Gen-Probe Reports Financial Results for the Second Quarter of 2010

SAN DIEGO, July 29 /PRNewswire-FirstCall/ -- Gen-Probe Incorporated (Nasdaq: GPRO) today reported financial results for the second quarter of 2010, highlighted by 14% growth in product sales, 15% growth in total revenues, and 16% growth in non-GAAP earnings per share (EPS).  

"Gen-Probe's second quarter financial results demonstrate our ability to drive growth and execute on our financial goals in a challenging business environment," said Carl Hull, the Company's president and chief executive officer.  "At the same time, we made important progress on four US regulatory filings and three European product launches that we expect to create an important new product cycle over the balance of this year and into 2011."

Key financial results for the second quarter of 2010 were ($ in millions, except EPS):

Revenue Detail

Clinical diagnostics sales growth in the second quarter of 2010 was driven by the APTIMA Combo 2® assay for detecting Chlamydia and gonorrhea, and Prodesse products, which were not part of Gen-Probe in the prior year period.  Compared to the prior year period, foreign exchange fluctuations reduced clinical diagnostics sales by an estimated $0.1 million, or less than 1%.

In the second quarter, blood screening sales increased based on:

• Higher shipments of PROCLEIX® ULTRIO® and West Nile virus assays, especially in comparison to lower-than-average ordering in the prior year period.
• Increased sales of TIGRIS® instruments to Novartis, the Company's blood screening collaboration partner.
• The contractual increase in the share of revenues Gen-Probe receives under its collaboration with Novartis.
• Foreign exchange fluctuations, which added an estimated $0.5 million, or 1%, to blood screening sales.

Sales of research products and services in the second quarter of 2010 were $3.2 million, compared to $3.6 million in the prior year period, a decrease of 11% that resulted mainly from the divestiture of the BioKits food testing business late in 2009, and foreign exchange fluctuations.

Second quarter product sales were ($ in millions):

Collaborative research revenues in the second quarter of 2010 were $4.1 million, compared to $2.2 million in the prior year period, an increase of 86% that resulted primarily from increased funding from Novartis associated with the development of the fully automated PANTHER™ instrument for the blood screening market.

Royalty and license revenues in the second quarter of 2010 were $1.8 million, compared to $1.5 million in the prior year period, an increase of 20%.  

Expense Detail

Gross margin on product sales in the second quarter of 2010 was 66.7% on a non-GAAP basis, compared to 67.3% in the prior year period.  This decrease resulted mainly from increased sales of low-margin instruments, which are generally a precursor to future assay sales.  On a GAAP basis, including $0.1 million of acquisition-related depreciation expense, gross margin on product sales was 66.6% in the second quarter of 2010, compared to 67.2% in the prior year period.

On a GAAP basis, acquisition-related amortization expenses were $2.2 million in the second quarter of 2010, compared to $1.1 million in the prior year period, an increase of 100% that resulted primarily from the October 2009 acquisition of Prodesse and its related intangible assets.

Research and development (R&D) expenses in the second quarter of 2010 were $27.1 million, compared to $26.1 million in the prior year period, an increase of 4% that resulted primarily from expenses associated with the Company's development programs for its PANTHER instrument and PCA3 and trichomonas assays, and from the addition of Prodesse's R&D activities.  

Marketing and sales expenses in the second quarter of 2010 were $15.8 million, compared to $14.0 million in the prior year period, an increase of 13% that resulted primarily from European sales force expansion and market development efforts.  

General and administrative (G&A) expenses in the second quarter of 2010 were $14.3 million on a non-GAAP basis, compared to $14.6 million in the prior year period, a decrease of 2% that resulted primarily from cost-containment efforts.  On a GAAP basis, including transaction-related costs, G&A expenses were $15.0 million in the second quarter of 2010, compared to $17.8 million in the prior year period, a decrease of 16% that resulted mainly from fees associated with the acquisition of Tepnel in the prior year period.

Total other income in the second quarter of 2010 was $2.5 million on a non-GAAP basis, compared to $8.5 million in the prior year period.  This significant decrease resulted primarily from lower realized gains from the sale of marketable securities, lower yields on the Company's municipal bond portfolio, and lower investment balances due to share repurchases and the acquisition of Prodesse.  On a GAAP basis, including a $4.3 million non-cash gain on a change in the fair value of potential contingent payments, total other income was $6.9 million in the second quarter of 2010.

In the second quarter of 2010, Gen-Probe generated net cash of $41.1 million from operating activities, and spent $6.7 million on property, plant and equipment in the quarter, leading to free cash flow of $34.4 million.  The Company repurchased approximately 910,500 shares of its stock in the second quarter for $41.3 million.

Gen-Probe continues to have a strong balance sheet.  As of June 30, 2010, the Company had $474.8 million of cash, cash equivalents and marketable securities, and $240.8 million of short-term debt.  The Company pays interest on substantially all this debt at a rate 0.6% above the one-month London Interbank Offered Rate (LIBOR), which was recently below 0.4%.  

Webcast Conference Call

A live webcast of Gen-Probe's second quarter 2010 conference call for investors can be accessed at http://www.gen-probe.com beginning at 4:30 p.m. Eastern Time today.  The webcast will be archived for at least 90 days. A telephone replay of the call also will be available for approximately 24 hours.  The replay number is 866-457-5716 for domestic callers and 203-369-1294 for international callers.  

About Gen-Probe

Gen-Probe Incorporated is a global leader in the development, manufacture and marketing of rapid, accurate and cost-effective molecular diagnostic products and services that are used primarily to diagnose human diseases, screen donated human blood, and ensure transplant compatibility.  Gen-Probe has approximately 27 years of expertise in nucleic acid testing (NAT), and received the 2004 National Medal of Technology, America's highest honor for technological innovation, for developing NAT assays for blood screening. Gen-Probe is headquartered in San Diego and employs approximately 1,300 people. For more information, go to www.gen-probe.com.

About Non-GAAP Financial Measures

To supplement Gen-Probe's financial results for the second quarter of 2010 and its updated 2010 financial guidance, in each case presented in accordance with GAAP, Gen-Probe uses the following financial measures defined as non-GAAP by the SEC: non-GAAP net income, non-GAAP gross margin, non-GAAP marketing and sales expenses, non-GAAP G&A expenses, non-GAAP operating margin, non-GAAP income tax rate, and non-GAAP EPS.  Gen-Probe's management does not, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared and presented in accordance with GAAP.  Gen-Probe's management believes that these non-GAAP financial measures provide meaningful supplemental information regarding the Company's performance by excluding certain expenses and adjustments that may not be indicative of core business results.  Gen-Probe believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing Gen-Probe's performance and when planning, forecasting and analyzing future periods.  These non-GAAP financial measures also facilitate management's internal comparisons to Gen-Probe's historical performance and our competitors' operating results.  Gen-Probe believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making.  Further, our reconciliations of non-GAAP to GAAP operating results, which are included on the attached tables, are presented in the format of consolidated statements of income solely to assist a reader in understanding the impact of the various adjustments to our GAAP operating results, individually and in the aggregate, and are not intended to place any undue prominence on our non-GAAP operating results.

Trademarks

APTIMA, APTIMA COMBO 2, TIGRIS and PANTHER are trademarks of Gen-Probe.  All other trademarks are the property of their owners.

Caution Regarding Forward-Looking Statements

Any statements in this news release about our expectations, beliefs, plans, objectives, assumptions or future events or performance, including those under the heading "Updated 2010 Financial Guidance," are not historical facts and are forward-looking statements.  These statements are often, but not always, made through the use of words or phrases such as believe, will, expect, anticipate, estimate, intend, plan and would.  For example, statements concerning Gen-Probe's financial condition, possible or expected results of operations, regulatory approvals, future milestones, growth opportunities, and plans of management are all forward-looking statements.  Forward-looking statements are not guarantees of performance.  They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from those expressed or implied.  Some of these risks, uncertainties and assumptions include but are not limited to: (i) the risk that we may not achieve our expected 2010 financial targets, (ii) the risk that we may not integrate acquisitions, such as Tepnel and Prodesse, successfully, (iii) the possibility that the market for the sale of our new products, such as our PANTHER instrument system and PROGENSA PCA3, APTIMA HPV and APTIMA trichomonas assays, may not develop as expected, (iv) the enhancement of existing products and the development of new products may not proceed as planned, (v) the risk that investigational products, including those now in US clinical trials, may not be approved by regulatory authorities or become commercially available in the time frame we anticipate, or at all, (vi) the risk that we may not be able to compete effectively, (vii) the risk that we may not be able to maintain our current corporate collaborations and enter into new corporate collaborations or customer contracts, (viii) our dependence on Novartis and other third parties for the distribution of some of our products, (ix) our dependence on a small number of customers, contract manufacturers and single source suppliers of raw materials, (x) changes in third-party reimbursement policies regarding our products could adversely affect sales, (xi) changes in government regulation or tax policy affecting our diagnostic products could harm our sales, increase our development costs or increase our taxes, (xii) the risk that our intellectual property may be infringed by third parties or invalidated, and (xiii) our involvement in patent and other intellectual property and commercial litigation could be expensive and could divert management's attention.  This list includes some, but not all, of the factors that could affect our ability to achieve results described in any forward-looking statements.  For additional information about risks and uncertainties we face and a discussion of our financial statements and footnotes, see documents we file with the SEC, including our most recent annual report on Form 10-K and all subsequent periodic reports.  We assume no obligation and expressly disclaim any duty to update forward-looking statements to reflect events or circumstances after the date of this news release or to reflect the occurrence of subsequent events.

(1) In this press release, all per share amounts are calculated on a fully diluted basis.  Some totals may not foot due to rounding.  Certain prior year amounts have been reclassified to conform to the current year presentation.

(2) Non-GAAP EPS for the second quarter of 2010 excludes $3.0 million of transaction-related operating expense, and a $4.3 million gain on contingent consideration associated with the Prodesse acquisition.

(3) Cash from operations less purchases of property, plant and equipment.

(4) In the prior year period, net income benefited from $10.1 million of investment and interest income, compared to $3.3 million in the second quarter of 2010.

(5) In this press release, estimates of "constant currency" growth exclude currency fluctuations associated with revenues from Prodesse, which was not part of Gen-Probe in the second quarter of 2009.

SOURCE Gen-Probe Incorporated