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Gen-Probe Reports Strong Financial Results for Third Quarter 2007, Raises Full-Year Guidance for Earnings Per Share and Total Revenues
Date:10/30/2007

- Company Establishes New Quarterly Records for Product Sales ($97.4 Million, Up 17% Versus Prior Year) and Total Revenues ($101.7 Million, Up

10%) -

- Company Reports EPS of $0.31, 11% Higher than Prior Year - - Company Expects Full-Year EPS of $1.50 to $1.52, Revenues of $400 to $402

Million -

SAN DIEGO, Oct. 30 /PRNewswire-FirstCall/ -- Gen-Probe Incorporated (Nasdaq: GPRO) today reported strong financial results for the third quarter of 2007 and raised its full-year guidance for earnings per share (EPS) and total revenues.

"Gen-Probe posted very good financial results in the third quarter of 2007, as both our clinical diagnostics and blood screening businesses again established new sales records," said Henry L. Nordhoff, the Company's chairman, president and chief executive officer.

In the third quarter of 2007, net income was $17.3 million, compared to $14.8 million in the prior year period, an increase of 17%. EPS in the third quarter of 2007 were $0.31, compared to $0.28 in the prior year period, an increase of 11%. In this press release, all per share amounts are calculated on a fully diluted basis, and all results are presented on a GAAP basis.

Product sales in the third quarter of 2007 were $97.4 million, compared to $83.5 million in the prior year period, an increase of 17%. Total revenues for the third quarter of 2007 were $101.7 million, compared to $92.2 million in the prior year period, an increase of 10%.

For the first nine months of 2007, net income was $65.7 million, compared to $42.4 million in the prior year period, an increase of 55%. EPS in the first nine months of 2007 were $1.21, coed income tax - long term 2,064 2,064

License, manufacturing access fees and

other assets 58,947 59,416

Total assets $761,239 $623,839

Liabilities and stockholders' equity

Current liabilities:

Accounts payable $14,696 $13,586

Accrued salaries and employee benefits 23,055 16,723

Other accrued expenses 8,683 3,320

Income tax payable 732 14,075

Deferred income tax - short term 103 -

Deferred revenue 1,623 921

Total current liabilities 48,892 48,625

Non-current income tax payable 4,766 -

Deferred income tax - long term 360 -

Deferred revenue 3,167 3,667

Deferred rent 40 128

Deferred compensation plan liabilities 1,755 1,211

Commitments and contingencies

Stockholders' equity:

Preferred stock, $.0001 par value per share,

20,000,000 shares authorized,

none issued and outstanding - -

Common stock, $.0001 par value per share;

200,000,000 shares authorized, 53,718,400

and 52,233,656 shares issued and

outstanding at September 30, 2007 and

December 31, 2006, respectively 5 5

Additional paid-in capital 400,883 334,184

Accumulated other comprehensive income (loss) 581 (5)

Retained earnings 300,790 236,024

Total stockholders' equity 702,259 570,208

Total liabilities and stockholders' equity $761,239 $623,839

Gen-Probe Incorporated

Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

Three Months Ended Nine Months Ended

September 30, September 30,

2007 2006 2007 2006

Revenues:

Product sales $97,402 $83,470 $278,451 $239,811

Collaborative research

revenue 3,118 1,470 11,239 14,743

Royalty and license revenue 1,213 7,287 14,375 9,151

Total revenues 101,733 92,227 304,065 263,705

Operating expenses:

Cost of product sales 31,810 24,298 91,148 76,207

Research and development 27,582 24,178 72,813 63,833

Marketing and sales 9,651 9,526 28,580 27,533

General and administrative 11,380 12,748 34,742 34,104

Total operating expenses 80,423 70,750 227,283 201,677

Income from operations 21,310 21,477 76,782 62,028

Total other income, net 3,333 1,921 8,610 5,081

Income before income tax 24,643 23,398 85,392 67,109

Income tax expense 7,392 8,587 19,664 24,745

Net income $17,251 $14,811 $65,728 $42,364

Net income per share:

Basic $0.32 $0.29 $1.25 $0.82

Diluted $0.31 $0.28 $1.21 $0.80

Weighted average shares

outstanding:

Basic 53,221 51,638 52,661 51,407

Diluted 54,857 53,180 54,210 53,001

Gen-Probe Incorporated

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Nine Months Ended

September 30,

2007 2006

Operating activities:

Net income $65,728 $42,364

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation and amortization 25,518 19,752

Stock-based compensation charges 14,487 17,755

Stock option income tax benefits 2,031 111

Excess tax benefit from employee stock options (13,055) (8,232)

Loss on disposal of property and equipment 202 4

Changes in assets and liabilities:

Accounts receivable (15,861) 7,550

Inventories 2,660 (5,338)

Prepaid expenses (6,538) (682)

Other current assets (2,756) 507

Other long term assets (930) (1,305)

Accounts payable 1,116 (3,103)

Accrued salaries and employee benefits 6,328 2,821

Other accrued expenses 5,343 624

Income tax payable (14,544) 2,037

Deferred revenue 202 (3,975)

Deferred income tax 794 645

Deferred rent (88) (87)

Deferred compensation plan liabilities 544 593

Net cash provided by operating activities 71,181 72,041

Investing activities:

Proceeds from sales and maturities of short-term

investments 57,391 83,641

Purchases of short-term investments (182,449) (104,163)

Purchases of property, plant and equipment (17,674) (40,126)

Capitalization of intangible assets, including

license and manufacturing access fees (2,127) (2,245)

Cash paid for investment in Qualigen - (6,993)

Other assets (334) (223)

Net cash used in investing activities (145,193) (70,109)

Financing activities:

Repurchase and retirement of restricted stock for

payment of taxes (1,020) -

Excess tax benefit from employee stock options 13,055 8,232

Proceeds from issuance of common stock 40,677 19,089

Net cash provided by financing activities 52,712 27,321

Effect of exchange rate changes on cash and cash

equivalents 283 485

Net (decrease)/increase in cash and cash

equivalents (21,017) 29,738

Cash and cash equivalents at the beginning of

period 87,905 32,328

Cash and cash equivalents at the end of period $66,888 $62,066

mpared to $0.80 in the prior year period, an increase of 51%. Product sales for the first nine months of 2007 were $278.5 million, compared to $239.8 million in the prior year period, an increase of 16%. Total revenues for the first nine months of 2007 were $304.1 million, compared to $263.7 million in the prior year period, an increase of 15%.

Gen-Probe's net income and EPS in the third quarter of 2007 benefited from a reduction in income tax expense of approximately $0.9 million ($0.02 per share) associated with the completion of the Company's 2006 federal tax return. In addition, the Company's net income and EPS for the first nine months of 2007 benefited from a reduction in income tax expense of approximately $8.7 million ($0.16 per share), which was recorded in the second quarter. As previously disclosed, this benefit resulted from the completion in April of an Internal Revenue Service audit of the Company's 2003 and 2004 federal income tax returns. Based on the results of this audit, the Company released reserves primarily associated with federal research and development tax credits generated from 1999 to 2004.

Detailed Results

Gen-Probe's clinical diagnostics sales in the third quarter of 2007 were again led by the APTIMA Combo 2(R) assay, an amplified nucleic acid test (NAT) for simultaneously detecting Chlamydia trachomatis (CT) and Neisseria gonorrhoeae (GC). Sales of this assay continued to grow strongly, driven by market share gains on both the Company's semi-automated instrument platform and on the high-throughput, fully automated TIGRIS(R) system. Clinical diagnostics sales in the third quarter also benefited from increased sales of instrumentation to current and new customers. Revenue from the PACE(R) product line, the Company's non-amplified tests for Chlamydia and gonorrhea, declined in the third quarter compared to the prior year period, in line with Gen-Probe's expectations.

In blood screening, product sales in the third quarter of 2007 benefited from continued international expansion, and from higher pricing associated with U.S. commercial sales of the PROCLEIX(R) WNV (West Nile virus) assay on the TIGRIS system. Gen-Probe's blood screening products are marketed worldwide by Chiron, a business unit of Novartis Vaccines and Diagnostics. Gen-Probe's blood screening sales in the third quarter of 2007 also benefited from favorable assay ordering patterns, primarily associated with the Company's WNV assay, and from increased sales of TIGRIS instruments to Novartis.

Product sales were, in millions:

Three Months Ended Sept. 30, Nine Months Ended Sept. 30,

2007 2006 Increase 2007 2006 Increase

Clinical

diagnostics $51.8 $43.3 20 % $149.5 $125.8 19 %

Blood screening $45.6 $40.2 13 % $129.0 $114.0 13 %

Total product

sales $97.4 $83.5 17 % $278.5 $239.8 16 %

Collaborative research revenues in the third quarter of 2007 were $3.1 million, compared to $1.5 million in the prior year period, an increase of 107% that resulted primarily from higher reimbursement from Novartis of shared expenses in the companies' blood screening collaboration. For the first nine months of 2007, collaborative research revenues were $11.2 million, compared to $14.7 million in the prior year period, a decrease of 24% that resulted primarily from the reclassification of revenue associated with investigational use of the PROCLEIX WNV assay. Beginning in the third quarter of 2006, the Company began recording all revenue associated with this assay in product sales, rather than in collaborative research revenues. The assay was approved by the US Food and Drug Administration (FDA) for use on Gen-Probe's enhanced semi-automated instrument system (eSAS) in December of 2005, and for use on the TIGRIS system in March of 2006.

Royalty and license revenues for the third quarter of 2007 were $1.2 million, compared to $7.3 million in the prior year period. In the third quarter of 2006, royalty and license revenues were high due to $5.0 million of revenue associated with the first payment arising from the successful settlement of Gen-Probe's patent infringement claims against Bayer HealthCare (now Siemens Medical Solutions Diagnostics). Gen-Probe also earned $1.0 million of license revenue in the prior year period under a 2004 agreement with Tosoh Corporation. For the first nine months of 2007, royalty and license revenues were $14.4 million, compared to $9.2 million in the prior year period. This 57% increase resulted primarily from $10.3 million of royalty revenue that was recorded in the first quarter of 2007 associated with the second payment arising from the Bayer patent litigation.

Gross margin on product sales in the third quarter of 2007 was 67.3%, compared to 70.9% in the prior year period. This decrease resulted primarily from an unfavorable product sales mix, namely increased sales of low-margin instrumentation to clinical diagnostics and blood screening customers. For the first nine months of 2007, gross margin on product sales was 67.3%, compared to 68.2% in the prior year period.

Research and development (R&D) expenses in the third quarter of 2007 were $27.6 million, compared to $24.2 million in the prior year period, an increase of 14%. This increase, which was expected, resulted primarily from the purchase of human papillomavirus (HPV) oligonucleotides from Roche. For the first nine months of 2007, R&D expenses were $72.8 million, compared to $63.8 million in the prior year period, an increase of 14%.

Marketing and sales expenses in the third quarter of 2007 were $9.7 million, compared to $9.5 million in the prior year period, an increase of 2%. For the first nine months of 2007, marketing and sales expenses were $28.6 million, compared to $27.5 million in the prior year period, an increase of 4%.

General and administrative (G&A) expenses in the third quarter of 2007 were $11.4 million, compared to $12.7 million in the prior year period, a decrease of 10%. In the third quarter of 2006, the Company paid its outside litigation counsel $2.0 million in connection with the Company's successful settlement of the Bayer patent litigation. For the first nine months of 2007, G&A expenses were $34.7 million, compared to $34.1 million in the prior year period, an increase of 2%.

Gen-Probe continues to have a strong balance sheet. As of September 30, 2007, the Company had $395.1 million of cash, cash equivalents and short-term investments, and no debt. In the first nine months of 2007, Gen-Probe generated net cash of $71.2 million from its operating activities, higher than the Company's year-to-date net income of $65.7 million.

Updated 2007 Financial Guidance

"Based on our strong performance in the third quarter, we are raising our full-year 2007 revenue and EPS guidance," said Herm Rosenman, the Company's senior vice president of finance and chief financial officer.

For the full year 2007, Gen-Probe now expects:

-- Total revenues of $400 million to $402 million.

-- Product gross margins approximating 67% to 68% of product sales.

-- R&D expenses approximating 24% to 25% of total revenues.

-- Marketing and sales expenses approximating 9% to 10% of total

revenues.

-- G&A expenses approximating 11% to 12% of total revenues.

-- A reported tax rate of approximately 24.5%, including one-time

benefits associated with the completion of tax audits and adjustments.

-- EPS of between $1.50 and $1.52, based on approximately 54 million to

55 million fully diluted shares outstanding for the year.

Recent Events

-- John C. Martin Elected to Board of Directors. On September 20,

Gen-Probe announced that John C. Martin, Ph.D., president and chief

executive officer of Gilead Sciences, Inc., has been elected to its

board of directors. Gen-Probe's board now has eight members,

including seven who are not Gen-Probe employees.

-- Update on PROCLEIX ULTRIO Post-Marketing Study. To date,

participating blood banks have screened approximately 260,000 blood

donations in the post-marketing study for the PROCLEIX ULTRIO assay,

which is designed to demonstrate hepatitis B virus (HBV) "yield."

Yield is defined as HBV-infected blood donations that were intercepted

by the PROCLEIX ULTRIO assay, but that were initially negative based

on traditional serology tests. Gen-Probe believes that the first of

two required yield cases has been identified in the study, although

this must be confirmed through a regulatory submission to the FDA.

The FDA has approved the PROCLEIX ULTRIO assay to screen donated blood

for HIV-1 and hepatitis C virus (HCV), but not to screen for HBV, as

the initial clinical studies were not designed to, and did not,

demonstrate HBV yield. Gen-Probe and Novartis are conducting the

post-marketing study to demonstrate HBV yield and gain the associated

donor screening claim.

Webcast Conference Call

A live webcast of Gen-Probe's third quarter 2007 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 (800) 947-6450 for domestic callers and (203) 369-3539 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 nucleic acid tests (NATs) that are used primarily to diagnose human diseases and screen donated human blood. Gen-Probe has more than 24 years of NAT expertise, 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 1,000 people. For more information, go to http://www.gen-probe.com.

Trademarks

APTIMA, APTIMA COMBO 2, PACE and TIGRIS are trademarks of Gen-Probe. ULTRIO and PROCLEIX are trademarks of Novartis. All other trademarks are the property of their owners.

Caution Regarding Forward-Looking Statements

Any statements in this press release about our expectations, beliefs, plans, objectives, assumptions or future events or performance, including those under the heading "Updated 2007 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, updated financial guidance, regulatory approvals, future milestone payments, growth opportunities, and plans and objectives 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 2007 growth, revenue, earnings or other financial targets, (ii) the risk that we may not earn or receive milestone payments from our collaborators, including Novartis and 3M, (iii) the possibility that the market for the sale of our new products, such as our TIGRIS system, APTIMA Combo 2 assay, PROCLEIX ULTRIO assay and PROGENSA PCA3 assay, may not develop as expected, (iv) the enhancement of existing products and the development of new products, including products, if any, to be developed under our recent industrial collaborations, may not proceed as planned, (v) the risk that new products or indications, such as the HBV screening claim for our PROCLEIX ULTRIO assay in the United States, may not be approved by regulatory authorities or commercially available in the time frame we anticipate, or at all, (vi) we may not be able to compete effectively, (vii) we may not be able to maintain our current corporate collaborations and enter into new corporate collaborations or customer contracts, (viii) we are dependent on Novartis, Siemens (as assignee of Bayer) and other third parties for the distribution of some of our products, (ix) we are dependent 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 of our products, (xi) changes in government regulation affecting our diagnostic products could harm our sales and increase our development costs, (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. The foregoing list sets forth 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

Sr. director, investor relations and

corporate communications

858-410-8673

Gen-Probe Incorporated

Consolidated Balance Sheets

(In thousands, except share and per share data)

September 30, December 31,

2007 2006

(Unaudited)

Assets

Current assets:

Cash and cash equivalents $66,888 $87,905

Short-term investments 328,185 202,008

Trade accounts receivable, net of allowance for

doubtful accounts of $750 and $670 at

September 30, 2007 and December 31,

2006, respectively 38,235 25,880

Accounts receivable - other 5,166 1,646

Inventories 49,186 52,056

Deferred income tax - short term 6,673 7,247

Prepaid income tax 16,229 -

Prepaid expenses 17,874 11,362

Other current assets 5,374 2,583

Total current assets 533,810 390,687

Property, plant and equipment, net 131,245 134,614

Capitalized software 16,552 18,437

Goodwill 18,621 18,621

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