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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2000
OR

Commission File Number 000-21873

BIOSITE DIAGNOSTICS INCORPORATED

(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (858) 455-4808

Securities registered pursuant to Section 12(b) of the Act:
NONE

Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value

Preferred Stock Purchase Rights
(Title of Class)

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

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

   The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on February 28, 2001 as reported on the Nasdaq National Market, was approximately $382,000,000. Shares of Common Stock held by each executive officer and director and by each person who owns 10% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

   As of February 28, 2001, there were 14,158,299 shares of the Registrant's Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Registrant's Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the Registrant's 2001 Annual Meeting of Stockholders to be held on June 14, 2001 is incorporated by reference in Part III, Item 10 (as to directors), 11, 12 and 13 of this Form 10-K.

BIOSITE DIAGNOSTICS INCORPORATED

FORM 10-K

INDEX

Biosite®, Triage®, ExpressTest® and Immediate Response Diagnostics® are registered trademarks of the Company. Omniclonal(tm) and the Company's logo are trademarks or service marks of the Company.

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PART I

Item 1. BUSINESS

    Except for the historical information contained herein, the matters discussed in this Annual Report on Form 10-K are forward-looking statements that involve risks and uncertainties, including the timely development, introduction and acceptance of new products, manufacturing efficiency issues, dependence on others, the impact of competitive products, third-party reimbursement issues, changing market conditions and the other risks detailed throughout this Form 10-K. Actual results may differ materially from those projected. These forward-looking statements represent our judgment as of the date of the filing of this Form 10-K. We disclaim, however, any intent or obligation to update these forward-looking statements.

Background

    Biosite Diagnostics Incorporated was established in 1988. We are a research-based diagnostics company dedicated to the discovery and development of novel protein-based tests that improve a physician's ability to diagnose disease. We combine separate, yet integrated, discovery and diagnostics businesses to access proteomics research, identify proteins with high diagnostic utility, develop and commercialize products and educate the medical community on new approaches to diagnosis. We believe our products, which are aimed primarily at the diagnosis of catastrophic diseases, positively impact medical decisions, improve the quality of patient care and contribute to cost-effective medical treatment.

    Our diagnostics business is a leading provider of rapid tests that aid in the diagnosis of a variety of critical diseases. These tests are sold worldwide primarily for use in emergency departments and hospital laboratories, although we believe that in the future certain tests may have applications in other clinical sites. Our two product platforms are designed to provide rapid results through either qualitative visual readings or quantitative meter readings. These platforms are based upon our proprietary technologies in the areas of antibody development, signaling chemistry and micro-capillary fluidics. Our testing formats are designed to measure single analyte targets or multiple analytes simultaneously. They also allow for the analysis of various sample sources, including urine, serum, plasma, whole-blood and stool. Among the products expected to contribute most significantly to product revenue in the future are the Triage® Drugs of Abuse Panel, the Triage Cardiac System and the Triage BNP Test.

    In 1992, we launched our first product, the Triage Drugs of Abuse Panel, a small, self-contained, qualitative test capable of detecting within urine a broad spectrum of commonly overdosed prescription and illicit drugs within approximately 10 minutes. Results from the Triage Drugs of Abuse Panel enable physicians to differentiate drug overdose from other conditions with similar symptoms. Currently, the Triage Drugs of Abuse Panel is used in approximately 2,000 of U.S. acute care hospitals. Net sales of the Triage Drugs of Abuse Panel were approximately $35.2 million in 2000.

    In 1999, we completed the national launch of our first quantitative product, the Triage Cardiac System. The Triage Cardiac System, comprised of the Triage Cardiac Panel and the Triage Meter, is designed to measure three cardiac proteins, CKMB, myoglobin and Troponin I, within 20 minutes using a whole-blood sample. The Triage Cardiac System aids in the diagnosis of acute myocardial infarction, or AMI, commonly known as heart attack, by enabling physicians to easily and frequently monitor changes in the levels of these proteins, which rise as heart damage occurs. Access to this information provides physicians with an enhanced ability to make treatment decisions in a timely manner. The Triage Cardiac System is in the early stages of market penetration, with approximately 440 customers using the system at year-end 2000. Net worldwide sales of the Triage Cardiac System were $13.2 million in 2000.

    In November 2000, we received FDA approval to market the Triage BNP Test, the first blood test approved in the United States as an aid in the diagnosis of congestive heart failure. The Triage BNP

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Test measures levels of B-type natriuretic peptide, or BNP, a hormone that is elevated in patients suffering from heart failure. Physicians can use measurements of BNP to distinguish heart failure from other diseases with similar symptoms. We believe that BNP may also be useful in evaluating treatment of patients undergoing therapy and we intend to conduct clinical studies to further explore this application. We commenced marketing of the Triage BNP Test in December 2000. Historically, the market has been slow to adopt new protein markers and requires significant validation in the form of published studies. Accordingly, we expect 2001 sales to be less than $3 million. However, we do believe that the long-term growth prospects for this product are significant.

    The principal market for our products is comprised of hospitals, which number approximately 5,000 in the United States. We focus our efforts on larger centers and aim to place our products in emergency departments and other point-of-care locations, as well as in laboratories. In marketing our products we utilize a direct sales team that includes general account executives and cardiovascular account executives, who have extensive experience selling cardiovascular devices or drugs. The Fisher HealthCare division, or Fisher, of the Fisher Scientific Company distributes our products in U.S. hospitals and supports our direct sales force, particularly in smaller hospitals. In international markets, we utilize a network of country-specific and regional distributors.

    In addition to focusing our attention on commercial activities associated with our existing products, we are investing in discovery efforts aimed at finding proteins with high diagnostic utility. We believe such proteins can be patented or licensed with some level of exclusivity and commercialized using our testing platforms. We are targeting our efforts toward acute conditions that currently lack good diagnostic methods. We believe there is a lack of good diagnostic tests for several critical diseases, including stroke and acute coronary syndromes. We believe that the discovery of new protein markers could lead to the development of novel tests that would play an important role in improving patient care by aiding in the rapid diagnosis of acute diseases or conditions where initiation of the most effective treatment is time-sensitive.

    In March 1999, we launched Biosite Discovery, a collaborative research business dedicated to the identification of new protein markers for acute diseases. Through Biosite Discovery, we conduct analyses on both known proteins that may be markers of disease and potential markers accessed from partners in order to determine diagnostic utility. We refer to this process as marker mining. If the diagnostic utility of a marker is established, it will then be assessed for commercialization potential, with high value markers being added to our product development pipeline. To gain access to novel proteins, we primarily leverage our expertise in phage display antibody development, providing pharmaceutical and biotechnology partners with high throughput development of high affinity antibodies for research use and seeking, in exchange, licenses to their protein targets in addition to fees. Under Biosite Discovery, we have executed collaborative agreements with partners in the areas of cardiovascular, cerebrovascular, infectious disease and oncology. Our collaborative partners include the TIMI Group of Brigham and Woman's Hospital, Corixa Corporation, Diadexus L.L.C., Duke University, Eli Lilly, Eos Biotechnology Inc., Johns Hopkins Hospital, Large Scale Biology Corporation, Medarex Inc., Morphosys AG, Scios Inc. and the San Diego VA Medical Center. In 2000, these collaborations generated revenues of $3.3 million.

    In 2000 we entered into an agreement with Medarex, Inc., or Medarex, pursuant to which we are combining our proprietary phage display technology with Medarex's proprietary transgenic mouse technology to offer a process for high throughput development of high affinity fully human antibodies. This process is being provided as a service to biotechnology and pharmaceutical companies, which require high affinity fully human antibodies for use in conducting target validation and, or, characterization experiments. Under the terms of the eight-year agreement, Medarex will provide us with research funding of $3 million per year.

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    When Biosite and Medarex enter into agreements to provide high affinity, fully human antibodies to third-party biotechnology and pharmaceutical customers, we will generally receive a variety of payments and we will also seek exclusive or semi-exclusive diagnostic rights to the protein targets provided to us by biotechnology and pharmaceutical customers. Among the payments we might receive are: up-front technology access fees, antibody development fees upon the delivery of antibodies, annual maintenance fees on targets for which Biosite has produced antibodies for as long as the targets remain in development, milestone fees on targets that reach clinical milestones and royalties should products successfully be commercialized as a result of the collaboration.

    In January 2001, we initiated a technology alliance with Large Scale Biology Corporation, or LSBC, through its wholly-owned proteomics subsidiary. Through this alliance we plan to generate the antibody and protein target components required to produce the first generation of commercial protein chips. Protein chips (also called antibody arrays) are research tools for measuring large numbers of proteins in biological samples and are expected to become the preferred technology for high-volume applications such as clinical research, diagnostics and toxicology.

    Under the collaboration, LSBC, through its wholly-owned proteomics subsidiary expects to provide 2,000-5,000 protein targets from its Human Protein Index™ (HPI™) and other proteomics programs, as well as expressed proteins produced with its proprietary GENEWARE® technology. Biosite, through its Biosite Discovery business, will use its proprietary high throughput Omniclonal™ phage display technology to generate high affinity antibodies to the targets, enabling creation of antibody arrays in a variety of formats, including chips. The companies intend to pursue commercial research opportunities in the protein chip market by making a broad antibody and target package available to partners.

    LSBC and Biosite intend to pursue the protein chip market, with a sharing of rights and returns. Biosite will obtain certain diagnostic licenses to targets and LSBC will retain all other target rights, including uses in proteomics, database creation, and therapeutics. Biosite will receive antibody development fees as well as payments for certain products successfully developed through the joint research efforts. If diagnostic products are successfully developed and commercialized, LSBC will receive milestone payments and royalties.

Industry Overview

Diagnostics

    According to industry reports, the worldwide market for immunoassays was approximately $4.1 billion, consisting primarily of testing related to infectious disease, endocrinology, therapeutic drug monitoring, drugs of abuse testing, and cancer markers. The global market for immunoassays continues to expand as new disease states are identified, new therapies become available, and worldwide standards of living and access to health care improve. In recent years, diagnostic tests that can be performed nearer to the point of patient care have emerged as an important tool in disease diagnosis and management.

    Immunoassays were first developed based on technology developed in the 1960s. Although early immunoassays offered unprecedented levels of sensitivity for the detection of low concentration analytes, they suffered from relatively short shelf-lives, long reaction times, a need for radioactive labels to detect completed reactions and lack of consistent results among products from different suppliers. Over time, technological advances such as the introduction of monoclonal antibodies, enzyme and fluorescent labels and various solid phase formats shortened immunoassay reaction times, provided higher specificity and allowed the development of tests with longer shelf-lives and greater consistency.

    These advances also led to the development of immunoassay analyzers, testing systems utilizing automated liquid handling mechanisms and pipetting systems for reagent addition. Modern immunoassay analyzers are capable of storing and selecting multiple reagents for a variety of analytes,

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including drugs, hormones and cancer antigens. They also provide accurate and highly sensitive test results and help to simplify the performance of immunoassays. However, immunoassay analyzers are large and complex, may have lengthy turnaround times and require high volumes of sample throughput to justify the investment in equipment, training, staffing and other costs required to operate and support the systems. Even those systems with rapid onboard turnaround times require transport of the sample to the testing lab and preparation of the samples to obtain serum or plasma, which can be time consuming.

    In recent years, there has been a continuing shift from the use of such conventional analyzer systems to more technologically advanced rapid testing methods that can be performed in minutes by less skilled personnel. Simple, rapid immunoassays are capable of detecting a single analyte target with a color change that can be visually interpreted. Formats such as dipsticks, test tubes and membrane test cartridges have been used to provide fast, non-instrument read results for conditions where a single analyte target is present in high concentrations and where a simple yes/no non-numeric answer is clinically relevant. Rapid color change test formats are widely available for drugs of abuse, pregnancy, strep throat and ovulation prediction. Until recently, simple test formats have remained incapable of precise, multi-analyte detection or highly sensitive, quantitative measurements. As a result, medical conditions where the detection of one or more analytes is required or where the precise measurement of the target analyte is required have remained the domain of immunoassay analyzers.

    We believe that significant market potential exists for advanced rapid diagnostic products that are capable of precise quantitative measurement of multiple analytes. Rapid testing, including point-of-care testing, may help to reduce overall health care delivery costs and can improve patient outcomes by providing diagnosis in a reduced period of time, thereby minimizing the time to medical intervention. Patients undergoing emergency procedures can benefit from more timely and accurate testing results, both of which ensure correct decision making which could limit unnecessary use of costly inpatient care. Quicker diagnosis of infectious agents can also permit earlier prescription of appropriate medications, potentially shortening the duration of illness.

Discovery

    Biosite Discovery provides antibodies to pharmaceutical and biotechnology companies for research on potential targets. Antibodies have traditionally been a valuable tool in the characterization of protein targets because the antibodies may be used to localize the protein in tissues, to quantify the protein in body fluids, and to modulate the biological activity of the protein by, for example, binding to the protein and blocking its natural function. Antibodies have been traditionally derived from immunization of animals and either the harvest of antiserum containing antibodies or the development of monoclonal antibodies using hybridoma technology. Antisera were generally of limited utility and monoclonal antibody technology is labor intensive and not cost-effective for the validation of large numbers of protein targets. In 1990, the phage display of antibodies was invented and over the past decade it has enabled the development of antibodies with much greater efficiency than the previous methods.

    Several companies, including Cambridge Antibody Technology, Morphosys, and Dyax, have invested significantly in the technology and each employs naïve human antibody libraries to select antibodies for target validation purposes and for the development of therapeutic antibodies. Biosite Discovery differs in its application of phage display technology by using either immunized mice to produce murine antibodies or immunized transgenic mice to produce fully human antibodies. The immunized mice produce high affinity antibodies that can be selected using phage display. Many of our competitors do not use immunized mice, and antibodies that are initially selected from their naïve human antibody libraries are generally of lower affinity.

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    Biosite Discovery employs a collaborative business model that leverages our antibody capabilities to obtain access to diagnostic rights for protein targets. We believe that our model is significantly different from that of our competitors, and we believe that our model is attractive to biotechnology and therapeutic companies.

Technology

    Several proprietary advances in the biological and physical sciences that make practical the development and manufacture of rapid, accurate and cost-effective point-of-care diagnostics form the basis of our Immediate Response Diagnostics® technology. Our products integrate our expertise in several core scientific and engineering disciplines, including antibody development and engineering, analyte cloning and synthesis, signaling chemistry and micro-capillary fluidics, each of which is described below. Our research and development program is supported by 86 employees, including 19 Ph.D.s with expertise in our core technologies. By combining research capabilities in each of these areas, we create novel single and multi-analyte diagnostics that overcome the limitations of traditional rapid diagnostic technologies and seek to address the significant unmet need for effective point-of-care diagnostic information.

Antibody Development

    We believe that our internal antibody development capabilities allow rapid identification and development of antibodies with optimal specificity, affinity and stability characteristics. We initially utilized hybridoma technology for the selection and production of our novel antibodies. However, hybridoma technology has distinct disadvantages that include the length of time required to develop antibody candidates, the higher costs associated with the use of this technology and the need to restart the antibody development process when unwanted characteristics such as cross reactivities are discovered.

    We developed a proprietary process utilizing phage display of antibodies that enables the selection and production of antibodies more rapidly and efficiently than is possible using hybridoma technology. The technology enables the high throughput generation of custom Omniclonal™ antibody libraries containing genes encoding antibodies specific to the target analyte. Omniclonal antibodies produced from such libraries can contain thousands of different antibodies that bind to a target analyte with high affinity. High affinity refers to an antibody's ability to bind tightly to targets, and is a highly desired attribute. Monoclonal antibody candidates can be rapidly selected from an Omniclonal antibody library and produced in quantities sufficient for product development. During the course of product development, unexpected antibody cross reactivities often require additional selection of antibodies to improve the assay specificity. Unlike hybridoma technology, Omniclonal antibody libraries can rapidly provide additional antibody candidates in these circumstances.

Analyte Cloning and Synthesis

    Our molecular biology capabilities include the cloning and identification of specific proteins useful in the development of immunoassays. We developed proprietary expression vectors that enable the production and purification of these proteins for the development of antibodies and for use as calibrators and controls in our immunoassay products. In addition, our considerable expertise in synthetic organic chemistry allows the synthesis of targets and useful derivatives. We develop products where the targeted analyte is small (i.e., haptens, such as drugs) or large (i.e., proteins, such as cardiac enzymes). We believe that the ability to develop, stabilize and manufacture the target analyte or its analogues is key to the development of highly accurate immunoassays.

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Color/Photochemical Signaling

    Immunoassays require the attachment of a detectable label to an antibody or target analyte. We developed a variety of labels for use in our products. For our qualitative tests, a visual label that produces color is attached to antibodies or analytes through either non-covalent or covalent chemical methods to provide yes/no results. For our quantitative products, we developed novel fluorescent dyes that are attached to antibodies or analytes using both noncovalent and covalent chemical means. Although fluorescence is a potentially powerful label for use in immunoassays, its potential has been limited by the lack of available dyes that are stable and have no sample interference, and by the requirement of a complex instrument for detection. Our novel fluorescent dyes are stable and exhibit properties that permit their use in complex biological samples such as serum, plasma and whole-blood without interference from the sample. Furthermore, these novel dyes absorb light at wavelengths where a simple instrument can be used to excite and detect fluorescence for quantitative measurements.

Micro-capillary/Protein Chip Technology

    We developed proprietary technology to design, develop and manufacture protein chips containing micro capillaries to control the flow of fluids in immunoassay processes. The qualitative device format uses micro capillaries to draw fluids through a membrane that contains immobilized antibody zones for the detection of specific substances. The quantitative protein chip format uses several different micro-capillary designs to control the contact of sample with reagents and to control the flow of fluid throughout the protein chip. When a sample is added to the quantitative protein chip, a filter contained within the chip separates blood cells from plasma, which capillary forces then direct into a chamber that contains dried immunoassay reagents. After an incubation time that is determined by another micro-capillary element of the chip, the volume of sample that contacted the reagents flows down a capillary path that brings it into contact with an antibody array. The binding of fluorescent reagents at the protein array is detected by an instrument and is related to the concentration of the substance being tested for in the sample. We also developed the engineering capability to design unique micro-capillary structures in plastic parts and to fabricate them in commercial scale quantities using injection molding processes.

Sample Handling

    We developed proprietary technology relating to sample handling and preparation, including technology that allows whole-blood to be passively separated into its plasma component or to be passively lysed to release the target analyte. We developed technologies for the handling of stool samples that concentrate and purify the target analytes or organisms from solid stool materials. In addition, we developed technologies that can be used to assay urine samples.

Product Platforms

    We have used our core technologies to develop two product platforms: the Triage Panel and the Triage Meter System. Both of our product platforms utilize our expertise in antibody development, analyte cloning, signaling chemistry, micro-capillary fluidics and sample handling technologies.

Triage Panel—Qualitative Platform

    We designed the Triage Panel platform for rapid, qualitative screening of multiple analytes in a small, hand-held single-use device. The Triage Panel has a visual (yes/no) display containing simultaneous tests for any combination of analytes and control standards. It can be performed in a simple multi-step process and is capable of performing tests on both urine and stool. The Triage Drugs of Abuse Panel, the first product developed on this platform, tests for analytes of up to eight abused

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drugs in approximately 10 minutes. The Triage C. difficile Panel and the Triage Parasite Panel, the other products developed on this platform, test for microorganisms that cause severe gastrointestinal disease.

Triage Meter System—Quantitative Platform

    Our Triage Meter System platform is designed to provide rapid quantitative results for immunoassays using whole-blood, serum or plasma. The Triage Meter System consists of two parts: a small, single-use disposable test panel and a proprietary, compact, fluorescent meter that can be used at the point-of-care or in laboratories. After a blood sample is applied to the panel, the panel is inserted into the meter, which is designed to automatically and simultaneously detect multiple analytes and display the numerical results on an electronic read-out. The meter incorporates proprietary software in erasable, programmable, read-only memory (EPROM) chips, which are plugged into the meter. This software allows a meter to be used for performing different tests. The software may also provide important information about the analyte being measured, such as normal or abnormal levels of a marker, which could then be used to diagnose disease or manage patient therapy. Studies have validated that the analyte sensitivity of the Triage Meter System products is clinically comparable to the clinical sensitivity levels of the conventional immunoassay analyzers. The Triage Cardiac System and the Triage BNP System are our first commercialized products developed under this platform. We are developing other applications for this platform.

Product Attributes

    Although our commercial products and products under development are based upon our Triage Panel and Triage Meter System platforms and utilize different technologies, they share common attributes which we believe make them superior to conventional immunoassay analyzers:

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Rapid Results: Our products and products under development are designed to offer complete results in a rapid timeframe.



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Ease of Use: Our products and products under development are designed to be simple to use. The Triage Drugs of Abuse Panel has only three steps while the Triage Meter System products require only one assay step.



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High Analytical Accuracy: We develop and use high quality biological and chemical reagents to yield highly specific, accurate and reproducible analytical results.



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Capability of Performing Multiple Analyses: We design our products and products under development to measure one or more target analytes simultaneously, including reagent controls, without sacrificing the quality of the individual analysis. This simultaneous detection capability can provide significant time and cost savings compared to current technologies.



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Reliability: We use internal thresholds, built-in controls, software lockouts and other control mechanisms that are intended to make our current and future products reliable in any hospital or clinical laboratory setting.



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Cost Effectiveness: We design our products and products under development to simplify the performance of highly complex testing procedures and potentially reduce the cost of patient care, and equipment acquisition and maintenance, making our products cost-effective alternatives to conventional immunoassay analyzers.

Commercialized Products

    We introduced the Triage Drugs of Abuse Panel in 1992. Hospital laboratories and emergency departments use it to screen for up to eight commonly abused prescription and illicit drugs or drug classes. During 1998, we began selling three new products, the Triage C. difficile Panel, the Triage

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Parasite Panel and the Triage Cardiac System (on a limited basis). The Triage BNP System was launched on a limited basis in Europe in December 1999 and on a full-scale basis in the United States in December 2000. We distribute our products in the U.S. hospital market segment through Fisher and internationally through country-specific and regional distributors.

    We have additional products under development which apply our core technologies to a variety of other medical testing needs and we continue to pursue research of new proteins that can be directed toward the expansion of menu options and additional uses of our current products. We continue to evaluate other rapid diagnostic product opportunities that can utilize our technologies.

    We intend, where appropriate, to enter into licensing and/or collaborative arrangements to develop and commercialize additional future products. We may not be able to negotiate license or collaborative arrangements on favorable terms, if at all, in the future. Our current or future licensing or collaborative arrangements may not be successful.

The Triage Drugs of Abuse Panel

    We believe that the U.S. drug screening market totals approximately $725 million annually. Our Triage Drugs of Abuse Panel is marketed primarily in the hospital segment, which accounts for approximately 16% of total drug testing market sales. Within hospitals, medical testing typically occurs in laboratories, although testing may also occur at the point-of-care. Test results are generally reported to emergency physicians and psychiatrists.

    Drug abuse plays a significant role in emergency medicine cases occurring annually in the United States, either as a primary cause such as an overdose, or as a contributing factor such as in the case of an accident. A diagnostic dilemma confronts physicians when patients present with symptoms that could either be drug related or non-drug related. A patient brought to a hospital emergency department in a coma may be under the influence of narcotics or sedatives, which may require one type of treatment or intervention. Conversely, the same patient may have had a stroke or suffered some form of trauma requiring a completely different type of care. The ability to obtain a differential diagnosis in a timely manner greatly aids the course of treatment.

    Prior to the introduction of the Triage Drugs of Abuse Panel, drug or toxicology screening was primarily accomplished using automated immunoassays and Gas Chromatography/Mass Spectroscopy, or GC/MS. Although GC/MS is the most specific identification method commercially available, it is time consuming, requiring an average of approximately three hours per test, complex and expensive, and is generally reserved for final confirmation of specimens that have been screened positive by an immunoassay. Automated immunoassays, although less expensive than those performed by GC/MS, also require significant amounts of time, approximately one to two hours, because of the necessity of performing analyses of several drugs sequentially on each patient specimen. Additionally, in many cases the equipment required to perform an immunoassay is not accessible on an immediate or rapid basis.

    The Triage Drugs of Abuse Panel is a rapid, qualitative urine screen that analyzes a single test sample for up to eight different illicit and prescription drugs or drug classes, and provides results in approximately 10 minutes. The Triage Drugs of Abuse Panel is instrument independent, contains built-in controls for accuracy and is capable of a high degree of specificity.

    Illicit drugs detected by the Triage Drugs of Abuse Panel include:

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Amphetamines/Methamphetamines (ecstasy, speed, crystal)

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Cocaine (crack)

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Opiates (heroin)

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Phencyclidine (angel dust)

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Tetrahydrocannabinol (pot, marijuana)

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    Prescription drugs tested by the Triage Drugs of Abuse Panel include:

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Barbiturates (Phenobarbital)

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Benzodiazepines (Valium, Librium, Halcion)

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Tricyclic Antidepressants (Elavil, Tofranil)

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Methadone.

    The Triage Drugs of Abuse Panel is configured to test various combinations of the above drugs. In February 1995, We launched the Triage Drugs of Abuse Plus TCA Panel, a configuration which includes a test for Tricyclic Antidepressants ("TCA") which otherwise require a separate blood test. Approximately 2,000 of acute care hospitals in the United States use the product.

The Triage Cardiac System

    We estimate that, each year 5 to 6 million people in the United States visit hospital emergency departments with complaints of chest pain. In studies conducted in 1995 and 1996, almost half of all chest pain patients did not receive a definitive diagnosis. We believe that frequent, quantitative, serial measurements of multiple cardiac protein markers may improve a physician's ability to manage, diagnose and treat patients suffering from chest pain.

    The blocking or "occlusion" of an artery that provides oxygen-enriched blood to the heart generally causes heart attack. Without oxygen the heart muscle is destroyed, with prolonged occlusion resulting in additional muscle damage. The destruction of cells in the heart muscle results in the release of several proteins into the bloodstream, including CK-MB, troponin I and myoglobin.

    In diagnosing heart attacks, clinicians generally rely on patient history, physical exam, electrocardiograms and the measurement of cardiac protein markers. CK-MB and troponin I are the most widely used cardiac markers, while myoglobin is also emerging as a useful adjunct in the early detection of heart attacks. Because the concentrations of these three markers typically peak and fall over different time periods, we believe that frequent, simultaneous measurement of these markers is a more accurate diagnostic technique for heart attacks than infrequent measurement of any one single marker. Studies have shown that concentrations of myoglobin are elevated most quickly post-heart attack, therefore, myoglobin is recognized as a good early marker of an event. However, since myoglobin is not cardiac specific, the use of CK-MB and troponin I are necessary to accurately diagnosis a heart attack. In patients with a heart attack, CK-MB and troponin I are detectable several hours after myoglobin elevation. Since troponin I is cardiac specific, an elevated level of this marker is a strong indication of a heart attack.

    Given the temporal patterns of cardiac protein markers, we believe that frequent measurements of multiple cardiac markers provide the best information from which to diagnose a heart attack. Several diagnostic tests have been developed to quantitatively measure the blood levels of such markers. Unfortunately, the quantitative measurement of multiple markers generally requires large, centralized immunoassay systems that cannot directly analyze whole-blood and are not always available on a rapid basis. Since turnaround time is critical to enabling frequent, serial testing of cardiac markers, current immunoassay systems may not satisfy physician needs. Centralized immunoassay systems also require multiple reagent packs, as well as frequent standardization and quality control. Smaller automated systems have recently been developed, however these are not portable, have low throughput and often cannot provide results for three markers in less than 20 minutes.

    The adoption of new protocols for evaluating chest pain patients in the emergency department is not yet widespread and we believe that education of the medical community will be a key factor in penetrating the market. Associations such as the National Academy of Clinical Biochemistry have issued guidelines recommending greater use of cardiac markers in evaluating chest pain in the emergency department. The National Academy of Clinical Biochemistry has recommended the use of at least two markers (an early marker and a specific marker) and has stated that if results cannot be

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obtained from a laboratory within 60 minutes then testing should be performed at the point-of-care. Guidelines such as these have caused more hospitals to explore new protocols incorporating rapid, serial testing of all three markers. We have invested in a significant physician education effort in order to help the medical community better understand the need for and benefits associated with frequent, serial testing of cardiac markers.

    We believe that frequent, serial, quantitative measurement of multiple cardiac markers can have a positive impact on an emergency physician's ability to make medical decisions relative to chest pain patients. Accordingly, our Triage Cardiac System is designed to quantitatively measure the levels of CK-MB, troponin I and myoglobin in a single test device from a whole-blood sample within 20 minutes. We designed the Triage Cardiac System to provide results of these measurements at or near the point-of-care to aid in the detection of heart attack. Providing easy access to measurements of cardiac markers enables physicians to make timely treatment decisions. We utilize distributor alliances and a direct sales force in marketing the Triage Cardiac System.

The Triage BNP System

    Congestive Heart Failure, CHF, is a chronic inability of the heart to maintain an adequate output of blood from one or both ventricles of the heart, resulting in congestion or swelling of certain veins or organs, and an inadequate blood supply to the body. It is estimated that 5 million Americans live with CHF and over 15 million people suffer from CHF worldwide. With approximately 550,000 new cases diagnosed annually, CHF imposes a growing toll on Americans, in terms of disability and mortality, contributing to 260,000 deaths each year. CHF is an important public health problem, in part because survival following diagnosis is poor, with only 50% of the patients surviving longer than 5 years. Survival can be improved with the use of effective therapy such as enzyme inhibitors and receptor blockers. Currently, CHF is the single most frequent cause of hospitalization among the population of Medicare recipients. Readmission is common, occurring in almost half of CHF patients within six months of hospital discharge. CHF ranks among the costliest cardiovascular diseases and the estimated direct and indirect costs attributable to CHF exceeded $42.8 billion in 2000. In 1996, $3.6 billion was paid to Medicare beneficiaries for the disease, according to the Health Care Financing Administration.

    We obtained a semi-exclusive license (worldwide, except Japan, with the right to grant sublicenses on a limited basis) to technology and patents developed by Scios, Inc. for use in developing a test that would provide measurements of B-type Natriuretic Peptide, or BNP, a hormone made primarily in the ventricles of the heart. Studies suggest that levels of BNP become elevated in circulating blood plasma during heart dysfunction associated with CHF in both symptomatic and asymptomatic patients. In November 2000, the test was approved by the FDA as an aid in the diagnosis of CHF.

    We developed the Triage BNP System (consisting of the Triage BNP Test and the Triage Meter) to provide physicians with a cost-effective tool to easily, rapidly and accurately measure BNP levels at the point-of-care and aid in the diagnosis of CHF. Currently, the Triage BNP Test is most applicable for differentiating CHF from other diseases that cause similar symptoms, especially shortness of breath and fatigue. CHF is found predominantly among the elderly, a patient population in which it is not unusual to find individuals with multiple diseases. For this reason, when a patient presents to the emergency department short of breath, a physician must consider several possible causes. Approximately 3 million individuals present to the emergency department with shortness of breath each year. Patient history and symptoms will be evaluated and typically an x-ray would also be administered along with an exam. These subjective methods may detect CHF in patients at the most advanced stages, but are not always effective in patients who are not severely ill. Patients who are suspected of having CHF might receive an echocardiogram, which is used to detect left ventricular dysfunction. Although echocardiogram is the "gold standard" for diagnosis of CHF, the accuracy of the procedure is highly dependent on the expertise of the person administering the test. Additionally, echocardiograms typically cost between $400-800 per procedure and are not always readily available in all hospitals.

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    For those patients suffering from CHF, timely diagnosis is critical to relieving stress on the heart, which can occur as a result of severe congestion, and to initiating treatment that would halt the progression of the disease. Misdiagnosis, or failure to diagnose, could result in improper treatment and or recurring visits to the emergency department. This, in turn, could contribute to emergency department traffic and to the costs of patient treatment, as treatment alternatives become more expensive as CHF progresses.

    Prior to the introduction of our Triage BNP Test, there was no blood test available to aid in the diagnosis of CHF. Clinical studies have demonstrated that BNP is a highly reliable indicator of CHF and that the protein marker is found in increasingly higher levels as disease progression occurs. The test provides physicians with an objective tool for differentiating CHF from the host of other possible diseases that mimic the condition. We believe that the Triage BNP Test may also be applicable for the management of acutely ill patients and we intend to initiate a clinical study in 2001 to explore that possible application.

    We believe that the medical community will require a significant degree of validation in order to achieve widespread acceptance of a new marker for CHF. While significant interest is already apparent, we intend to sponsor multiple clinical studies of varying sizes in order to demonstrate the diagnostic utility of our Triage BNP Test. Additionally, we are investing in other educational programs and resources.

The Triage C. difficile Panel

    Clostridium difficile ("C. difficile") is an opportunistic pathogen of the intestinal tract that may thrive as a result of broad spectrum antibiotic treatment. The bacteria may be found in asymptomatic carriers or may spread among immunocompromised hospital patients. Toxins produced by the bacteria mediate C. difficile-associated disease, which may include antibiotic-associated diarrhea and antibiotic-associated pseudo-membranous colitis. It has been estimated that over 3 million rapid tests for C. difficile are performed annually in the United States. We expect this number to continue to rise due to the expected increase in the number of patients who are immunocompromised.

    We designed the Triage C. difficile Panel to simplify the laboratory procedure and improve the turnaround time for a physician to receive a result by enabling laboratories to complete direct testing for the bacteria, as well as testing for the toxin in less than 20 minutes. We believe the Triage C. difficile Panel provides a negative predictive value that is superior to that of existing immunoassays by coupling the results of direct organism detection with toxin detection. The built-in controls and standards of the Triage C. difficile Panel allow it to perform individually or in batches, by any laboratory technician, without compromising the quality of the result. By improving the turnaround time to result, the clinician may initiate therapy earlier and thus minimize a patient's time in isolation. Rapid, accurate diagnosis of the bacteria and toxin should enable earlier treatment, which may reduce length of stay in the hospital and may reduce costs. We utilize distributor alliances in marketing the Triage C. Difficile Panel.

The Triage Parasite Panel

    Parasitic infection is a common cause of gastrointestinal disease and diarrhea. Some of the more common parasites responsible for such infection are:

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Giardia lamblia ("Giardia")

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Cryptosporidium parvum ("C. parvum")

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Entamoeba histolytica

    According to the U.S. Center for Disease Control and Prevention ("CDC"), intestinal parasitic infection is a problem in the United States and the prevalence of Giardia may be increasing.

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    It is estimated that in 1998, approximately one million ova and parasite ("O&P") microscopic examinations were performed in the United States. Recently, several manufacturers have developed and marketed ELISA tests for the more rapid identification of two of the more common parasites, Giardia and C. parvum. Because of the cumbersome procedures and limited test menu of the current ELISA test formats, these tests have had limited success in hospitals that perform larger volumes of tests in batches.

    The Triage Parasite Panel is designed to replace the standard O&P microscopic detection method for three of the most commonly encountered parasites: Giardia, C. parvum and Entamoeba histolytica/dispar in a single test device. The Triage Parasite Panel delivers results in less than 20 minutes and is available to hospitals of any size, including facilities that previously sent such testing to a reference lab. The sensitivity of the Triage Parasite Panel is comparable to that of the current O&P microscopic examination, using only a single-patient specimen. This should greatly reduce the collection burden for the patient, and reduce the amount of labor for the laboratory technician. Additionally, the length of time physicians spend waiting for results may be reduced. We utilize distributor alliances in marketing the Triage Parasite Panel. Sales of the Triage Parasite Panel are expected to be seasonal in nature as parasitic infections are less prevalent during the colder seasons of the year.

Biosite Discovery

    Within the scientific world, much attention is being focused on the mapping of the human genome and human proteome. We believe that this massive research effort will result in the discovery of a number of novel proteins that may have therapeutic and/or diagnostic applications. The majority of the companies conducting such research today have expressed an interest in the development of therapeutics, however we believe there is opportunity in the development of novel diagnostics and intend to pursue that course through Biosite Discovery.

    Biosite Discovery was launched in 1999 as a collaborative research business dedicated to the identification of new protein markers for acute diseases. Through Biosite Discovery, we conduct analyses on both known proteins that may be markers of disease and potential markers accessed from partners in order to determine diagnostic utility. We refer to this process as marker mining. If the diagnostic utility of a marker is established, it will then be assessed for commercialization potential, with high value markers being added to our product development pipeline. To gain access to novel proteins, we primarily leverage our expertise in phage display antibody development, providing pharmaceutical and biotechnology partners with high throughput development of high affinity antibodies for research use and seeking, in exchange, licenses to their protein targets in addition to fees. Under Biosite Discovery, we have executed collaborative agreements with partners in the areas of cardiovascular, cerebrovascular, infectious disease and oncology. Our collaborative partners include the TIMI Group of Brigham and Woman's Hospital, Corixa Corporation, Diadexus L.L.C., Duke University, Eli Lilly, Eos Biotechnology Inc., Johns Hopkins Hospital, Large Scale Biology Corporation, Medarex Inc., Morphosys AG, Scios Inc. and San Diego VA Medical Center. In 2000, these collaborations generated revenues of $3.3 million.

    Phage display antibody development is the basis for Biosite Discovery's business. Phage display refers to the method by which we generate antibodies. It is a high throughput process that allows the selection and production of large numbers of antibodies in a period of weeks. Our proprietary phage display techniques, which utilize immunized mice, enable us to deliver highly diverse antibodies with high affinity, which means they bind tightly to protein targets. We refer to these antibodies as Omniclonal antibodies. High affinity and high diversity are two qualities of high importance to pharmaceutical and biotechnology companies using antibodies for drug research experiments. We believe that biotechnology and pharmaceutical companies will provide substantial demand for our research antibodies. Furthermore, we believe that Biosite Discovery's capabilities in the area of antibody development are unique within the diagnostics industry.

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    In 2000 we entered into an agreement with Medarex, Inc. in which we are combining our proprietary phage display technology with Medarex's proprietary transgenic mouse technology to offer Trans-Phage Technology^SM, a process for high throughput development of high affinity, fully human antibodies. This process is being provided as a service to biotechnology and pharmaceutical companies, which require high affinity fully human antibodies for research use in conducting target validation and, or, characterization experiments. Under the terms of the eight-year agreement, Medarex will provide Biosite with research funding of $3 million per year.

    When Biosite and Medarex enter into agreements to provide high affinity, fully human antibodies to third-party biotechnology and pharmaceutical customers, we will generally receive a variety of payments and we will also seek exclusive or semi-exclusive diagnostic rights to the protein targets provided to us by biotechnology and pharmaceutical customers. Among the payments we might receive are: up-front technology access fees, antibody development fees upon the delivery of antibodies, annual maintenance fees on targets for which Biosite has produced antibodies for as long as the targets remain in development, milestone fees on drug targets that reach clinical milestones and royalties should products successfully be commercialized as a result of the collaboration.

    We announced our first Trans-Phage Technology customers, Eli Lilly and Eos Biotechnology, in January 2001 and February 2001, respectively. Lilly will provide Biosite with 30-300 targets over three years, and Eos is expected to provide tens of targets over three years. Biosite will receive technology access fees, development fees upon delivery of antibodies for a target, annual target maintenance fees, milestone fees upon the achievement of certain preclinical and clinical milestones, and royalties from products resulting from the joint research efforts.

    In January 2001, we initiated a technology alliance with LSBC, through its wholly-owned proteomics subsidiary. Through this alliance we plan to generate the antibody and protein target components required to produce the first generation of commercial protein chips. Protein chips (also called antibody arrays) are research tools for measuring large numbers of proteins in biological samples and are expected to become the preferred technology for high-volume applications such as clinical research, diagnostics and toxicology.

    Under the collaboration, LSBC, through its wholly-owned proteomics subsidiary expects to provide 2,000-5,000 protein targets from its Human Protein Index™ (HPI™) and other proteomics programs, as well as expressed proteins produced with its proprietary GENEWARE® technology. Biosite, through its Biosite Discovery business, will use its proprietary high throughput Omniclonal™ phage display technology to generate high affinity antibodies to the targets, enabling creation of antibody arrays in a variety of formats, including chips. The companies intend to pursue commercial research opportunities in the protein chip market by making a broad antibody and target package available to partners.

    LSBC and Biosite intend to pursue the protein chip market, with a sharing of rights and returns. Biosite will obtain certain diagnostic licenses to targets and LSBC will retain all other target rights, including uses in proteomics, database creation, and therapeutics. Biosite will receive antibody development fees as well as payments for certain products successfully developed through the joint research efforts. If diagnostic products are successfully developed and commercialized, LSBC will receive milestone payments and royalties.

    In addition to working with targets from external customers, Biosite has undertaken programs to identify proteins that hold the potential to advance care in the areas of stroke and acute coronary syndrome, or ischemic heart disease—the most common cause of death worldwide. Currently, we are analyzing 30 markers for each application. While these markers had previously been identified, they have never been comprehensively analyzed for diagnostic utility. We are generating antibodies to these markers and developing tests that can be conducted on blood samples from Duke University, our clinical collaborator in the area of stroke, and from the TIMI Study Group, an organization that has been at the forefront of clinical research in acute coronary syndromes over the past two decades.

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Competition

Diagnostics

    The market in which we compete is intensely competitive. Our competitors include:

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health care companies

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laboratory-based tests and analyzers

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clinical reference laboratories

    Currently, the majority of diagnostic tests used by physicians and other health care providers are performed by independent clinical reference laboratories and hospital-based laboratories. We expect that these laboratories will compete vigorously to maintain their dominance of the testing market. In order to achieve market acceptance for our products, we will be required to demonstrate that our products provide cost-effective and time saving alternatives to tests performed by clinical reference laboratories or traditional hospital-based laboratory procedures. This will require physicians to change their established means of having such tests performed. Our products may not be able to compete with the testing services provided by traditional laboratory services.

    In addition, companies with a significant presence in the diagnostic market, such as:

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Abbott Laboratories

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Roche Boehringer Mannheim Corporation

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Bayer Diagnostics

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Ortho Clinical Diagnostics, a division of Johnson & Johnson

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Dade Behring

    have developed or are developing diagnostic products that do or will compete with our products. These competitors have substantially greater financial, technical, research and other resources and larger, more established marketing, sales, distribution and service organizations than us. Moreover, these competitors offer broader product lines and have greater name recognition than us, and offer discounts as a competitive tactic. In addition, several smaller companies are currently making or developing products that compete with or will compete with our products. Our competitors may succeed in developing or marketing technologies or products that are more effective or commercially attractive than our products, or that would render our technologies and products obsolete. Moreover, we may not have the financial resources, technical expertise or marketing, distribution or support capabilities to compete successfully in the future. In addition, competitors, many of which have made substantial investments in competing technologies, may be more effective than us or may prevent, limit or interfere with our ability to make, use or sell its products either in the United States or in international markets. See " — Technology" and "— Commercialized Products".

Discovery

    Several companies, including Cambridge Antibody Technology, Morphosys, and Dyax have invested significantly in phage display technology and each generally employs naïve human antibody libraries to select antibodies for target validation purposes and for the development of therapeutic antibodies. Our competitors entered the marketplace before Biosite Discovery and have established a significant presence in the marketplace. Our competitors may succeed in establishing agreements and providing antibodies to biotechnology and pharmaceutical companies and prevent Biosite Discovery from penetrating the marketplace.

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Employees

    As of December 31, 2000, we employed 320 individuals. Of these, 24 hold Ph.D.s and 19 hold other advanced degrees. None of our employees are covered by the collective bargaining agreement. We believe that we maintain good relations with our employees.

Research and Development

    As of December 31, 2000, we employed 86 employees in research and development, 19 that have Ph.D.s. Our research and development organization is dedicated to the discovery and development of new markers and technologies that can be applied to future products and to the development of new products with our existing platform technologies.

    We have a research staff dedicated to the development and production of antibodies through a variety of techniques. Recombinant techniques are used to express proteins for use as diagnostic targets. Our staff of chemists and biochemists synthesize drug targets and compounds for diagnostic use and seek to perfect techniques for coupling these compounds to biological reagents such as antibodies or labels. We developed a proprietary process utilizing phase display antibodies that enables the selection and production of antibodies more rapidly and efficiently than is possible using hybridoma technology. Our development engineering staff is involved in the design and development of new diagnostic device technologies as well as the processes for their fabrication and interaction with biological and chemical reagents. Our product development group completes final optimization of assays and our regulatory affairs group controls all in-house and external clinical studies of our products and prepares applications to the FDA for pre-market clearance or approval.

Manufacturing

    As of December 31, 2000, we had 113 employees in manufacturing involved in reagent production, device assembly, engineering, quality assurance/quality control and materials management.

    We maintain worldwide manufacturing rights to all current and future products, except for the Triage Meter for which LRE maintains the manufacturing rights. We seek to provide high quality analytical results in an efficient manner. To this end, we invest in the design and development of manufacturing systems and technologies that can produce a high quality product using controlled, cost-effective manufacturing processes and equipment. The Triage C. difficile and Triage Parasite Panels utilize the same or similar processes and equipment as the Triage DOA Panel. We believe that the experience we acquired in manufacturing the Triage DOA Panel provided benefits in product quality and cost in manufacturing these new products. We have developed and continue to improve our novel and sophisticated processes and equipment for the manufacturing of our quantitative platform products, the Triage Cardiac Panel and Triage BNP Test. We evaluate potential automation projects, capital expenditures and facility expansion to address potential growth in the manufacturing requirements for current and potential new products.

    Except for the Triage Meter, all of our products are manufactured at our facility in San Diego, California. The Triage Meter is purchased from LRE Relais + Elektronik GmbH, or LRE, which is located in Germany. Most of the antibodies used in the manufacture of our products were developed by us and the cell lines are owned or licensed by us. In addition, we maintain our own in-house antibody production capability. All other raw materials required to manufacture our products are obtained from outside suppliers.

    Our San Diego facility received its registration as a diagnostic product manufacturer from the FDA and from the California State Department of Health & Services in 1991. We have also been licensed and certified to manufacture products using controlled substances by the U.S. Drug Enforcement

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Agency. We may not continue to comply with all government requirements and regulations which may lead to the suspension or revocation of our right to manufacture. See "Government Regulation."

Sales and Marketing

    As of December 31, 2000, we had 61 employees in various sales and marketing functions. We distribute our products to hospital facilities in the United States primarily through Fisher, and internationally through country-specific and regional distributors.

    We anticipate that we may, if appropriate, enter into additional distribution agreements with respect to our current products, products currently under development and products that we develop in the future. We may not be able to enter into these or other distribution agreements on acceptable terms, if at all. If we elect to distribute products directly, our direct sales, marketing and distribution efforts may not be successful. A failure to enter into acceptable distribution agreements or a failure by us to successfully market our products would have a material and adverse effect on us.

Strategic and Distribution Arrangements

    Our strategy for the research, development, commercialization and distribution of some of our products entails entering into various arrangements with corporate partners, licensors, licensees and others, and is dependent upon the success of these parties in performing their responsibilities. These parties may not perform their obligations as expected or that any revenue will be derived from any of the arrangements. Under our existing arrangements, we are not obligated to make any material capital expenditures. If products are successfully developed under some of our existing arrangements, royalties will be payable by us on sales of products which incorporate licensed technology.

Fisher HealthCare Division of Fisher Scientific Company

    In January 2001, we entered into a new distribution agreement, the Fisher Agreement, with Fisher which extended Fisher's role in the distribution of certain of our new products and some potential new products currently under development. Under the agreement, we granted to Fisher a right to distribute certain of our products to hospitals within the United States. Under some circumstances, in the event that we elect to terminate the Fisher Agreement without cause, we will be obligated to make a one-time payment to Fisher. Fisher purchases our products on a monthly basis through firm purchase orders. Fisher accounted for 84%, 83% and 86% of the product sales in 2000, 1999 and 1998, respectively.

LRE Relais + Elektronik GmbH

    In September 1994, we entered into an agreement with LRE, the LRE Agreement, for the development, manufacturing and supply of a hand-held meter to be used in all Triage Meter System products commercially available or under development, including the Triage Cardiac System and the Triage BNP System. Under the terms of the LRE Agreement, LRE developed and produced the fluorescent meter according to specifications provided by us. LRE is our exclusive supplier of the Triage Meter during the term of the LRE Agreement, unless LRE is incapable of satisfying our needs or is prohibited from producing the meters for a specific immunoassay application. We purchase the Triage Meters from LRE in Deutsche Marks, or a successor currency to Deutsche Marks, through firm purchase orders on a per meter price basis which varies according to sales volume.

Biosite Discovery

    In March 1999, we launched Biosite Discovery, a collaborative research business dedicated to the identification of new protein markers for acute diseases. Through Biosite Discovery, we conduct analyses on both known proteins that may be markers of disease and potential markers accessed from

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partners in order to determine diagnostic utility. We refer to this process as marker mining. If the diagnostic utility of a marker is established, it will then be assessed for commercialization potential, with high value markers being added to our product development pipeline. To gain access to novel proteins, we primarily leverage our expertise in phage display antibody development, providing pharmaceutical and biotechnology partners with high throughput development of high affinity antibodies for research use and seeking, in exchange, licenses to their protein targets in addition to fees. Under Biosite Discovery, we have executed collaborative agreements with different partners, including the TIMI Group of Brigham and Woman's Hospital, Corixa Corporation, Diadexus L.L.C., Duke University, Eli Lilly, Eos Biotechnology Inc., Johns Hopkins Hospital, Large Scale Biology Corporation, Medarex Inc., Morphosys AG, Scios Inc. and San Diego VA Medical Center in the areas of cardiovascular, cerebrovascular, infectious disease and oncology.

Proprietary Technology and Patents

    Our ability to compete effectively will depend in part on our ability to develop and maintain proprietary aspects of our technology, and to operate without infringing on the proprietary rights of others or to obtain licenses to such proprietary rights. We have U.S. and foreign issued patents and are currently prosecuting patent applications in the United States and with certain foreign patent offices. Certain of our issued patents covering significant aspects of our core technologies have legal lives expiring between July 2007 and January 2018. There can be no assurance that any of our pending patent applications will result in the issuance of any patents, that our patent applications will have priority over others' applications, or that, if issued, any of our patents will offer protection against competitors with similar technology. There can be no assurance that any patents issued to us will not be challenged, invalidated or circumvented in the future or that the rights created thereunder will provide a competitive advantage.

    Our current products and products under development may incorporate technologies that are the subject of patents issued to, and patent applications filed by, others. We obtained licenses for some technologies and are negotiating to obtain licenses for technologies patented by others. We may not be able to obtain licenses for technology patented by others on commercially reasonable terms, if at all. We may not be able to develop alternative approaches if we are unable to obtain licenses or that our current and future licenses will be adequate for the operation of our business. The failure to obtain necessary licenses or to identify and implement alternative approaches would prevent us from commercializing certain of our products under development and would have a material adverse effect on our business, financial condition and results of operations.

    Litigation may be necessary to enforce any patents issued to us to protect trade secrets or know-how owned by us or to determine the enforceability, scope and validity of the proprietary rights of others. We have settled three patent infringement claims by obtaining licenses to the contested patent in return for up-front payments and/or royalty obligations.

    Litigation that could be brought forth by other parties have in the past and may in the future result in material expenses to us and significant diversion of effort by our technical and management personnel, regardless of the outcome. The outcome of litigation is inherently uncertain and there can be no assurance that a court would not find the third-party claims valid and that we had no successful defense to such claims. An adverse outcome in litigation or the failure to obtain a necessary license could subject us to significant liability and could prevent us from selling any or all of our products, which could have a material adverse effect on our business, financial condition and results of operations.

    We rely upon trade secrets, technical know-how and continuing invention to develop and maintain our competitive position. There can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade

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secrets or disclose such technology, or that we can meaningfully protect our trade secrets, or that we will be capable of protecting our rights to our trade secrets.

    Others may have filed and in the future are likely to file patent applications that are similar or identical to ours. To determine the priority of inventions, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office that could result in substantial cost to us. No assurance can be given that any patent application of others will not have priority over patent applications filed by us.

    Our commercial success also depends in part on us neither infringing patents or proprietary rights of third parties nor breaching any licenses that may relate to our technologies and products. We are aware of several third-party patents that may relate to our technology. There can be no assurance that we do not or will not infringe these patents, or other patents or proprietary rights of third parties. In addition, we have received and may in the future receive notices claiming infringement from third parties as well as invitations to take licenses under third-party patents. Any legal action against us or our collaborative partners claiming damages and seeking to enjoin commercial activities relating to our products and processes affected by third-party rights, in addition to subjecting us to potential liability for damages, may require us or our collaborative partner to obtain a license in order to continue to manufacture or market the affected products and processes. There can be no assurance that we or our collaborative partners would prevail in any such action or that any license (including licenses proposed by third parties) required under any such patent would be made available on commercially acceptable terms, if at all. There are a significant number of U.S. and foreign patents and patent applications in our areas of interest, and we believe that there may be significant litigation in the industry regarding patent and other intellectual property rights. If we become involved in such litigation, it could consume a substantial portion of our managerial and financial resources, which could have a material adverse effect on our business, financial condition and results of operations.

Government Regulation

    The testing, manufacture and sale of our products are subject to regulation by numerous governmental authorities, principally the FDA and corresponding state and foreign regulatory agencies. Pursuant to the Federal Food, Drug and Cosmetic Act the FDA regulates the preclinical and clinical testing, manufacture, labeling, distribution and promotion of medical devices. We will not be able to commence marketing or commercial sales in the United States of new products under development until we receive clearance or approval from the FDA, which can be a lengthy, expensive and uncertain process. Noncompliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure 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 or approvals, and criminal prosecution. The FDA also has the authority to request recall, repair, replacement or refund of the cost of any device manufactured or distributed by us.

    We may not be able to obtain necessary regulatory approvals or clearances for our products on a timely basis, if at all, and delays in receipt of or failure to receive such approvals or clearances, the loss of previously received approvals or clearances, limitations on intended use imposed as a condition of such approvals or clearances, or failure to comply with existing or future regulatory requirements would have a material adverse effect on us.

    We developed the Triage BNP System (consisting of the Triage BNP Test and the Triage Meter) to provide physicians a cost effective tool to easily, rapidly and accurately measure BNP levels at the point-of-care and aid in the diagnosis of CHF. We initiated clinical trials for the Triage BNP Test in December 1998 and filed a pre-market application, known as a class III PMA with the United States Food and Drug Administration (FDA) in December 1999. We also commercialized the Triage BNP System internationally in early 2000. In November 2000 the Triage BNP test was re-categorized as a class II device and approved by the FDA as an aid in the diagnosis of CHF.

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RISK FACTORS

We Have Only a Limited History of Profitability and We May Not Maintain Profitability. In Addition Our Quarterly Results Will Fluctuate.

    We achieved operating profitability in the third and fourth quarters of 1999 and each quarter of 2000. However, we incurred an operating loss during the prior seven quarters. We may not be able to maintain operating profitability on a quarterly or annual basis in the future. We believe that our future operating results will be subject to quarterly fluctuations due to a variety of factors, including:

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whether and when new products are successfully developed and introduced by us

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market acceptance of current or new products

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changes in the mix of products sold

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manufacturing delays or inefficiencies

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competitive pressures on average selling prices

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the timing of significant orders

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research and development efforts

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attainment of milestones under collaborative agreements necessary to earn contract revenues

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seasonal customer demand

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changes in reimbursement policies

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regulatory uncertainties or delays

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product recalls

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shipment problems, and

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costs and timing associated with business development activities, including potential licensing of technologies.

    Operating results would also be adversely affected by a downturn in the market for our products. Because we continue to increase our operating expenses to support our expanded sales and marketing activities, manufacturing operations and new product development, our operating results would be adversely affected if our sales and gross profits did not correspondingly increase or if our product development efforts are unsuccessful or subject to delays. Our limited operating history makes accurate prediction of future operating results difficult or impossible. We may not sustain revenue growth or sustain profitability on a quarterly or annual basis and our growth or operating results may not be consistent with predictions made by securities analysts.

We Are Dependent on the Development and Introduction of New Products for Revenue Growth and Profitability.

    Except for our commercialized products, all of our products are still under development and may not be successfully developed or commercialized on a timely basis, or at all. If we are unable, for technological or other reasons, to complete the development, introduction or scale-up of manufacturing for any new product or if any new product is not approved for marketing or does not achieve a significant level of market acceptance, we will be harmed.

    We believe that our revenue growth and profitability will substantially depend upon our ability to complete development of and successfully introduce these new products as well continue to achieve a growing level of market acceptance of new products such as the Triage Cardiac System and the Triage BNP System. In addition, the successful development of some of these new products will depend on the development of new technologies. We will be required to undertake time-consuming and costly development activities and seek regulatory approval for these new products. We may experience difficulties that could delay or prevent the successful development, introduction and marketing of these new products. Regulatory clearance or approval of any new products may not be granted by the U.S.

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Food and Drug Administration or foreign regulatory authorities on a timely basis, or at all, and the new products may not be successfully commercialized.

    If we fail to establish and maintain:

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reliable, cost-efficient, high volume manufacturing capacity

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a cost-effective sales force and administrative infrastructure, or

•

an effective product distribution system for our products

we may not be able to successfully commercialize new products.

We Are Dependent in the Near Term on Sales of the Triage Drugs of Abuse Panel. A Significant Reduction in Sales of the Triage Drugs of Abuse Panel Would Harm Us.

    Sales of the Triage Drugs of Abuse Panel products accounted for approximately 68% of our product sales in 2000 and 79% of our product sales in 1999. We expect our revenue and profitability to substantially depend on the sale of the Triage Drugs of Abuse Panel products for the foreseeable future. A significant reduction in demand for the Triage Drugs of Abuse Panel products would have a material adverse effect on us. We believe that domestic net sales of the Triage Drugs of Abuse Panel products may decline as the available U.S. market becomes saturated. Competitive pressures could also erode our profit margins for the Triage Drugs of Abuse Panel products. Our continued growth will depend on our ability to

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successfully commercialize our newer products

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develop and commercialize other products, and

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gain additional acceptance of the Triage Drugs of Abuse Panel products in new market segments, such as international markets.

    We may not be able to successfully commercialize new products, including the Triage Cardiac System and Triage BNP System, and we may not be able to maintain or expand our share of the drug-testing market. Technological change or the development of new or improved diagnostic technologies could result in our products becoming obsolete or noncompetitive.

We Are Dependent on Key Distributors and Have Limited Direct Sales Experience. If Our Distributors Terminate Their Relationship With Us or Fail to Adequately Perform, Our Product Sales Will Suffer.

    We rely upon a key distributor alliance with Fisher to distribute our products in the United States and may rely upon distributors to distribute products under development. All of our products are currently marketed pursuant to distribution agreements in the U.S. hospital market segment by Fisher (which accounted for 84% of net sales in 2000 and 83% of net sales in 1999) and internationally by country-specific and regional distributors. The loss or termination of one or more of these distributors could have a material adverse effect on our sales.

    If any of our distribution or marketing agreements are terminated and we are unable to enter into alternative agreements or if we elect to distribute new products directly, we would have to invest in additional sales and marketing resources, including additional field sales personnel, which would significantly increase future selling, general and administrative expenses. We have limited experience in direct sales, marketing and distribution of our products. Our direct sales, marketing and distribution efforts may not be successful. Further, we may not be able to enter into new distribution or marketing agreements on satisfactory terms, or at all. A failure to enter into acceptable distribution agreements or our failure to successfully market our products would have a material and adverse effect on us.

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Competition and Technological Change May Make Our Products Less Attractive or Obsolete.

    The market in which we compete is intensely competitive. Our competitors include:

•

companies marketing laboratory-based tests and analyzers, and

•

clinical reference laboratories.

    Currently, the majority of diagnostic tests used by physicians and other health care providers are performed by independent clinical reference laboratories and hospital laboratories. We expect that these laboratories will compete vigorously to maintain their dominance of the testing market. In order to achieve market acceptance for our products, we will be required to demonstrate that our products provide cost-effective and time saving alternatives to tests performed by clinical reference laboratories or traditional hospital laboratory procedures. This will require physicians to change their established means of having such tests performed and changed their clinical practices. Our products may not be able to compete with the testing services provided by traditional laboratory services.

    In addition, companies with a significant presence in the diagnostic market, such as:

•

Abbott Laboratories

•

Dade Behring

•

Roche Boehringer Mannheim Corporation

•

Bayer Diagnostics, and

•

Ortho Clinical Diagnostics, a division of Johnson & Johnson,

have developed or are developing diagnostic products that do or will compete with our products. These competitors have substantially greater financial, technical, research and other resources and larger, more established marketing, sales, distribution and service organizations than us. Moreover, these competitors offer broader product lines and have greater name recognition than us, and offer discounts as a competitive tactic. In addition, several smaller companies are currently making or developing products that compete with or will compete with our products. Our competitors may succeed in developing or marketing technologies or products that are more effective or commercially attractive than our products, or that would render our technologies and products obsolete. Moreover, we may not have the financial resources, technical expertise or marketing, distribution or support capabilities to compete successfully in the future. In addition, competitors, many of which have made substantial investments in competing technologies, may be more effective than us or may prevent, limit or interfere with our ability to make, use or sell our products either in the United States or in international markets.

Our Limited Manufacturing Experience and Our Potential Inability to Scale-Up Manufacturing May Adversely Affect Our Ability to Produce Products.

    We must manufacture our products in compliance with regulatory requirements, in sufficient quantities and on a timely basis, while maintaining product quality and acceptable manufacturing costs. Significant additional work will be required for the scaling-up of each new product prior to commercialization, and this work may not be completed successfully.

    In addition, although we expect some of our newer products and products under development to share production attributes with our existing products, production of these products may require the development of new manufacturing technologies and expertise. These products may not be able to be manufactured by us or any other party at a cost or in quantities to make these products commercially viable. If we are unable to develop or contract for manufacturing capabilities on acceptable terms for our products under development, our ability to conduct pre-clinical and clinical testing will be adversely affected, resulting in the delay of submission of products for regulatory clearance or approval and initiation of new development programs, which would have a material adverse effect on us.

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    Manufacturing and quality control problems have arisen and may arise as we attempt to scale-up our manufacturing and such scale-up may not be achieved in a timely manner or at a commercially reasonable cost, or at all.

    Our manufacturing facilities and those of our contract manufacturers are, or will be, subject to periodic regulatory inspections by the FDA and other federal and state regulatory agencies and these facilities are subject to Quality System Regulations requirements of the FDA. We or our contractors may not satisfy such regulatory requirements, and any failure to do so would have a material adverse effect on us.

We Are Dependent on Sole-Source Suppliers For Our Products. A Supply Interruption Would Harm Us.

    Key components and raw materials used in the manufacture of our products are provided by single-source vendors. Any supply interruption in a sole-sourced component or raw material would have a material adverse effect on our ability to manufacture these products until a new source of supply is qualified and, as a result, would have a material adverse effect on us. In addition, an uncorrected impurity or supplier's variation in a raw material, either unknown to us or incompatible with our manufacturing processes of our products, could have a material adverse effect on our ability to manufacture products. We have under development products which, if developed, may require us to enter into additional supplier arrangements. We may not be able to enter into additional supplier arrangements on commercially reasonable terms, or at all. Failure to obtain a supplier for the manufacture of our future products, if any, would have a material adverse effect on us.

    We rely upon LRE for production of the fluorescent meter used in connection with our Triage Meter System platform products, including the Triage Cardiac System and Triage BNP System and others currently under development. Our dependence upon LRE for the manufacture of the meter may adversely affect

•

our profit margins

•

our ability to develop and manufacture products on a timely and competitive basis, or

•

the timing of market introductions and subsequent sales of products incorporating the LRE meter.

Health Care Reform and Restrictions on Reimbursement May Adversely Affect Our Results.

    In the United States, health care providers that purchase the Triage Drugs of Abuse Panel and other diagnostic products generally rely on third-party payors to reimburse all or part of the cost of the procedure. Third-party payors can affect the pricing or the relative attractiveness of our products by regulating the maximum amount of reimbursement provided by such payors for testing services. In addition, the tests performed by public health departments, corporate wellness programs and other large volume users in the drug screening market are generally not subject to reimbursement. Further, some health care providers are moving towards a managed care system in which providers contract to provide comprehensive health care for a fixed cost per patient. We are unable to predict what changes will be made in the reimbursement methods utilized by third-party payors. We could be adversely affected by changes in reimbursement policies of governmental or private health care payors, particularly to the extent any such changes affect reimbursement for procedures in which our products are used.

    Third-party payors are increasingly scrutinizing and challenging the prices charged for medical products and services. Decreases in reimbursement amounts for tests performed using our products may decrease amounts physicians and other practitioners are able to charge patients, which in turn may adversely affect our ability to sell our products on a profitable basis. Failure by physicians and other users to obtain reimbursement from third-party payors, or changes in government and private third-party payors' policies toward reimbursement of tests utilizing our products could have a material

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adverse effect on us. Given the efforts to control and reduce health care costs in the United States in recent years, there can be no assurance that currently available levels of reimbursement will continue to be available in the future for our existing products or products under development.

    In addition, market acceptance of our products in international markets is dependent, in part, upon the availability of reimbursement within prevailing health care payment systems. Reimbursement and health care payment systems in international markets vary significantly by country, and include both government sponsored health care and private insurance.

    We believe that the overall escalating cost of medical products and services has led to and will continue to lead to increased pressures on the health care industry, both foreign and domestic, to reduce the cost of products and services, including products offered by us. Third-party reimbursement and coverage may not be available or adequate in either U.S. or foreign markets, current reimbursement amounts may be decreased in the future and future legislation, regulation or reimbursement policies of third-party payors may adversely affect the demand for our products or our ability to sell our products on a profitable basis.

Our Patent and Proprietary Technology May Not Provide Us With Any Benefit and the Patents of Others May Prevent Us From Commercializing Our Products.

    Our ability to compete effectively will depend in part on our ability to develop and maintain proprietary aspects of our technology, and to operate without infringing the proprietary rights of others or to obtain licenses to such proprietary rights. Our patent applications may not result in the issuance of any patents. Additionally, our patent applications may not have priority over others' applications, or, if issued, our patents may not offer protection against competitors with similar technology. Any patents issued to us may be challenged, invalidated or circumvented in the future and the rights created thereunder may not provide a competitive advantage.

    Our products may incorporate technologies that are the subject of patents issued to, and patent applications filed by, others. We have obtained licenses for some technologies and may negotiate to obtain other licenses for technologies patented by others. However, we may not be able to obtain licenses for technology patented by others on commercially reasonable terms, or at all. We may not be able to develop alternative approaches if we are unable to obtain licenses and our current and future licenses may not be adequate for the operation of our business. The failure to obtain necessary licenses or to identify and implement alternative approaches would prevent us from commercializing some of our products under development and would have a material adverse effect on us.

    Litigation may be necessary to enforce any patents issued to us, to protect trade secrets or know-how owned by us or to determine the enforceability, scope and validity of the proprietary rights of others. We have already settled a number of patent infringement claims in the past.

The Legal Proceedings to Obtain Patents and Litigation of Third-Party Claims of Intellectual Property Infringement Could Require Us to Spend Substantial Amounts of Money and Could Impair Our Operations.

    We may become subject to additional patent infringement claims and litigation or interference proceedings conducted in the U.S. Patent and Trademark Office, or USPTO, to determine the priority of inventions. We also may receive correspondence from other parties calling to our attention the existence of patents that they believe cover technology that is or may be incorporated in our products and products under development. Some of this correspondence may include offers to negotiate the licensing of the patented technologies. There can be no assurance that these matters would not result in litigation to determine the enforceability, scope, and validity of the patents. Litigation, if initiated, could seek to recover damages as a result of any sales of the products and to enjoin further sales of such products.

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    Litigation that could be brought forth by other parties may result in material expenses to us and significant diversion of effort by our technical and management personnel, regardless of the outcome. The outcome of litigation is inherently uncertain and there can be no assurance that a court would not find the third-party claims valid and that we had no successful defense to such claims. An adverse outcome in litigation or the failure to obtain a necessary license could subject us to significant liability and could prevent us from selling our products, which would have a material adverse effect on us.

    We also rely upon trade secrets, technical know-how and continuing invention to develop and maintain our competitive position. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose such technology, and we may not be able to protect our trade secrets or our rights to our trade secrets.

    Others may have filed and in the future are likely to file patent applications that are similar or identical to ours. To determine the priority of inventions, we may have to participate in interference proceedings declared by the USPTO that could result in substantial cost to us. Patent applications of others may have priority over patent applications filed by us.

    Our commercial success depends in part on us neither infringing patents or proprietary rights of third parties nor breaching any licenses that may relate to our technologies and products. We are aware of several third-party patents that may relate to our technology. We may infringe these patents, or other patents or proprietary rights of third parties. In addition, we have received and may in the future receive notices claiming infringement from third parties as well as invitations to take licenses under third-party patents. Any legal action against us or our collaborative partners claiming damages and seeking to enjoin commercial activities relating to our products and processes affected by third-party rights, in addition to subjecting us to potential liability for damages, may require us or our collaborative partner to obtain a license in order to continue to manufacture or market the affected products and processes. We or our collaborative partners may not prevail in any such action and any license (including licenses proposed by third parties) required under any such patent may not be made available on commercially acceptable terms, or at all. There are a significant number of U.S. and foreign patents and patent applications in our areas of interest, and we believe that there may be significant litigation in the industry regarding patent and other intellectual property rights. Litigation concerning patent and other intellectual property rights could consume a substantial portion of our managerial and financial resources, which would have a material adverse effect on us.

We May Need Additional Capital. If Additional Capital is not Available, We May Have to Curtail or Cease Operations.

    If cash generated from operations is insufficient to satisfy our working capital and capital expenditure requirements, we may be required to sell additional equity or debt securities or obtain additional credit facilities. Additional capital, if needed, may not be available on satisfactory terms, or at all.

    Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may include restrictive covenants. Our future liquidity and capital funding requirements will depend on numerous factors, including:

•

the extent to which our new products and products under development are successfully developed, gain market acceptance and become and remain competitive

•

the costs and timing of further expansion of sales, marketing and manufacturing activities, facilities expansion needs

•

the timing and results of clinical studies and regulatory actions regarding our potential products

•

changes in third-party reimbursement policies, and

•

the costs and timing associated with business development activities, including potential licensing of technologies patented by others.

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    The failure by us to raise capital on acceptable terms when needed would cause us to have to scale back our operations, reduce our work force and license to others products we would otherwise seek to develop or commercialize ourselves. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources."

The Regulatory Approval Process is Expensive, Time Consuming and Uncertain Which May Prevent Us From Obtaining Required Approvals or Have Approvals Rescinded for the Commercialization of Our Products.

    The testing, manufacture and sale of our products are subject to regulation by numerous governmental authorities, principally the FDA and corresponding state and foreign regulatory agencies. Pursuant to the Federal Food, Drug, and Cosmetic Act, and the regulations promulgated thereunder, the FDA regulates the preclinical and clinical testing, manufacture, labeling, distribution and promotion of medical devices. We will not be able to commence marketing or commercial sales in the United States of new products under development until we receive clearance or approval from the FDA, which can be a lengthy, expensive and uncertain process. Noncompliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure 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 or approvals and criminal prosecution. The FDA also has the authority to request recall, repair, replace or refund of the cost of any device manufactured or distributed by us.

    In the United States, medical devices are classified into one of three classes, i.e. Class I, II or III, on the basis of the controls deemed necessary by the FDA to reasonably ensure their safety and effectiveness. Class I devices are subject to general controls, e.g., labeling, pre-market notification and adherence to the Quality System Regulation, QSR, and Class II devices are subject to general and special controls, e.g., performance standards, post-market surveillance, patient registries and FDA guidelines. Generally, Class III devices are those which must receive pre-market approval by the FDA to ensure their safety and effectiveness, e.g., life-sustaining, life-supporting and implantable devices or new devices which have been found not to be substantially equivalent to legally marketed devices.

    Before a new device can be introduced in the market, the manufacturer must generally obtain FDA clearance through clearance of a 510(k) notification or approval of a pre-market approval, PMA, application. A PMA application must be filed if a proposed device is a new device not substantially equivalent to a legally marketed Class I or Class II device, or if it is a pre-amendment Class III device for which the FDA has called for PMAs. A PMA application must be supported by valid scientific evidence to demonstrate the safety and effectiveness of the device, typically including the results of clinical investigations, bench tests, laboratory and animal studies. The PMA application must also contain 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, the submission must include the proposed labeling, advertising literature and any training materials. The PMA approval process can be expensive, uncertain and lengthy, and a number of devices for which FDA approval has been sought by other companies have never been approved for marketing.

    Upon receipt of a PMA application, the FDA makes a threshold determination as to whether the application is sufficiently complete to permit a substantive review. If the FDA determines that the PMA application is complete, the FDA will accept the application for filing. Once the submission is accepted, the FDA begins an in-depth review of the PMA. The FDA review of a PMA application generally takes one to three years from the date the application is accepted, but may take significantly longer. The review time is often significantly extended by FDA requests for additional information or clarification of information already provided in the submission. During the review period, it is likely that an advisory committee, typically a panel of clinicians, will be convened to review and evaluate the application and provide recommendations to the FDA as to whether the device should be approved. The FDA is not bound by the recommendation of the advisory panel. Toward the end of the PMA

25

review process, the FDA generally will conduct an inspection of the manufacturer's facilities to ensure that the facilities are in compliance with applicable QSR requirements. If FDA evaluations of both the PMA application and the manufacturing facilities are favorable, the FDA may issue either an approval letter or an approvable letter, which usually contains a number of conditions that must be met in order to secure final approval of the PMA. When and if those conditions have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval letter, authorizing commercial marketing of the device for certain indications. If the FDA's evaluation of the PMA application or manufacturing facilities is not favorable, the FDA will deny approval of the PMA application or issue a non-approvable letter. The FDA may determine that additional clinical investigations must be performed, in which case the PMA may be delayed for one or more years while additional clinical investigations are conducted and submitted in an amendment to the PMA. 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 PMAs. Supplements to an approved PMA often require the submission of the same type of information required for an initial PMA, except that the supplement is generally limited to that information needed to support the proposed change from the product covered by the original PMA.

    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 Class II medical device or to a pre-amendment Class III medical device for which the FDA has not called for PMAs. The FDA recently has been requiring more rigorous demonstration of substantial equivalence than in the past, including in some cases requiring submission of clinical data. It generally takes from three to 12 months from submission to obtain 510(k) pre-market clearance but may take longer. The FDA may determine that a proposed device is not substantially equivalent to a legally marketed device or that additional information is needed before a substantial equivalence determination can be made. A "not substantially equivalent" determination, or a request for additional information, could prevent or delay the market introduction of new products that fall into this category. For any devices that are cleared through the 510(k) process, modifications or enhancements that could significantly affect safety or effectiveness, or constitute a major change in the intended use of the device, will require new 510(k) submissions.

    We have made modifications to the Triage Drugs of Abuse Panel since receipt of initial 510(k) clearance. With respect to several of these modifications, we filed new 510(k) notices describing the modifications, and have received FDA clearance of those 510(k) notices. We made other modifications to the Triage Drugs of Abuse Panel which we believe do not require the submission of new 510(k) notices. There can be no assurance, however, that the FDA would agree with any of our determinations not to submit a new 510(k) notice for any of these modifications, or would not require us to submit a new 510(k) notice for any of these modifications made to the Triage Drugs of Abuse Panel. If the FDA requires the Company to submit a new 510(k) notice for any device modification, we may be prohibited from marketing the modified the Triage Drugs of Abuse Panel until the 510(k) notice is cleared by the FDA.

    We are uncertain of the regulatory path to market that the FDA will ultimately apply to our products currently in development. Although the Triage Drugs of Abuse Panel, Triage C. difficile Panel, Triage Parasite Panel and Triage Cardiac Panel received 510(k) clearance, a PMA was initially required for the Triage BNP Test and may be required for the other products now in development. There can be no assurance that the FDA will not determine that we must adhere to the more costly, lengthy and uncertain PMA approval process for any of our products in development.

    We developed the Triage BNP System (consisting of the Triage BNP Test and the Triage Meter) to provide physicians a cost-effective tool to easily, rapidly and accurately measure BNP levels at the point-of-care and aid in the diagnosis of CHF. We initiated clinical trials for the Triage BNP Test in December 1998 and filed a pre-market application, known as a class III PMA with the United States Food and Drug Administration (FDA) in December 1999. We also commercialized the Triage BNP

26

System internationally in early 2000. On March 24, 2000, the FDA Clinical Chemistry and Clinical Toxicology Device Panel ("Advisory Panel") recommended not to approve our PMA for the Triage BNP Test. In voting, the Advisory Panel indicated the need for additional data, including data concerning people in higher age groups that did not have CHF. We compiled and analyzed additional data and submitted an amendment to our PMA application in October 2000. In November 2000 the Triage BNP test was re-categorized as a class II device and approved by the FDA as an aid in the diagnosis of CHF.

    We may not be able to obtain necessary regulatory approvals or clearances for our products on a timely basis, if at all. Delays in receipt of or failure to receive such approvals or clearances, the loss of previously received approvals or clearances, limitations on intended use imposed as a condition of such approvals or clearances, or failure to comply with existing or future regulatory requirements would have a material adverse effect on our business, financial condition and results of operations.

    Before the manufacturer of a device can submit the device for FDA approval or clearance, it generally must conduct a clinical investigation of the device. Although clinical investigations of most devices are subject to the investigational device exemption, IDE, requirements, clinical investigations of in vitro diagnostic, IVD, tests, such as all of the Company's products and products under development, are exempt from the IDE requirements, including the need to obtain the FDA's prior approval, provided the testing is noninvasive, does not require an invasive sampling procedure that presents a significant risk, does not intentionally introduce energy into the subject, and is not used as a diagnostic procedure without confirmation by another medically established test or procedure. In addition, the IVD must be labeled for research use only, RUO, or investigational use only, IUO, and distribution controls must be established to assure that IVDs distributed for research or clinical investigation are used only for those purposes.

    We intend to conduct clinical investigations of our products under development, which will entail distributing them in the United States on an IUO basis. There can be no assurance that the FDA would agree that our IUO distribution of our IVD products under development will meet the requirements for IDE exemption. Furthermore, failure by us or the recipients of our products under development to maintain compliance with the IDE exemption requirements could result in enforcement action by the FDA, including, among other things, the loss of the IDE exemption or the imposition of other restrictions on our distribution of our products under development, which would adversely affect our ability to conduct the clinical investigations necessary to support marketing clearance or approval.

    Any devices manufactured or distributed by us pursuant to FDA clearance or approvals are subject to pervasive and continuing regulation by FDA and certain state agencies. Manufacturers of medical devices for marketing in the United States are required to adhere to QSR, which includes testing, control, documentation, and other quality assurance requirements. Manufacturers must also comply with Medical Device Reporting, MDR, requirements that a manufacturer report to the FDA any incident in which its product may have caused or contributed to a death or serious injury, or in which its product malfunctioned and, if the malfunction were to recur, it would be likely to cause or contribute to a death or serious injury. Labeling and promotional activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. Current FDA enforcement policy prohibits the marketing of approved medical devices for unapproved uses.

    We are subject to routine inspection by the FDA and certain state agencies for compliance with QSR requirements, MDR requirements and other applicable regulations. The QSR requirements include the addition of design controls that will likely increase the cost of compliance. Changes in existing requirements or adoption of new requirements could have a material adverse effect on our business, financial condition and results of operation. There can be no assurance that we will not incur significant costs to comply with laws and regulations in the future or that laws and regulations will not have a material adverse effect upon our business, financial condition and results of operations.

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    We are also subject to numerous federal, 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. There can be no assurance that we will not incur significant costs to comply with laws and regulations in the future or that such laws or regulations will not have a material adverse effect upon our business, financial condition and results of operations.

    The use of our products is also affected by the Clinical Laboratory Improvement Amendments of 1988, CLIA, and related federal and state regulations which provide for regulation of laboratory testing. The scope of these regulations includes quality control, proficiency testing, personnel standards and federal inspections. CLIA categorizes tests as "waived," "moderately complex" or "highly complex," on the basis of specific criteria. There can be no assurance that any future amendment of CLIA or the promulgation of additional regulations impacting laboratory testing will not have a material adverse effect on our ability to market our products or on our business, financial condition or results of operations.

We Are Dependent on Others for the Development of Products. The Failure of Our Collaborations to Successfully Develop Products Would Harm Our Business.

    Our strategy for the research, development, commercialization and distribution of some of our products entails entering into various arrangements with third parties. We are or will be dependent upon the success of these parties in performing their responsibilities. These parties may not perform their obligations as expected and no revenue may be derived from these arrangements.

    We entered into agreements with partners for the development and marketing of products. The agreements are subject to rights of termination and may be terminated. Our collaborators may not abide by their contractual obligations and may discontinue or sell their current lines of business. The research for which we receive or provide funding may not lead to the development of products. We intend to enter into additional development and marketing agreements. We may not be able to enter into agreements on acceptable terms, or at all.

    We are continuing to enhance, with LRE, a hand-held point-of-care fluorescent meter for use in Triage Meter System products. The meter can be programmed to run a specific test through the use of changeable proprietary software that is also under further improvements by LRE. LRE may not improve the hardware or software on schedule, or at all, and new software that permits the meter to be used for another Triage Meter System product may not be further improved.

We May Not Be Able to Manage Our Growth.

    We anticipate increased growth in the number of our employees, the scope of our operating and financial systems and the geographic area of our operations as new products are developed and commercialized. This growth will result in an increase in responsibilities for both existing and new management personnel. Our ability to manage growth effectively will require us to continue to implement and improve our operational, financial and management information systems and to train, motivate and manage our employees. We may not be able to manage our expansion, and a failure to do so could have a material adverse effect on us.

If We Lose Our Key Personnel or Are Unable to Attract and Retain Additional Personnel, We May Not Be Able to Pursue Collaborations or Develop Our Own Products.

    Our future success depends in part on the continued service of our key technical, sales, marketing and executive personnel, and our ability to identify, hire and retain qualified personnel. Competition for such personnel is intense and we may not be able to retain existing personnel or identify or hire additional personnel.

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We May Have Significant Product Liability Exposure.

    The testing, manufacturing and marketing of medical diagnostic devices entails an inherent risk of product liability claims. Potential product liability claims may exceed the amount of our insurance coverage or may be excluded from coverage under the terms of the policy. Our existing insurance may not be renewed at a cost and level of coverage comparable to that presently in effect, or at all. In the event that we are held liable for a claim against which we are not indemnified or for damages exceeding the limits of our insurance coverage, that claim could exceed our total assets.

Item 2. PROPERTIES

    We lease approximately 118,000 square feet of space in seven buildings in the Sorrento Valley area in San Diego under leases that expire from December 2001 through December 2005. We believe these facilities are adequate for our current needs and that suitable additional or alternative space will be available in the future on commercially reasonable terms as needed. Our current facilities are used for our administrative offices, research and development facilities and manufacturing operations. We are evaluating various alternatives to address our future facilities expansion needs. Leasing of additional facility space would be expected to result in an increase in rent upon occupancy.

Item 3. LEGAL PROCEEDINGS

    Not applicable.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    Not applicable.

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PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    Our common stock is traded in the over-the-counter market on the Nasdaq National Market or the NNM, under the symbol BSTE. The following tables set forth the high and low sale prices, for our common stock as reported on the NNM for the periods indicated.

    There were approximately 60 holders of record of common stock as of February 28, 2001. We have not paid any cash dividends to date and do not anticipate any being paid in the foreseeable future.

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Item 6.  SELECTED FINANCIAL DATA

(1)

Computed on the basis described in Note 1 of Notes to Financial Statements.

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Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    The matters discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the sections entitled "Business" and "Risk Factors," as well as those discussed elsewhere in this Annual Report on Form 10-K. We disclaim any intent or obligation to update these forward-looking statements.

Overview

    We are a research-based diagnostics company dedicated to the discovery and development of novel protein-based tests that improve a physician's ability to diagnose disease. We combine separate, yet integrated, discovery and diagnostics businesses to access proteomics research, identify proteins with high diagnostic utility, develop and commercialize products and educate the medical community on new approaches to diagnosis. We believe our products, which are aimed primarily at the diagnosis of catastrophic diseases, positively impact medical decisions, improve the quality of patient care and contribute to cost-effective medical treatment.

    Our diagnostics business is a leading provider of rapid tests that aid in the diagnosis of a variety of critical diseases. These tests are sold worldwide primarily for use in emergency departments, although we believe that in the future certain tests may have applications in other clinical sites. Our two product platforms are designed to provide rapid results through either qualitative visual readings or quantitative meter readings. These platforms are based upon our proprietary technologies in the areas of antibody development, signaling chemistry and micro-capillary fluidics. Our testing formats are designed to measure single analyte targets or multiple analytes simultaneously. They also allow for the analysis of various sample sources, including urine, serum, plasma, whole-blood and stool. Among the products expected to contribute most significantly to product revenue in the future are the Triage Drugs of Abuse Panel, the Triage Cardiac System and the Triage BNP Test.

    In 1992, we launched our first product, the Triage Panel for Drugs of Abuse, a small, self-contained, qualitative test capable of detecting within urine a broad spectrum of commonly overdosed prescription and illicit drugs within approximately 10 minutes. Results from the Triage Panel for Drugs of Abuse enable physicians to differentiate drug overdose from other conditions with similar symptoms. Currently, the Triage Panel for Drugs of Abuse is used in approximately 2,000 of U.S. acute care hospitals. Net sales of the Triage Drugs of Abuse Panel were approximately $35.2 million in 2000.

    In 1999, we completed the national launch of our first quantitative product, the Triage Cardiac System. The Triage Cardiac System, comprised of the Triage Cardiac Panel and the Triage Meter, is designed to measure three cardiac proteins, CKMB, myoglobin and Troponin I, within 20 minutes using a whole-blood sample. The Triage Cardiac System aids in the diagnosis of acute myocardial infarction, or AMI, commonly known as heart attack, by enabling physicians to easily and frequently monitor changes in the levels of these proteins, which rise as heart damage occurs. Access to this information provides physicians with an enhanced ability to make treatment decisions in a timely manner. The Triage Cardiac System is in the early stages of market penetration, with approximately 440 customers using the system at year-end 2000. Net worldwide sales of the Triage Cardiac System were $13.2 million in 2000.

    In 2000, we received FDA approval to market the Triage BNP Test, the first blood test approved in the United States as an aid in the diagnosis of congestive heart failure. The Triage BNP Test measures levels of B-type natriuretic peptide, or BNP, a hormone that is elevated in patients suffering from heart failure. Physicians can use measurements of BNP to distinguish heart failure from other diseases with similar symptoms. We believe that BNP may also be useful in evaluating treatment of existing patients

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and we intend to conduct clinical studies to further explore this application. We commenced marketing of the Triage BNP Test in December 2000. Historically, the market has been slow to adopt new protein markers and requires significant validation in the form of published studies. Accordingly, we expect 2001 sales to be less than $3 million. However, we do believe that the long-term growth prospects for this product are significant.

    The principal market for our products is comprised of hospitals, which number approximately 5,000 in the United States. We focus our efforts on larger centers and aim to place our products in emergency departments and other point-of-care locations, as well as in laboratories. In marketing our products we utilize a direct sales team that includes general account executives and cardiovascular account executives, who have extensive experience selling cardiovascular devices or drugs. The Fisher HealthCare division ("Fisher") of the Fisher Scientific Company distributes our products in U.S. hospitals and supports our direct sales force, particularly in smaller hospitals. In international markets, we utilize a network of country-specific and regional distributors.

    Our product sales to date have primarily been attributed to sales of the Triage Drugs of Abuse Panel product line. The Triage Drugs of Abuse Panel products are marketed pursuant to distribution agreements in the U.S. hospital market segment by Fisher Healthcare, or Fisher, which accounted for 84% and 83% of our product sales in 2000 and 1999, respectively, and internationally by country-specific and regional distributors. Since its launch in fiscal 1992, the Triage Drugs of Abuse Panel product line has experienced continued annual revenue growth. We believe, however, that domestic sales of the Triage Drugs of Abuse Panel products may decline as the available U.S. market becomes saturated and competitive pressures become more prominent in a maturing market.

    In addition to focusing our attention on commercial activities associated with existing products, we are investing in discovery efforts aimed at finding proteins with high diagnostic utility. In March 1999, we launched Biosite Discovery, a collaborative research business dedicated to the identification of new protein markers for acute diseases. Through Biosite Discovery, we conduct analyses on both known proteins that may be markers of disease and potential markers accessed from partners in order to determine diagnostic utility. We refer to this process as marker mining. If the diagnostic utility of a marker is established, it will then be assessed for commercialization potential, with high value markers being added to our product development pipeline. To gain access to novel proteins, we primarily leverage our expertise in phage display antibody development, providing pharmaceutical and biotechnology partners with high throughput development of high affinity antibodies for research use and seeking, in exchange, licenses to their protein targets in addition to fees. Under Biosite Discovery, we have executed collaborative agreements with partners in the areas of cardiovascular, cerebrovascular, infectious disease and oncology. Our collaborative partners include the TIMI Group of Brigham and Woman's Hospital, Corixa Corporation, Diadexus L.L.C., Duke University, Eli Lilly, Eos Biotechnology Inc., Johns Hopkins Hospital, Large Scale Biology Corporation, Medarex Inc., Morphosys AG, Scios Inc. and the San Diego VA Medical Center. In 2000, these collaborations generated revenues of $3.3 million.

    In 2000 we entered into an agreement with Medarex, Inc. through which we are combining our proprietary phage display technology with Medarex's proprietary transgenic mouse technology to offer a process for high throughput development of high affinity fully human antibodies. This process is being provided as a research service to biotechnology and pharmaceutical companies, which require high affinity fully human antibodies for use in conducting target validation and, or, characterization experiments. Under the terms of the eight-year agreement, Medarex will provide Biosite with research funding of $3 million per year.

    When Biosite and Medarex enter into agreements to provide high affinity, fully human antibodies to third-party biotechnology and pharmaceutical customers, we will generally receive a variety of payments and we will also seek exclusive or semi-exclusive diagnostic rights to the protein targets

33

provided to us by biotechnology and pharmaceutical customers. Among the payments we might receive are: up-front technology access fees, antibody development fees upon the delivery of antibodies, annual maintenance fees on targets for which Biosite has produced antibodies for as long as the targets remain in development, milestone fees on drug targets that reach clinical milestones and royalties should products successfully be commercialized as a result of the collaboration.

    In January 2001, we initiated a technology alliance with LSBC, through its wholly-owned proteomics subsidiary. Through this alliance we plan to generate the antibody and protein target components required to produce the first generation of commercial protein chips. Protein chips (also called antibody arrays) are research tools for measuring large numbers of proteins in biological samples and are expected to become the preferred technology for high-volume applications such as clinical research, diagnostics and toxicology.

    LSBC and Biosite intend to pursue the protein chip market, with a sharing of rights and returns. Biosite will obtain certain diagnostic licenses to targets and LSBC will retain all other target rights, including uses in proteomics, database creation, and therapeutics. Biosite will receive antibody development fees as well as payments for certain products successfully developed through the joint research efforts. If diagnostic products are successfully developed and commercialized, LSBC will receive milestone payments and royalties.

    For six consecutive quarters to date, beginning with the second half of 1999, we have generated operating profits, after incurring operating losses during the prior seven quarters. We may not be able to maintain operating profitability on a quarterly or annual basis in the future and our operating results may not be consistent with predictions made by securities analysts.

    We anticipate that our results of operations may fluctuate for the foreseeable future due to several factors, including:

•

whether and when new products are successfully developed and introduced by us



•

market acceptance of current or new products



•

manufacturing inefficiencies



•

progress of research and development projects including clinical trials and regulatory delays



•

attainment of milestones under collaborative agreements necessary to earn contract revenues



•

seasonal customer demand, the timing or cancellation of significant orders, product recalls and shipment problems



•

changes in reimbursement policies



•

competitive pressures on average selling prices



•

changes in the mix of products sold.

    Operating results would also be adversely affected by a downturn in the market for our current and future products. We continue to increase our operating expenses, primarily for personnel, capital equipment and activities supporting newly introduced products and product development. Our operating results would be adversely affected if our net sales or gross profit did not correspondingly increase or if our product development efforts were unsuccessful or subject to delays. Our limited operating history makes accurate prediction of future operating results difficult or impossible. We may not sustain revenue growth or maintain profitability on a quarterly or annual basis.

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Results of Operations

    The following table sets forth operating data as a percentage of total revenues:

Years ended December 31, 2000 and 1999

    Product Sales.  Product sales increased 20% to $51.7 million in 2000 from $43.0 million in 1999. The increase in product sales was primarily attributable to the growth in net sales of our Triage Cardiac System, one of our quantitative platform products. Net sales of our quantitative platform products, consisting of the Triage Cardiac System and Triage BNP System, were approximately $13.3 million for 2000, as compared to $6.6 million for 1999. The Triage Cardiac System's net sales growth was primarily due to growth in our customer base and greater average product utilization by our customers.

    Net sales of our qualitative platform products, consisting of the Triage Drugs of Abuse Panel and Triage Microbiology Panels, were approximately $38.4 million for 2000, compared to $36.5 million for 1999. The growth in our qualitative platform products was primarily related to sales growth in the Triage Drugs of Abuse Panel. Net sales of the Triage Drugs of Abuse Panel for 2000 increased $1.4 million, or 4%, as compared to 1999. We believe that the domestic sales of the Triage Drugs of Abuse Panel products may decline as the available U.S. market becomes saturated and competitive pressures become more prominent in a maturing market.

    Contract Revenues.  Contract revenues consist of revenues associated with our research and development and licensing arrangements, including license fees, milestone revenues, royalties, research funding and antibody fees derived from Biosite Discovery programs. Contract revenues for the year ended December 31, 2000 were $3.3 million as compared to $703,000 for 1999. Contract revenues recognized during 2000 related primarily to the licensing of technology and performance of activities under Biosite Discovery collaborative research and development agreements. In June 2000, we entered into an alliance with Medarex Inc. Under the terms of the agreement, we will receive research funding of $3.0 million annually over eight years from Medarex, along with research fees and, if any products are generated through the collaboration, milestone payments and royalties. We may also receive diagnostic rights to targets identified through the collaboration. In exchange, we will make available certain of our Biosite Discovery research and development resources for collaborative research activities. During 2000, we recognized $1,750,000 in research funding directly from Medarex under the

35

collaboration. The remainder of the contract revenue for 2000 related to research milestones achieved, license fees and antibody development fees. Contract revenue recognized during 1999 related to activities associated with a research and development feasibility study and Biosite Discovery research and development activities.

    Biosite Discovery activities and its costs are performed by certain of our research and development teams. These Biosite Discovery research and development resources concurrently focus on programs for our partners, which generated our contract revenue, and on internal R&D programs. Costs of the research and development resources performing collaborative and internal Biosite Discovery activities were approximately $3.5 million and $2.9 million in 2000 and 1999, respectively, and are included in research and development expenses.

    Cost of Sales and Gross Profit From Product Sales.  Gross profit from product sales increased 23% to $36.1 million in 2000 from $29.4 million in 1999. The increase in gross profit was primarily attributable to the overall product sales growth. The overall gross margin increased to 70% for 2000 from 68% for 1999. The overall gross margin for 2000 increased primarily as a result of a greater manufacturing efficiency of our quantitative platform products, primarily the Triage Cardiac System, during 2000 as compared to 1999. During the first quarter of 1999, we experienced significant inefficiencies related to the production of the Triage Cardiac Panel, which resulted in an overall gross margin of 60% during that quarter. Since the first quarter of 1999, our overall quarterly gross margins have ranged between 67% and 73%. During 2000, our overall gross margin has increased as we have improved our manufacturing processes, increased manufacturing volumes of our Triage Cardiac Panel and have experienced a slight increase in sales of our higher margin product, the Triage Drugs of Abuse Panel. During 1999, we were able to utilize some of our manufacturing resources for new product scale-up and validation activities related to the Triage BNP and Triage LBP tests, two products that were under development. The costs of new product scale-up and validation activities were charged to research and development expenses, contributing to the 1999 gross margins.

    Our newer products are expected to continue to realize lower gross margins than the Triage Drugs of Abuse Panel during the early stages of their commercialization as incremental manufacturing costs are spread over smaller sales volumes and efficiency issues are addressed. We also expect that the overall gross margins may continue to decrease as a result of competitive pricing pressures related to the maturing Triage Drugs of Abuse product line and the changing mix of net sales of products with different gross margins.

    Selling, General and Administrative Expenses (SG&A expenses).  Selling, general and administrative expenses increased 5% to $18.5 million in 2000 from $17.6 million in 1999. Increases in SG&A expenses were primarily associated with additional marketing activities relating to new products, the expanded sales activities related to our broader product lines and the increased administrative costs to support our expanded operations and business development activities. SG&A expenses for 1999 included administrative costs totaling approximately $300,000 associated with the reorganization of our manufacturing operations and costs totaling approximately $425,000 related to a business development opportunity that we decided to forego.

    We expect selling, general and administrative costs in 2001 to be higher than in 2000, as we continue to expand our overall operations, including sales and marketing activities for our new products, a larger direct sales force, business development activities and administrative support functions. The timing of such increased expenditures and their magnitude are primarily dependent on the commercial success and sales growth of our new products and the progress of business development activities.

    Research and Development Expenses.  Research and development expenses were $13.3 million in 2000, consistent with 1999.   During 2000, our research and development resources were focused

36

primarily on: 1) the Biosite Discovery activities 2) activities related to the gathering of additional data needed for the approval of our Triage BNP test, which was approved in November 2000 3) clinical studies and 4) the development of potential improvements to our existing and new products. We expect that our research and development expenses will increase in 2001, as compared to 2000 levels. The increased expenditures are expected to primarily relate to pre-clinical and clinical studies, product development efforts, the expansion of the capacity of the Biosite Discovery program and manufacturing scale-up activities. The costs associated with the clinical trials are expected to be significant. Some of our potential products are subject to more complex regulatory approval requirements than our previous products. The timing of the increased expenditures and their magnitude are primarily dependent on the progress and success of the research and development and the timing of potential product launches.

    Interest and Other Income net.    Interest and other income increased 7% to $1.9 million in 2000 from $1.8 million in 1999. The increase in interest income resulted primarily from the higher average balance of cash and marketable securities and higher overall interest rates on marketable debt securities during 2000 as compared to 1999. During the fourth quarter of 2000, we decided to sell one of our marketable debt securities that had fallen below our investment guidelines. The security was sold in January 2001 and resulted in a $300,000 realized loss, which was accrued at December 31, 2000 as a permanent decline in value of the security.

    Benefit (Provision) for Income Taxes.  As a result of the pre-tax income and the estimated tax credits generated in each year, we recorded a provision for income taxes of $3.3 million for 2000 and a benefit for income taxes of $166,000 for 1999. The benefit for income taxes recognized in the fourth quarter of 1999 included $112,000 of benefit resulting from the recognition of research and development credits generated during the first three quarters of 1999. At December 31, 2000, we had net deferred tax assets of $5.5 million. The realization of the deferred tax assets is dependent upon the generation of future taxable income of approximately $14 million. We will continue to assess the likelihood of realization of our net deferred tax assets. If future events occur which do not make the realization of such assets more likely than not, a valuation allowance will be established against all or a portion of the net deferred tax assets.

Years ended December 31, 1999 and 1998

    Product Sales.  Net sales increased 25% to $43.0 million in 1999 from $34.4 million in 1998. The increase in net sales was primarily attributable to the growth in net sales of new products. The Triage C. difficile Panel and Triage Parasite Panel were launched in March 1998 and October 1998, respectively. The Triage Cardiac System was introduced in May 1998. New product sales for 1999 were approximately $9.2 million, as compared to $2.3 million for 1998. Net sales of the Triage Drugs of Abuse Panel for 1999 were 5% higher than net sales of the product for 1998.

    Contract Revenue.  Contract revenue decreased to $703,000 in 1999 from $2.6 million in 1998. Contract revenues recognized during 1999 related to activities associated with a research and development feasibility study being performed by us and research and development activities related to Biosite Discovery. In 1998, we recognized $1.3 million from Kyoto Dai-Ichi Kagaku C., Ltd., or KDK, related to milestones achieved in the development of the Triage Cardiac System, $1.1 million from Novartis related to milestones achieved in the development of the NeoralChek System and $192,000 related to an SBIR (Small Business Innovation Research) grant from the U.S. Government for research related to potential microbiology products.

    Cost of Sales and Gross profit from product sales.  Gross profit increased 23% to $29.4 million in 1999 from $23.9 million in 1998. The increase in gross profit was primarily attributable to the overall sales growth and the realization of higher gross margins in 1999 as compared to 1998 for our newer products. The overall gross margin decreased to 68% for 1999 from 69% for 1998. The overall gross margin for 1999 decreased primarily as a result of a greater proportion of net sales representing the

37

newer products, which experienced lower gross margins than the Triage DOA Panel. Also, during the first quarter of 1999, we experienced significant inefficiencies related to the production of the Triage Cardiac System, resulting in negative gross profits related to that product during that quarter. Gross margins increased to profitable levels during the remaining quarters of 1999, primarily as a result of efficiencies achieved in the manufacturing operations.

    Selling, General and Administrative Expenses.  Selling, general and administrative expenses increased 14% to $17.6 million in 1999 from $15.5 million in 1998. Increases in SG&A expenses were primarily associated with additional marketing activities relating to new products, the expanded sales activities related to our broader product lines and the increased administrative costs to support our expanded operations and business development activities. Additionally, SG&A expenses for 1999 included administrative costs associated with the reorganization of our manufacturing operations totaling approximately $300,000 and costs related to a business development opportunity that we decided to forego totaling approximately $425,000.

    Research and Development Expenses.  Research and development expenses increased 20% to $13.3 million in 1999 from $11.2 million in 1998. Significant manufacturing scale-up and validation expenses were incurred during 1998 related to the Triage Cardiac System and Triage Microbiology panels. The Triage Cardiac System was the first product on our new quantitative product platform and required significant investments in the scale-up and validation of its manufacturing and quality processes. Manufacturing scale-up and validation expenses decreased during 1999. The decreases in manufacturing scale-up and validation costs were offset by increases in other product development expenses. During 1999, our research and development resources were focused primarily on the development, clinical studies, manufacturing scale-up and validation of products under development, potential improvements to our existing products and research activities associated with Biosite Discovery.

    Defense of Patent Matters.  Legal expenses associated with the Dade Behring and Spectral Diagnostics litigation totaled $4.9 million in 1998. In February 1999, a settlement agreement was executed that resolved all disputes between Spectral Diagnostics and us without a material adverse financial impact to us. In March 1999, to avoid protracted litigation and continued significant legal defense costs, we executed a settlement agreement with Dade Behring that resolved all disputes outstanding between the companies. Accordingly, all settlement costs were known prior to filing our 1998 Form 10-K and therefore were expensed as of December 31, 1998.

    Interest and Other Income.  Interest and other income decreased 25% to $1.8 million in 1999 from $2.4 million in 1998. Interest income decreased 19% to $1.9 million in 1999 from $2.3 million in 1998. The decrease in interest income resulted primarily from the lower average balance of cash and marketable securities and lower overall interest rates on marketable debt securities during 1999 as compared to 1998.

    Benefit (Provision) for Income Taxes.  For 1999 and 1998, as a result of the pre-tax income (loss) and the estimated tax credits generated in each year, we recorded a benefit for income taxes of $166,000 and $1.4 million, respectively. The benefit for income taxes recognized in the fourth quarter of 1999 included $112,000 of benefit resulting from the recognition of research and development credits generated during the first three quarters of 1999.

Liquidity and Capital Resources

    We have financed our operations through revenues from operations, private and public placements of equity securities, debt and capital lease financing, cash received under collaborative agreements and interest income. At December 31, 2000, the Company had cash, cash equivalents and marketable securities of approximately $36.2 million compared to $32.3 million at December 31, 1999.

38

    The increase in cash, cash equivalents and marketable securities during 2000 was largely attributable to cash generated from the operating activities of $4.6 million, the receipt of $5.6 million in proceeds from the issuance of common stock under our stock plans, and the receipt of $1.8 million in proceeds from equipment financing. Significant uses of cash during 2000 included the purchase of leasehold improvement and capital equipment of approximately $4.1 million, principal payments under equipment financing obligations of $2.1 million, and investments in patents, license rights, deposits, and other assets of $2.0 million.

    The decrease in cash, cash equivalents and marketable securities during 1999 was largely attributable to the net payment of approximately $1.1 million made to Dade Behring as part of the settlement of litigation between Dade Behring and Biosite in March 1999 and an additional $1.0 million payment made under a technology licensing arrangement previously entered into. Other significant uses of cash included the purchase of equipment and leasehold improvements totaling approximately $5.2 million and principal payments under equipment financing obligations of $1.8 million. These significant uses of cash were offset by the cash generated from operating activities of $4.3 million, proceeds from equipment financing of $2.1 million and issuances of common stock under our stock plans of $1.3 million.

    Our primary short-term needs for capital, which are subject to change, are for the support of our commercialization efforts related to new products, expansion of our manufacturing capacity and efficiency for new products, expansion of our Biosite Discovery antibody research capacity, and the continued advancement of research and development efforts. We executed agreements to license technologies patented by others that call for milestone payments and future royalties based on product sales utilizing the licensed technologies. We may enter into additional licensing agreements that may include up-front and annual cash payments and future royalties based on product sales utilizing the licensed technologies. We utilized and may continue to utilize credit arrangements with financial institutions to finance the purchase of capital equipment. Additionally, we may utilize cash generated from operating activities, if any, to meet our capital requirements.

    We believe that our available cash, cash from operations and funds from existing credit arrangements will be sufficient to satisfy our funding needs for at least the next 24 months. Thereafter, if cash generated from operations is insufficient to satisfy our working capital and capital expenditure requirements, we may be required to sell additional equity or debt securities or obtain additional credit facilities. Additional capital, if needed, may not be available on satisfactory terms, if at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may include restrictive covenants. Our future liquidity and capital funding requirements will depend on numerous factors, including:

•

the extent to which our new products and products under development are successfully developed, gain market acceptance and become and remain competitive



•

the costs and timing of further expansion of sales, marketing and manufacturing activities, expansion of our Biosite Discovery capacity and facilities expansion needs



•

the timing and results of clinical studies and regulatory actions regarding our potential products



•

changes in third-party reimbursement policies, and



•

the costs and timing associated with business development activities, including potential licensing of technologies patented by others.

    Our failure to raise capital on acceptable terms, when needed, could have a material adverse effect on our business.

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Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    We are exposed to changes in interest rates, primarily from its variable-rate long-term debt arrangements and, to a lesser extent, our investments in available-for-sale marketable securities. Under our current policies, we do not use interest rate derivatives instruments to manage this exposure to interest rate changes. We do have the option to convert our variable-rate long-term debt arrangements to fixed-rate debt arrangements for a nominal transaction fee. At December 31, 2000, we had variable-rate debt totaling approximately $972,000. A hypothetical 1% adverse move in interest rates along the entire interest rate yield curve would not materially effect the fair value of our financial instruments that are exposed to changes in interest rates.

    Additionally, our purchases of Triage Meters from LRE Technology Partner GmbH, or LRE, are denominated in German Deutsche Marks (DM) and sales of some products to some international customers are denominated in the local currency of customers. We have on occasion purchased forward exchange contracts to manage this exposure to exchange rate changes. As of December 31, 2000, we had no outstanding forward exchange contracts. Total receivables and payables denominated in foreign currencies at December 31, 2000 were not material.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    Refer to the Index on Page F-l of the Financial Report included herein.

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

    Not Applicable.

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PART III

    Some information required by Part III is incorporated by reference from our definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for our 1999 Annual Meeting of Stockholders (the "Proxy Statement").

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The information required by this section with respect to Directors is incorporated by reference from the information in the section entitled "Election of Directors" in the Proxy Statement. Our executive officers, their positions, and ages as of January 31, 2001 are as follows:

    Timothy J. Wollaeger has served as Chairman of the Board of Directors since the Company's inception. He is the general partner of Kingsbury Associates, L.P., a venture capital firm he founded in December 1993. From May 1990 until December 1993, he was Senior Vice President and a director of Columbia Hospital Corporation (now HCA Healthcare Corporation). From October 1986 until July 1993, he was a general partner of the general partner of Biovest Partners, a seed venture capital firm ("Biovest"). He is a director of Aurora Biosciences, Inc. and a founder and director of several privately held medical products companies. Mr. Wollaeger received a B.A. in Economics from Yale University and an M.B.A. from Stanford University.

    Anthony DeMaria joined the Board of Directors in June 1998. Dr. DeMaria is Professor of Medicine and Chief, division of cardiology at University of California, San Diego, School of Medicine. Prior to joining the University of California in 1992, Dr. DeMaria was Director of the Kentucky Heart Institute. Prior to joining the Kentucky Heart Institute, he held key management positions at the University of Kentucky College of Medicine and the University of California, Davis, School of Medicine. In 1988, Dr. DeMaria served as president of the American College of Cardiology and he is past president of the American Society of Echocardiography. Dr. DeMaria received a B.S. from College of the Holy Cross, and his M.D. from New Jersey College of Medicine.

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    Howard E. Greene, Jr.joined the Board of Directors in June 1989. Mr. Greene is an entrepreneur who has founded, managed and financed a series of medical technology companies during the past 20 years. From September 1987 to July 1996, Mr. Greene was the founding Chief Executive Officer of Amylin Pharmaceuticals, Inc., a biotechnology company developing drug candidates for treating diabetes ("Amylin"). From October 1986 until July 1993, Mr. Greene was a founding general partner of Biovest. He was Chief Executive Officer of Hybritech from March 1979 until its acquisition by Eli Lilly & Co. in March 1986, and was co-inventor of Hybritech's patented monoclonal antibody assay technology. Prior to joining Hybritech, he was an executive with the medical diagnostics division of Baxter Healthcare Corporation from 1974 to 1979, and a consultant with McKinsey & Company from 1967 to 1974. He is Chairman of the Board of Epimmune Inc., and a director of Amylin and The International Biotechnology Trust plc, a British biotechnology investment company. Mr. Greene received an M.B.A. from Harvard University.

    Lonnie M. Smith joined the Board of Directors in October 1997. Mr. Smith is Chief Executive Officer of Intuitive Surgical Inc., a surgical device company. From 1982 to February 1997, he served as Senior Executive Vice President in charge of healthcare for Hillenbrand Industries, Inc. ("Hillenbrand"), a diversified public holding company. Mr. Smith was a director of Hillenbrand from 1981 to February 1997. He had been employed by Hillenbrand or its subsidiaries in various offices since 1976. Mr. Smith received a B.S. in Electrical Engineering from Utah State University and an M.B.A. from Harvard Business School.

    Kim D. Blickenstaff, one of our founders, has been President and Chief Executive Officer since April 1988. Mr. Blickenstaff also is a director of Micro Therapeutics Incorporated, Amira Medical and Medi Spectra Inc. Prior to joining Biosite, he held various positions in finance, operations, research management, sales management, strategic planning, and marketing with Baxter Travenol, National Health Laboratories, and Hybritech Incorporated ("Hybritech"). Mr. Blickenstaff holds an M.B.A. from the Graduate School of Business, Loyola University, Chicago.

    Gunars E. Valkirs, Ph.D., one of our founders and a co-inventor of some of our proprietary technology has been a director, Vice President, Research and Development and Chief Technical Officer since 1988. Prior to forming Biosite, he was a Scientific Investigator with the Diagnostics Research & Development Group at Hybritech, where he was the primary inventor of Hybritech's patented ICON technology. Dr. Valkirs holds a Ph.D. in Physics from the University of California at San Diego.

    Thomas M. Watlington joined us as Senior Vice President of Commercial Operations in December 1996. He was formerly Vice President, Marketing for the Diabetes Care Division for Boehringer Mannheim. From 1982 to December 1996, Mr. Watlington held various positions in marketing, strategic analysis and product development with Boehringer Mannheim. Mr. Watlington holds a B.S. degree from the University of Maryland.

    Kenneth F. Buechler, Ph.D., one of our founders and a co-inventor of certain of our proprietary technology, has been Vice President, Research since January 1994. From April 1988 to January 1994, he was Director of Chemistry. Prior to forming us, he was a Senior Scientist in the Diagnostics Research and Development Group at Hybritech. Dr. Buechler holds a Ph.D. in Biochemistry from Indiana University.

    James E. Douglas joined us in August 1999 as Vice President, Marketing and was promoted to Vice President, Sales and Marketing in June 2000. He was formerly Vice President, Marketing for Gen-Probe. From 1983 to August 1999 Mr. Douglas held various management positions in sales, marketing and business development with Abbott Laboratories, Sanofi Diagnostics Pasteur, Centocor and Gen-Probe. Mr. Douglas received his B.A. from Davidson College and his MBA from the University of South Carolina.

42

    Christopher R. Hibberd joined us in June 1997 to head our business development activities after spending five years with the Boston Consulting Group ("BCG"). At BCG, Mr. Hibberd was a Manager, leading client case teams in developing and implementing value-creating strategies for businesses in a variety of industry sectors. Prior to that, he held consulting positions at various companies and also was a Development Engineer for Albright & Wilson Americas from 1987 to 1990. Mr. Hibberd received an Engineering degree from the University of Toronto, Canada and his M.B.A. from the University of Western Ontario, Canada.

    Nadine E. Padilla joined us as Director of Investor Relations and Corporate Communications in 1997 and was promoted to Vice President of Corporate and Investor Relations in October 2000. Prior to joining Biosite, Ms. Padilla was the Investor Relations Manager at Pyxis Corporation from its IPO in 1992 until its acquisition by Cardinal Health, Inc. in 1995. From 1995 to 1997, she was the Product Director for Pyxis' Access Medical Systems product line. Ms. Padilla also held various investor relations and financial reporting positions at HomeFed Bank and Great American Bank between 1985 and 1992. Ms. Padilla holds a bachelor's degree from the University of California, San Diego and an M.B.A from the University of California, Los Angeles.

    Christopher J. Twomey joined us as Director of Finance in March 1990 and was promoted to Vice President of Finance and Chief Financial Officer in 1993. From 1981 to March 1990, Mr. Twomey was employed at Ernst & Young LLP, where from October 1985 to March 1990, he served as an Audit Manager. Mr. Twomey holds a B.A. in Business Economics from the University of California at Santa Barbara.

    Peter Witerzens, Ph.D., joined us as Vice President of Operations in February 2000. From 1998 to the end of 1999, Dr. Witerzens was the Senior Director, Lab Systems Operations at Roche Diagnostics Indianapolis where he was responsible for the manufacturing activities of Roche's Laboratory Systems products, including the consolidation and relocation of two Roche production sites. From 1989 to 1998 he was Senior Director, Production Immunological Test and Control Sera for Roche Diagnostics in Penzberg Germany. Dr. Witerzens received his Diploma in Chemistry and his Ph.D. in Pharmaceutical Chemistry from the University of Karlsruhe, Germany.

    Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16 of the Exchange Act. This disclosure is contained in the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement and is incorporated herein by reference.

Item 11.  EXECUTIVE COMPENSATION

    The information required by this item is incorporated by reference from the information in the section entitled "Compensation of Executive Officers and Directors" in the Proxy Statement.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth information as of January 31, 2001, regarding beneficial ownership of the Company's Common Stock by (i) each director and nominee for director, (ii) each of the Company's officers and former officers named in the Summary Compensation Table set forth herein, (iii) all current directors and executive officers of the Company as a group and (iv) each person who is known by the Company to beneficially own more than 5% of the Company's Common Stock. Except as otherwise indicated and subject to applicable community property laws, each person has sole investment

43

and voting power with respect to the shares shown. Ownership information is based upon information furnished by the respective individuals or entities, as the case may be.

*

Less than 1%

(1)

Pursuant to its Schedule 13G/A dated January 31, 2001, Kopp Investment Advisors, Inc. ("KIA") reported the beneficial ownership of 2,630,700 shares of Company Common Stock and stated that such shares are held in a fiduciary or representative capacity by KIA. KIA reports that it has sole voting power as to 647,500 shares. Sole dispositive power as to 500,000 shares and shared dispositive power is to 2,130,700 shares. LeRoy C. Kopp owns 100% of the outstanding stock of Kopp Holding Company, of which KIA is a wholly-owned subsidiary.

(2)

Based on its Schedule 13G/A dated February 14, 2001. According to its Schedule 13G, William Blair & Company, LLC reported beneficial ownership of 750,910 shares of the Company Common Stock. It has sole voting power as to 105,615 shares and sole dispositive power as to 750,910 shares.

(3)

Pursuant to its Schedule 13G dated February 9, 2001, AIM Management Group, Inc. ("AIM") reported beneficial ownership of 763,390 shares on behalf of itself and its wholly-owned

44

subsidiaries, AIM Advisors, Inc. and AIM Capital Management, Inc. The Schedule 13G states that AIM has sole voting and dispositive power over these shares.

(4)

The amounts shown include shares which may be acquired currently or within 60 days after January 31, 2001, through the exercise of stock options as follows: Mr. Blickenstaff, 127,576 shares; Dr. Valkirs, 117,921 shares; Dr. Buechler, 99,518 shares; Mr. Greene, 5,905 shares; Mr. Watlington, 166,737 shares; Mr. Twomey, 84,161 shares; Mr. Wollaeger, 5,905 shares; Mr. Smith, 12,009 shares; Dr. DeMaria, 12,335 shares; and Mr. Patrick, 0 shares.

(5)

Includes 316,271 shares held of record by the Valkirs Family Trust as to which Dr. Valkirs has shared voting and investment power and 785 shares held by a family member as to which Dr. Valkirs has shared voting and investment power.

(6)

Includes 332,231 shares held in a trust for the benefit of Dr. Buechler's family as to which Dr. Buechler has shared voting and investment power.

(7)

Includes 298,319 shares held in a trust for the benefit of Mr. Greene's family as to which Mr. Greene has shared voting and investment power.

(8)

Includes 300 shares held in trust for the benefit of Mr. Watlington's niece over which Mr. Watlington has voting and investment power.

(9)

Includes 740 shares held by a family member as to which Mr. Twomey has shared voting and investment power.

(10)

Includes 91,659 shares held in trust for the benefit of Mr. Wollaeger's family as to which Mr. Wollaeger has shared voting and investment power.

(11)

Includes 59,679 shares held in trust for the benefit of Mr. Patrick's family as to which Mr. Patrick has shared voting and investment power. Mr. Patrick's employment with Biosite Diagnostics ended as of June 1, 2000.

(12)

Includes as outstanding an aggregate of 747,970 shares which may be acquired currently or within 60 days after January 31, 2001 pursuant to the exercise of options. Also includes 1,040,305 shares held by family trusts for the benefit of family members of directors and executive officers as to which such directors and executive officers have voting and investment power.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information required by this item is incorporated by reference from the information in the section entitled "Certain Relationship and Related Transactions" in the Proxy Statement.

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PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)

(1) Financial Statements

    Our financial statements are included herein as required under Item 8 of this annual report on Form 10-K. See Index on page F-l.

    (2) Financial Statement Schedules

    Schedule II Valuation and Qualifying Accounts

    The other financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.

    (3) Exhibits

    The exhibits listed below are required by Item 601 of Regulation S-K. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K has been identified.

46

¹

Incorporated by reference to Exhibit 3.(i)3 to Biosite's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.

²

Incorporated by reference to the exhibits of the same number to Biosite's Registration Statement on Form S-1, No. 333-17657.

³

Incorporated by reference to Exhibit 16.23 to Biosite's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.

⁴

Incorporated by reference to Exhibit 4.1 to Biosite's Registration Statement of Form 8-A, filed on October 28, 1997

⁵

Incorporated by reference to Exhibit A to Biosite's Definitive Proxy Statement dated April 28, 1999 and filed with the Securities and Exchange Commission

⁶

Incorporated by reference to Exhibit 10.2 to Biosite's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998

⁷

Incorporated by reference to Exhibit 10.25 to Biosite's Annual Report on Form 10-K for the year ended December 31, 1997

⁸

Incorporated by reference to Exhibit 10.28 to Biosite's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998

⁹

Incorporated by reference to the Exhibit of the same number to Biosite's Annual Report on Form 10-K for the fiscal year ended 1999.

(A)

Indicates management contract or compensatory plan or arrangement.

(+)

Confidential treatment has been granted for certain portions of these exhibits.

(*)

Confidential treatment has been requested for certain portions of this exhibit.

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BIOSITE DIAGNOSTICS INCORPORATED
SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Biosite has duly caused this report to be signed on its behalf of the undersigned, thereunto duly authorized.

    Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the date indicated. Name Title Date

48

INDEX TO FINANCIAL STATEMENTS

F-1

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Biosite Diagnostics Incorporated

    We have audited the accompanying balance sheets of Biosite Diagnostics Incorporated as of December 31, 2000 and 1999, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

    In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Biosite Diagnostics Incorporated at December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

ERNST & YOUNG LLP

San Diego, California
January 19, 2001

F-2

BIOSITE DIAGNOSTICS INCORPORATED

BALANCE SHEETS
(in thousands except par value)

See accompanying notes.

F-3

BIOSITE DIAGNOSTICS INCORPORATED

STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

See accompanying notes.

F-4

BIOSITE DIAGNOSTICS INCORPORATED

STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)