components. The incorporation of new components into our products may require us to seek approvals from the FDA or foreign regulatory agencies prior to commercialization.

Regulatory Approvals

     Receipt and maintenance of regulatory authorization to market and sell our products is vital to our success. The following table summarizes the regulatory approvals and clearances we have received to date for our principal products.

Product		Regulatory Status
hc2 High-Risk HPV DNA Test		FDA approved in March 2003 for adjunctive screening with Pap for women age 30 and older; FDA approved in March 2000 for follow-up to an equivocal Pap test for all women; CE-marked for use either as an adjunctive or stand-alone primary screen in the European Union; registered for use in Japan, Canada, the Russian Federation, Argentina, Chile, Colombia, Costa Rica and Ecuador. New distributor registration pending in Mexico. Marketed under the name The Digene HPV Test in the United States and DNAPap in the rest of the world.
hc2 HPV Test		FDA approved in March 1999 for detection of high and low risk HPV for follow-up to an equivocal Pap test for all women (the preceding hc1 version of this test was approved for this same indication in March 1995 and use of Cytyc Corporation’s PreservCyt specimens was approved in August 1997); CE-marked for use either as an adjunctive or stand-alone primary screen in the European Union; registered for use in Japan, Canada, the Russian Federation, Argentina, Chile, Colombia, Costa Rica and Ecuador. New distributor registration pending in Mexico.
hc2 CT Test		FDA 510(k) marketing clearance granted in October 1999; CE-marked for use in the European Union and the additional indication for use of Cytyc Corporation’s PreservCyt specimens in April 2005; marketing clearance obtained in Brazil and Argentina (1999), and in Japan (October 2001) and India (March 2001).
hc2 GC Test		FDA 510(k) marketing clearance granted in November 1999; CE-marked for use in the European Union and the additional indication for use of Cytyc Corporation’s PreservCyt specimens was attained in April 2005; marketing clearance obtained in Brazil and Argentina (1999), and in Japan (October 2001) and India (March 2001).
hc2 CT/GC Test		FDA 510(k) marketing clearance granted in February 2000; CE-marked for use in the European Union and the additional indication for use of Cytyc Corporation’s PreservCyt specimens in April 2005; marketing clearance obtained in Brazil and Argentina (1999), and in Japan (October 2001) and India (March 2001).
hc1 CMV Test		FDA 510(k) marketing clearance granted in September 1998.
Rapid Capture System		FDA 510(k) marketing clearance for chlamydia and gonorrhea testing granted in September 2001 and approved for HPV testing in May 2004; CE-marking for use with CT/GC testing was obtained March 2004 and for HPV testing in January 2005.
Hybrid Capture Microplate System		U.S. commercialization authority provided de facto as part of the diagnostic test kit FDA approvals and clearances; original CE mark certification completed as part of the diagnostic test kits.

     In addition to seeking regulatory authorizations for our own products, we work with other companies to seek regulatory approval for use of their specimen collection products to provide the specimens necessary to perform our diagnostic tests. For example, during fiscal 2003 and 2004 we worked with TriPath Imaging to complete the necessary clinical studies to support a pre-market approval supplement (PMAS) seeking FDA approval of the use of our hc 2 HPV Test with TriPath Imaging’s

SurePath Test Pack sample collection system. In February 2005, TriPath Imaging withdrew the PMAS after TriPath Imaging and the FDA agreed that additional clinical information and analysis would be required. This additional information was collected and submitted to the FDA in December 2005. We continue to work with TriPath Imaging as they respond to the FDA’s request for information as part of the most recent FDA review.

Government Regulation

     The medical devices marketed and manufactured by us are subject to extensive regulation by the FDA and, in most instances, by foreign regulatory authorities. Pursuant to the Federal Food, Drug, and Cosmetic Act, and the related regulations, the FDA regulates product development, product testing, product labeling, product storage, pre-market clearance or approval, manufacturing, advertising, promotion, product sales and distribution of medical devices. Noncompliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, recalls or seizures of products, total or partial suspension of production, failure of the government to grant pre-market clearance or pre-market approval for devices, withdrawal of marketing clearances and/or approvals and criminal prosecution. The FDA also has the authority to request repair, replacement or refund of the cost of any device that we manufacture or distribute.

     Before a new device can be introduced into the market, the manufacturer generally must obtain pre-market approval through the filing of a pre-market approval application (PMA) or, if pre-market approval through the pre-market approval requirements is not necessary, pre-marketing clearance through the filing of a 510(k) notification is usually required.

     In the United States, medical devices and diagnostics are classified into one of three classes (class I, II or III), on the basis of the controls deemed necessary by the FDA to reasonably assure their safety and effectiveness. Under FDA regulations, class I devices are subject to general controls (for example, labeling and adherence to quality and safety requirements), and class II devices are subject to general and special controls (for example, performance standards, post-market surveillance, patient registries and FDA guidance). Generally, class III devices are those which must receive pre-market approval by the FDA to ensure their safety and effectiveness (for example, life-sustaining, life-supporting and implantable devices, or new devices which have not been found substantially equivalent to legally marketed devices). Our HPV test products are subject to pre-market approval requirements and our diagnostic tests for chlamydia, gonorrhea and cytomegalovirus are subject to the 510(k) marketing clearance requirements. The regulatory requirements for our instrumentation, including our manual Hybrid Capture system and Rapid Capture System, are predicated upon the diagnostic test products with which they are used.

     Generally, a PMA must be filed for a proposed new device unless the applicant can show, under FDA regulations, that the proposed device is “substantially equivalent” to a legally marketed class I or class II device. A PMA must be supported by valid scientific evidence, including preclinical and clinical trial data, to demonstrate the safety and effectiveness of the device. The PMA must also contain the results of relevant bench tests, laboratory and animal studies, if applicable, a complete description of the device and its components, and a detailed description of the methods, facilities and controls used to manufacture the device, in addition to device labeling and advertising literature.

     If a PMA is accepted for filing, the FDA begins an in-depth review of the submission. FDA review of a PMA generally takes one to two years from the date the PMA is accepted for filing, but may take significantly longer. The pre-market approval review process includes a pre-approval inspection of the manufacturer’s facilities to ensure that the facilities are in compliance with the applicable quality and safety requirements. In addition, an advisory committee made up of clinicians and/or other appropriate experts is typically convened to evaluate the application and make recommendations to the FDA as to whether the device should be approved. The pre-market approval process can be expensive, uncertain and lengthy.

     Modifications to a device that is the subject of an approved PMA, its labeling or manufacturing process may require approval by the FDA of PMA supplements or new PMA applications. PMA supplements often require the submission of the same type of information required for an initial PMA application, but limited to the information necessary to support the proposed change.

     A 510(k) clearance will be granted if the submitted information establishes that the proposed device is “substantially equivalent” to a legally marketed class I or II medical device or to a pre-amendment class III medical device ( i.e. , on the market on or before May 28, 1976) for which the FDA has not called for compliance with pre-market approval requirements. It generally takes from three to six months from the date of submission to obtain a 510(k) clearance, but can take twelve months or longer depending on any additional information requested by the FDA. The FDA may determine that a proposed device is not substantially equivalent to a legally marketed device or that additional information or data is needed before a substantial equivalence determination can be made, either of which could delay market introduction of a new product. A request for additional data may require that clinical studies of the device’s safety and effectiveness be performed. Additionally, any modifications or enhancements that could significantly affect the safety or effectiveness of the device or that constitutes a major change to the intended use of the device will require a new 510(k) notification or PMA supplement.

     Clinical investigations of in vitro diagnostic tests are exempt from the FDA’s investigational device exemption requirements if the investigations meet certain exemption criteria. As an in vitro diagnostic test manufacturer, we must establish distribution controls to assure that in vitro diagnostic tests distributed for the purpose of conducting clinical investigations are used only for that purpose and are not improperly commercialized.

     We are exporting our hc 2 HPV Test as a stand-alone primary cervical cancer screening test prior to obtaining PMA approval for this use in the United States. We are also exporting our hc 2 HBV Test for clinical use abroad, primarily in the Asia/Pacific region. Exportation of our hc 2 HPV Test as a primary cervical cancer screening test and export of our hc 2 HBV Test can be undertaken without prior FDA approval of a PMA provided, among other things, that:

	•		the marketing of these tests is not contrary to the laws of the country to which they are intended for import,
	•		they are manufactured in substantial conformance with the quality and safety requirements of the Federal Food, Drug, and Cosmetic Act, and
	•		we have valid marketing authorization by any member country of the European Union, Australia, Canada, Israel, Japan, New Zealand, Switzerland or South Africa.

     We also must provide the FDA with simple notification indicating the products exported and the countries to which they are exported. FDA approval must be obtained for exports of products subject to the PMA requirements if these export conditions are not met.

     Any products manufactured or distributed by us pursuant to FDA clearances or approvals are subject to pervasive and continuing regulation by the FDA, including record keeping requirements and reporting of adverse experiences with the use of the device. Device manufacturers are required to register their establishments and list their devices with the FDA and are subject to periodic inspections by the FDA and certain state agencies.

     The Federal Food, Drug, and Cosmetic Act requires devices to be manufactured in accordance with the applicable quality and safety requirements, which impose certain procedural and documentation requirements on us with respect to our manufacturing and quality assurance activities. Noncompliance with the applicable quality and safety requirements can result in, among other things, fines, injunctions, civil penalties, recalls or seizures of products, total or partial suspension of production, failure of the government to grant pre-market clearance or pre-market approval for devices, withdrawal of marketing approvals and criminal prosecution.

     The FDA actively enforces regulations prohibiting the promotion of devices for unapproved (or “off label”) uses and the promotion of devices for which pre-market clearance or approval has not been obtained. Any failure by us to comply with these requirements can result in regulatory enforcement action by the FDA and possible limitations on the promotion and/or sale of our products.

     Both Digene and the products we produce and market are subject to a variety of state laws and regulations. Applicable state or local regulations may hinder our ability to market our products in those states or localities. As a manufacturer, we are also subject to numerous federal and Maryland State and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. We may be required to incur significant costs to comply with such laws and regulations in the future, particularly if substantial changes are made to such laws or regulations.

     The introduction of our developmental stage test products in foreign markets will also subject us to foreign regulatory clearances, which may impose additional substantial costs and burdens. International sales of medical devices are subject to the regulatory requirements of each country or defined economic region, such as the European Union. The regulatory review process varies from country to country and many countries also impose product standards, packaging requirements, labeling requirements and import restrictions on devices. In addition, each country or economic region has its own tariff regulations, duties and tax requirements.

     We must comply with similar registration requirements of foreign governments and with import and export regulations when distributing our products to foreign nations. Each foreign country’s regulatory requirements for product approval and distribution are unique and may require the expenditure of substantial time, money and effort. The regulation of medical devices in a number of such jurisdictions, particularly in the European Union, continues to develop and new laws or regulations may have a material adverse effect on our business, financial condition and results of operations. Noncompliance with state, local, federal, or foreign regulatory requirements can result in fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, delay or denial or withdrawal of pre-market clearance or approval of devices and criminal prosecution.

     The approval by the FDA and foreign government authorities is unpredictable and uncertain, and the necessary approvals or clearances may not be granted on a timely basis or at all. Delays in receipt of, or a failure to receive, such approvals or clearances could have a material adverse effect on our business, financial condition and results of operations.

Employees

     At June 30, 2006, we had 490 employees, including 65 in research and development, 109 in manufacturing, including quality assurance, 206 in sales and marketing and 110 in accounting, finance, administration and regulatory affairs. At June 30, 2006, 56 and 31 of such employees were employed by our European and Brazil subsidiaries, respectively. We are not a party to any collective bargaining agreements, and we believe our relationships with our employees are good.

Principal Executive Offices

     We were incorporated as a Delaware corporation in 1987. Our principal executive offices are located at 1201 Clopper Road, Gaithersburg, Maryland 20878.

Available Information

     For more information about us, visit our web site at www.digene.com . Our electronic filings with the U.S. Securities and Exchange Commission (including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to these reports) are available free of charge through our web site as soon as reasonably practicable after we electronically file with or furnish them to the U.S. Securities and Exchange Commission.

ITEM 1A. RISK FACTORS

      Investing in our securities involves a material degree of risk. Before making an investment decision, you should carefully consider the risk factors set forth below.

We will not be able to achieve significant increases in our revenues if HPV screening is not increasingly accepted by physicians and laboratories.

     Our growth and success depend upon continued increasing acceptance by physicians and laboratories of HPV screening as a necessary part of the standard of care for cervical cancer screening and, more specifically, of our HPV test products as a primary cervical cancer screening method, in conjunction with Pap tests, independent of Pap tests, and in conjunction with the implementation of HPV vaccinations. Pap tests have been the principal means of cervical cancer screening since the 1940s. Technological advances designed to improve quality control over sample collection and preservation and to reduce the Pap test’s susceptibility to human error may increase physician reliance on the Pap test and solidify its market position as the most widely used screen for cervical cancer. Currently, approximately 60 million Pap tests are performed annually in the United States and we believe that 60 to 100 million are performed annually in the rest of the world. Women with normal Pap tests do not undergo follow-up treatment beyond routine Pap testing. Follow-up testing and treatment is based on the classification of the Pap test result. An equivocal, or ASC-US (Atypical Squamous Cells of Undetermined Significance), classification is given to Pap test results that cannot be definitively classified as either normal or abnormal; this classification occurs in approximately 5% to 7% of all cases.

     HPV testing applies a new gene-based technology and testing approach that is different from the cytology (reviewing cells under a microscope) approach of the Pap test. We have expended, and need to continue to spend, significant resources to educate physicians and laboratories about the patient benefits that can result from using our HPV test products in addition to the Pap test, and to assist laboratory customers in learning how to perform our HPV test products. Using our HPV test products along with the Pap test for primary screening in the United States may be seen by some of these customers as adding unnecessary expense to the generally accepted cervical cancer screening methodology and we frequently need to provide information to counteract this impression on a case-by-case basis. To date, we have been able to grow our U.S. revenues from sales of our HPV test products from approximately $24,354,000 in fiscal 2002 to approximately $111,746,000 in fiscal 2006. We believe that with these efforts we have captured approximately 18% of the HPV testing market. If we are not successful in executing our marketing strategies, we may not be able to significantly grow our market share for HPV testing, and we will not be able to continue to grow our revenues.

     During fiscal 2006 we expanded our direct-to-consumer awareness marketing programs because we believe a well educated female population will work with their health care providers to increase the use of The Digene HPV Test. The campaign to date involved national print advertisement and focused television advertising in ten locations, Atlanta, Baltimore, Philadelphia, Boston, Chicago, Houston, Dallas, New York City, San Francisco and Washington, D.C. We plan to continue our direct-to-consumer awareness campaign in fiscal 2007, and to move into other markets in fiscal 2007. If we are not successful in executing this marketing program, we may not be able to significantly increase the sales of our HPV tests to the extent we desire.

     In June 2006 Merck & Co., Inc. received FDA approval for a vaccine against HPV types 16 and 18, the high-risk HPV types associated with approximately 70% of cervical cancer cases. We anticipate that GlaxoSmithKline will receive FDA approval for an HPV vaccine product during our fiscal 2007. We are working with our physician and laboratory customers and with others to develop and establish the role HPV screening will play in the standard of care for HPV vaccination. If we are not successful in this endeavor, we may not be able to significantly grow the market for HPV screening or increase our HPV test revenues.

     Our products for the diagnosis of the presence of chlamydia and gonorrhea compete with other FDA-cleared products that detect the presence of such infectious diseases. Our marketing activities focus on providing information regarding the accuracy and objective nature of these diagnostic tests, but such activities are time-consuming and expensive. We believe the best way to increase our revenues from these products is to educate laboratories and physicians about the ability to run such tests from the same patient sample collected for HPV testing. If we are not successful in executing our marketing strategy we do not expect to significantly grow our revenues from these products.

We have the only fully commercialized and FDA-approved test for the detection of HPV, which provides us with a competitive advantage that may be adversely impacted if other companies develop and commercialize alternative HPV tests.

     Although we have the only fully commercialized and FDA-approved test for the detection of HPV, a significant portion of our HPV-related intellectual property is in the public domain, subject to patents that will begin to expire in the next few years or not licensed to us on a sole and exclusive basis. As a result, we believe other companies are developing or will develop HPV detection tests in the next few years.

     For example, F. Hoffman-La Roche Ltd. (Roche) has publicly announced its ongoing development of a test for the detection of HPV and in April 2004 announced that it launched such test in Europe. In February 2005, Roche announced an agreement with Gen-Probe Incorporated to supply HPV DNA probes to Gen-Probe for its HPV test kits. In June 2002, Institut Pasteur announced that it had transferred its HPV intellectual property estate to Roche, which included an assignment of the cross license between Digene and Institut Pasteur. Based upon the HPV types to which Roche has announced that it acquired access as a result of the transfer by Institut Pasteur, the HPV types covered by Roche’s own patents and the HPV types that are publicly available, and despite our continuing exclusive right to certain high risk HPV types, we believe Roche may have the ability to develop a HPV test that would be competitive with our HPV test products in our principal markets. Roche has substantially greater resources than we do. We may not be able to compete successfully against Roche if it markets a HPV test competitive with our HPV test.

     Ventana Medical Systems