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

- Company Posts Non-GAAP EPS of $0.57, 19% Higher than in the Prior Year Period, and GAAP EPS of $0.56 -

- Total Revenues Increase 8% Versus Prior Year Period, to $132.6 Million, Driven by Blood Screening, Women's Health and Prodesse Products -

- Strong Cash Generation Continues, with $36.5 Million of Free Cash Flow in Quarter -

Oct 28, 2010, 16:01 ET from Gen-Probe Incorporated

SAN DIEGO, Oct. 28 /PRNewswire-FirstCall/ -- Gen-Probe Incorporated (Nasdaq: GPRO) today reported financial results for the third quarter of 2010, highlighted by 19% growth in non-GAAP earnings per share (EPS) and 8% growth in product sales and total revenues.

"Gen-Probe's third quarter financial results demonstrate our ability to generate solid top- and bottom-line growth in the face of challenging business conditions," said Carl Hull, the Company's president and chief executive officer.  "In addition, the major R&D initiatives that we expect to reinvigorate product sales growth remain on track, with four US regulatory filings already complete this year and our APTIMA® HPV submission anticipated in the next month."

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



Non-GAAP


GAAP


2010

2009

Change


2010

2009

Change

Product sales

$128.3

$119.0

+8%


$128.3

$119.0

+8%

Total revenues

$132.6

$122.7

+8%


$132.6

$122.7

+8%

Operating profit

$38.4

$31.3

+23%


$35.4

$29.0

+22%

Net income

$28.1

$23.8

+18%


$27.4

$22.2

+23%

EPS

$0.57

$0.48

+19%


$0.56

$0.44

+27%




Revenue Detail

"Third quarter product sales were about one percent shy of our expectations from last quarter, as the cumulative effect of macroeconomic headwinds finally weighed on overall testing volumes," Hull said.  "At the same time, we continue to out-grow our domestic and international markets, and our competitive positions, market shares and pricing are solid."

Clinical diagnostics sales growth in the third quarter of 2010 was driven by the APTIMA Combo 2® assay for detecting Chlamydia and gonorrhea, and by 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 $0.5 million, or less than 1%.  

Blood screening sales grew solidly based on:

  • Increased sales of the PROCLEIX® ULTRIO® assay.
  • 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.

Compared to the prior year period, foreign exchange fluctuations reduced blood screening sales by an estimated $1.0 million, or 2%.  

Sales of research products and services in the third quarter of 2010 declined mainly due to the divestiture of the BioKits food testing business late in 2009, and foreign exchange fluctuations.

Third quarter product sales were ($ in millions):



Three Months Ended Sept. 30,


Change


2010

2009


As
Reported

Constant
Currency  

Clinical Diagnostics

$74.9

$69.6


+8%

+8%

Blood Screening

$50.3

$45.4


+11%

+13%

Research Products and Services

$3.1

$3.9


-21%

-16%

Total Product Sales

$128.3

$119.0


+8%

+9%




Collaborative research revenues in the third quarter of 2010 were $3.4 million, compared to $2.0 million in the prior year period, an increase of 70% 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 third quarter of 2010 were $0.8 million, compared to $1.8 million in the prior year period, a decrease of 56%.  This decrease resulted primarily from lower royalties received from Novartis.

Expense Detail

Gross margin on product sales in the third quarter of 2010 was 67.2% on a non-GAAP basis, compared to 69.5% 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, and from lower margins in the blood screening and acquired Tepnel businesses that were caused in part by unfavorable foreign exchange rates.  On a GAAP basis, including $0.1 million of acquisition-related depreciation expense, gross margin on product sales was 67.2% in the third quarter of 2010, compared to 69.4% in the prior year period.

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

Research and development (R&D) expenses in the third quarter of 2010 were $27.4 million, similar to $27.5 million in the prior year period.

Marketing and sales expenses in the third quarter of 2010 were $13.9 million, compared to $13.5 million in the prior year period, an increase of 3% that resulted primarily from European sales force expansion and market development efforts.

General and administrative (G&A) expenses in the third quarter of 2010 were $10.8 million on a non-GAAP basis, compared to $14.2 million in the prior year period, a decrease of 24%.  This decrease resulted primarily from the receipt of a $2.9 million arbitration award from Qiagen, which covered attorneys' fees and costs related to the companies' HPV dispute.  On a GAAP basis, including transaction-related costs, G&A expenses were $11.5 million in the third quarter of 2010, compared to $15.2 million in the prior year period, a decrease of 24%.

Total other income in the third quarter of 2010 was $2.9 million on a non-GAAP basis, compared to $4.3 million in the prior year period, a decrease of 33% that 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, the acquisition of Prodesse, and the investment in Pacific Biosciences.  On a GAAP basis, including a $1.5 million non-cash gain on a change in the fair value of contingent consideration, total other income was $4.4 million in the third quarter of 2010.

Income tax expense in the third quarter of 2010 was $13.2 million on a non-GAAP basis, corresponding to a tax rate of 32%.  Income tax expense benefited from an expired statute of limitations for past tax returns and a true-up related to the prior year returns.  On a GAAP basis, including adjustments to contingent consideration that largely are not taxable, income tax expense was $12.4 million in the third quarter of 2010, corresponding to a tax rate of 31%.

In the third quarter of 2010, Gen-Probe generated net cash of $44.0 million from operating activities, and spent $7.5 million on property, plant and equipment, leading to free cash flow of $36.5 million.  The Company repurchased approximately 776,300 shares of its stock in the third quarter for $35.8 million.

Gen-Probe continues to have a strong balance sheet.  As of September 30, 2010, the Company had $467.5 million of cash, cash equivalents and marketable securities, and $240.2 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 has been below 0.3%.  

Updated 2010 Financial Guidance



Current

Guidance

(non-GAAP)

Previous

Guidance

(non-GAAP)

Current

Guidance

(GAAP)

Previous

Guidance

(GAAP)

Total revenues

$541 to $546 million

$545 to $562 million

$541 to $546 million

$545 to $562 million

Product gross margins

~ 67.5%

~ 68%

~ 67.5%

~ 68%

Acquisition-related amortization and other transaction expense

N/A

N/A

$10.5 to $11.0 million

$10.5 to $11.5 million

Fair value adjustment of acquisition-related contingent consideration

N/A

N/A

$7.5 million

$5.5 million

Operating margin

~ 27%

27% to 28%

~ 25%

25% to 26%

Tax rate

~ 33%

~ 34%

~ 32%

~ 35%

Diluted shares

~ 49 million

~ 49 million

~ 49 million

~ 49 million

EPS

$2.12 to $2.15

$2.12 to $2.25

$2.11 to $2.14

$2.07 to $2.20




Notes on Presentation

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 changed to conform to the current year presentation under ASC 260.  Estimates of "constant currency" growth exclude currency fluctuations associated with revenue from Prodesse, which was not part of Gen-Probe in the third quarter of 2009.

About Non-GAAP Financial Measures

To supplement Gen-Probe's financial results for the third 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.

Webcast Conference Call

A live webcast of Gen-Probe's third 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 866-419-2889 for domestic callers and 203-369-0767 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.

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.

Contact:


Michael Watts

Vice president, investor relations and corporate communications

858-410-8673



Gen-Probe Incorporated

Consolidated Balance Sheets - GAAP

(In thousands, except share and per share data)







September 30,


December 31,


2010


2009






(unaudited)



Assets




Current assets:




Cash and cash equivalents, including restricted cash of $20 and $17 at September 30, 2010 and December 31, 2009, respectively

$  149,060


$  82,616





Marketable securities

273,503


402,990

Trade accounts receivable, net of allowance for doubtful accounts of $316 and $516 at September 30, 2010 and December 31, 2009, respectively

57,306


55,305

Accounts receivable — other

4,624


4,707

Inventories

60,826


61,071

Deferred income tax

15,615


13,959

Prepaid income tax


7,317

Prepaid expenses

11,667


14,526

Other current assets

4,036


4,708

Total current assets

576,637


647,199





Marketable securities, net of current portion

44,889


15,472

Property, plant and equipment, net

157,645


157,437

Capitalized software, net

12,690


12,560

Goodwill

122,500


122,680

Purchased intangibles, net

101,257


108,015

License, manufacturing access fees and other assets, net

112,686


64,822

Total assets

$1,128,304


$1,128,185





Liabilities and stockholders' equity




Current liabilities:




Accounts payable

$13,667


$20,455

Accrued salaries and employee benefits

20,845


24,775

Other accrued expenses

14,224


24,755

Income tax payable

2,167


Short-term borrowings

240,228


240,127

Deferred revenue

1,690


3,527

Total current liabilities

292,821


313,639





Non-current income tax payable

6,198


5,958

Deferred income tax

21,042


23,220

Deferred revenue, net of current portion

2,219


1,978

Other long-term liabilities

6,457


16,215





Commitments and contingencies




















Stockholders' equity:




Preferred stock, $0.0001 par value per share; 20,000,000 shares authorized, none issued and outstanding

-


-





Common stock, $0.0001 par value per share; 200,000,000 shares authorized, 48,086,123 and 49,143,798 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively

5


5

Additional paid-in capital

197,123


242,615

Accumulated other comprehensive income

2,801


4,616

Retained earnings

599,638


519,939

Total stockholders' equity

799,567


767,175

Total liabilities and stockholders' equity

$1,128,304


$1,128,185




Gen-Probe Incorporated

Consolidated Statements of Income - GAAP

(In thousands, except per share data)

(Unaudited)



Three Months Ended


Nine Months Ended


September 30,


September 30,


2010


2009


2010


2009

Revenues:








Product sales

$    128,313


$    118,951


$  391,616


$  348,289

Collaborative research revenue

3,405


2,000


10,810


5,862

Royalty and license revenue

847


1,753


4,207


5,281

Total revenues

132,565


122,704


406,633


359,432









Operating expenses:








Cost of product sales (excluding acquisition-related intangible amortization)

42,146


36,345


129,118


107,939









Acquisition-related intangible amortization

2,201


1,136


6,616


2,250

Research and development

27,433


27,475


84,218


78,542

Marketing and sales

13,872


13,477


44,476


38,547

General and administrative

11,510


15,234


41,208


46,903

Total operating expenses

97,162


93,667


305,636


274,181

Income from operations

35,403


29,037


100,997


85,251

Other income/(expense):








Investment and interest income

3,197


4,676


10,364


19,680

Interest expense

(586)


(588)


(1,681)


(1,465)

Gain on contingent consideration

1,513



7,595


Other income/(expense), net

267


210


(82)


(827)

Total other income, net

4,391


4,298


16,196


17,388

Income before income tax

39,794


33,335


117,193


102,639









Income tax expense

12,398


11,139


37,494


34,881

Net income

$     27,396


$     22,196


$  79,699


$  67,758









Net income per share:








Basic

$         0.57


$         0.45


$           1.63


$          1.33

Diluted

$         0.56


$         0.44


$           1.61


$          1.31









Weighted average shares outstanding:








Basic

48,254


49,343


48,796


50,848

Diluted

48,679


49,865


49,257


51,482




Gen-Probe Incorporated

Consolidated Statements of Income – Non-GAAP

(In thousands, except per share data)

(Unaudited)



Three Months Ended


Three Months Ended


September 30, 2010


September 30, 2009


Non-GAAP

Adjustments

GAAP


Non-GAAP

Adjustments

GAAP

Revenues:








Product sales

$   128,313

$               —

$   128,313


$   118,951

$               —

$   118,951

Collaborative research revenue

3,405

3,405


2,000

2,000

Royalty and license revenue

847

847


1,753

1,753

Total revenues

132,565

132,565


122,704

122,704









Operating expenses:








Cost of product sales (excluding acquisition-related intangible amortization)

42,057

89

42,146


36,252

93

36,345









Acquisition-related intangible amortization

2,201

2,201


1,136

1,136

Research and development

27,433

27,433


27,475

27,475

Marketing and sales

13,872

13,872


13,477

13,477

General and administrative

10,818

692

11,510


14,155

1,079

15,234

Total operating expenses

94,180

2,982

97,162


91,359

2,308

93,667

Income from operations

38,385

(2,982)

35,403


31,345

(2,308)

29,037

Other income/(expense):








Investment and interest income

3,197

3,197


4,676

4,676

Interest expense

(586)

(586)


(588)

(588)

Gain on contingent consideration

1,513

1,513



Other income, net

267

267


210

210

Total other income, net

2,878

1,513

4,391


4,298

4,298

Income before income tax

41,263

(1,469)

39,794


35,643

(2,308)

33,335









Income tax expense

13,189

(791)

12,398


11,864

(725)

11,139

Net income

$     28,074

$            (678)

$     27,396


$     23,779

$         (1,583)

$     22,196









Net income per share:








Basic

$         0.58

$           (0.01)

$         0.57


$         0.48

$           (0.03)

$         0.45

Diluted

$         0.57

$           (0.01)

$         0.56


$         0.48

$           (0.04)

$         0.44









Weighted average shares outstanding:








Basic

48,254

48,254


49,343

49,343

Diluted

48,679

48,679


49,865

49,865




Gen-Probe Incorporated

Consolidated Statements of Income – Non-GAAP

(In thousands, except per share data)

(Unaudited)



Nine Months Ended


Nine Months Ended


September 30, 2010


September 30, 2009


Non-GAAP

Adjustments

GAAP


Non-GAAP

Adjustments

GAAP

Revenues:








Product sales

$   391,616

$  —

$   391,616


$   348,289

$  —

$   348,289

Collaborative research revenue

10,810

10,810


5,862

5,862

Royalty and license revenue

4,207

4,207


5,281

5,281

Total revenues

406,633

406,633


359,432

359,432









Operating expenses:








Cost of product sales (excluding acquisition-related intangible amortization)

128,848

270

129,118


107,756

183

107,939









Acquisition-related intangible amortization

6,616

6,616


2,250

2,250

Research and development

84,218

84,218


78,542

78,542

Marketing and sales

44,476

44,476


38,547

38,547

General and administrative

39,820

1,388

41,208


41,018

5,885

46,903

Total operating expenses

297,362

8,274

305,636


265,863

8,318

274,181

Income from operations

109,271

(8,274)

100,997


93,569

(8,318)

85,251

Other income/(expense):








Investment and interest income

10,364

10,364


19,680

19,680

Interest expense

(1,681)

(1,681)


(1,465)

(1,465)

Gain on contingent consideration

7,595

7,595


Other expense, net

(82)

(82)


(827)

(827)

Total other income, net

8,601

7,595

16,196


17,388

17,388

Income before income tax

117,872

(679)

117,193


110,957

(8,318)

102,639









Income tax expense

39,866

(2,372)

37,494


36,934

(2,053)

34,881

Net income

$     78,006

$  1,693

$     79,699


$     74,023

$  (6,265)

$     67,758









Net income per share:








Basic

$         1.59

$  0.04

$         1.63


$         1.45

$   (0.12)

$         1.33

Diluted

$         1.58

$  0.03

$         1.61


$         1.43

$  (0.12)

$         1.31









Weighted average shares outstanding:








Basic

48,796

48,796


50,848

50,848

Diluted

49,257

49,257


51,482

51,482




Gen-Probe Incorporated

Consolidated Statements of Cash Flows - GAAP

(In thousands)

(Unaudited)



Nine Months Ended


September 30,


2010


2009

Operating activities:




Net income

$     79,699


$     67,758

Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization

34,111


29,468

Amortization of premiums on investments, net of accretion of discounts

6,819


4,050

Stock-based compensation

18,538


17,743

Excess tax benefit from employee stock-based compensation

(891)


(1,186)

Deferred revenue

(1,528)


(249)

Deferred income tax

(3,708)


(1,318)

Gain on contingent consideration

(7,595)


Loss on disposal of property and equipment

603


82

Changes in assets and liabilities:




Trade and other accounts receivable

(2,127)


(4,379)

Inventories

204


2,325

Prepaid expenses

2,861


(1,675)

Other current assets

877


2,156

Goodwill


856

Other long-term assets

(353)


(3,608)

Accounts payable

(6,177)


(2,985)

Accrued salaries and employee benefits

(3,884)


1

Other accrued expenses

(2,230)


1,672

Income tax payable

10,863


(4,718)

Other long-term liabilities

(268)


733

Net cash provided by operating activities

125,814


106,726





Investing activities:




Proceeds from sales and maturities of marketable securities

404,350


410,700

Purchases of marketable securities

(311,450)


(338,976)

Proceeds from sale of property, plant and equipment

23


Purchases of property, plant and equipment

(22,090)


(22,284)

Purchase of capitalized software

(2,081)


(576)

Purchases of intangible assets, including licenses and manufacturing access fees

(1,639)


(918)

Net cash paid for business combinations


(123,713)

Cash paid for investment in Pacific Biosciences

(50,000)


Cash paid for investment in DiagnoCure and related license fees

(500)


(5,500)

Other

(1,007)


(175)

Net cash provided by (used in) investing activities

15,606


(81,442)





Financing activities:




Repurchase and retirement of common stock

(88,079)


(174,847)

Proceeds from issuance of common stock and employee stock purchase plan

24,699


5,961

Payment of contingent consideration

(10,000)


Repurchase and retirement of restricted stock for payment of taxes

(1,252)


(923)

Excess tax benefit from employee stock-based compensation

891


1,186

Borrowings, net


238,450

Net cash (used in) provided by financing activities

(73,741)


69,827

Effect of exchange rate changes on cash and cash equivalents

(1,235)


1,506

Net increase in cash and cash equivalents

66,444


96,617

Cash and cash equivalents at the beginning of period

82,616


60,122

Cash and cash equivalents at the end of period

$    149,060


$    156,739




SOURCE Gen-Probe Incorporated



RELATED LINKS

http://www.gen-probe.com