DIANON Systems, Inc. Reports Third Quarter Earnings and Sales.

STRATFORD, Conn.--(BUSINESS WIRE)--Oct. 27, 1997--DIANON Systems, Inc. (NASDAQ:DIAN) today reported that sales for the third quarter ended September 30, 1997 were $14.5 million, a 5% increase over the third quarter of 1996. Net income was $820,000, up $163,000 or 25% from the third quarter of 1996. Earnings per share were $0.12 during the third quarter of 1997 compared to $0.10 per share in the third quarter of 1996, an increase of 20%.

Sales for the first nine months of 1997 were $46.2 million, up 16% over the first nine months of 1996. Net income was $2,269,000, up $810,000 or 56% from the same period in 1996. Earnings per share were $0.33 during the first nine months of 1997 compared to $0.23 during the first nine months of 1996, an increase of 43%. -0-

                                                  NINE MONTHS
                        THIRD QUARTER             YEAR-TO-DATE
                        1997      1996   %       1997      1996    %
                       (000)     (000)          (000)     (000)

Net Sales            $14,512   $13,863   5%   $46,170   $39,957   16%

Gross Profit           6,891     7,064  (2)%   22,794    20,537   11%
  % of Sales              47%       51%            49%       51%

Income from
 Operations            1,285     1,119          3,621     2,342
Net Interest Income      154        33            359       217
Pre-Tax Income         1,439     1,152          3,980     2,559
Provision for Taxes      619       495          1,711     1,100
Net Income               820       657  25%     2,269     1,459   56%

Weighted Average Common
 Shares Outstanding    6,836     6,295          6,844     6,299

Primary and Fully
 Diluted Earnings Per
 Share                 $0.12     $0.10  20%     $0.33     $0.23   43%

-0-

Kevin Johnson, President and CEO, said, "Third quarter earnings per share of $0.12 were on target. We remain optimistic concerning our ability to meet previously forecasted full year earnings per share of $0.40-$0.45 in 1997. This represents an approximate 20 to 30% increase in earnings per share over 1996. Although we are encouraged by our earnings performance, we are disappointed that sales growth has slowed, driven primarily by reimbursement declines in our traditional clinical chemistry and esoteric testing business. Such reimbursement pressures validate our strategic shift to anatomic pathology.

"Growth over the past six quarters has allowed DIANON to reach critical mass in anatomic pathology. We are particularly pleased by the growth of new pathology services introduced at the time of our strategic shift into full service anatomic pathology. These services, accounting for less than $1 mm of revenues in 1995, will account for over $15 mm in 1997. Looking forward, we expect total anatomic pathology revenues to continue annualized growth in the 20% range, supporting our ability to deliver earnings per share growth which could be in excess of 20-30% in 1998."

David Schreiber, DIANON's CFO, added, "During the past four months, the Company has experienced denials by its Medicare carrier for certain tests and associated ICD-9 codes which has and will reduce revenue growth in 1997, but these denials are not expected to prevent us from achieving our earnings per share goals."

Mr. Johnson continued, "To bolster our position in one of our fastest growing customer segments, Gastroenterology, DIANON is the second laboratory and first national specialty company to sign a licensed site agreement with MERETEK to perform MERETEK UBT(TM) Breath Test for H. pylori, a common bacterium believed to infect the stomach of 35% of American adults. H. pylori has been identified as a major factor in the cause of peptic ulcer disease and has been associated with gastric cancer. This breakthrough technology is the only non-invasive, non-radioactive means of detecting active H. pylori infection.

"Additionally, DIANON has received notice of allowance on two patents for PSA II(TM), an important adjunctive test to PSA in discriminating between benign prostate disease and prostate cancer and may provide earlier warning of prostate cancer.

"The consolidation of health care providers in general, and the specialty physicians we service specifically, plays to DIANON's strength as a nationwide pathology provider offering uniform and consistent diagnostic information and disease management services both regionally and nationally. Health plans, physician practice management companies, physician networks, and other consolidating groups seeking integrated solutions continue to be key business opportunities for our Company. We remain very optimistic about our growth potential in anatomic pathology going forward."

The Company anticipates that it will continue to repurchase shares under its previously authorized share buyback program.

The forward-looking statements in this news release relating to management's expectations and beliefs are based on preliminary information and management assumptions. Such forward looking statements are subject to a wide range of risks and uncertainties that could cause results to differ in material respects, including those relating to reimbursement rates and coverage, state and national regulatory compliance, the Company's maintenance of above average quality of its services and products and competitive pressures. Further information regarding factors that could affect the Company's results is included in the Company's SEC filings, including this years Form 10-K.

DIANON Systems, Inc. provides a full line of anatomic pathology testing services and a number of specialized clinical chemistry testing services to patients, physicians and managed care organizations in the United States.

DIANON Systems Annual Meeting will be held at the Company's offices in Stratford, Connecticut on October 30, 1997 at 10:00 a.m.

CONTACT: DIANON Systems, Inc.

Kevin C. Johnson

President and CEO

203/381-4905

or

David R. Schreiber

Chief Financial Officer

203/381-4055