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Gen-Probe Reports Strong Financial Results for Third Quarter 2008, Raises Full-Year EPS Guidance
Date:10/30/2008

- Company Reports Quarterly EPS of $0.53, Up 71% Versus Prior Year, As

Total Revenues Rise 19% to $121.2 Million - - Company Generates $67.3 Million of Cash from Operating Activities in

Third Quarter -

- Company Now Expects Full-Year EPS of $1.91 to $1.93 -

SAN DIEGO, Oct. 30 /PRNewswire-FirstCall/ -- Gen-Probe Incorporated (Nasdaq: GPRO) today reported strong financial results for the third quarter of 2008 and raised its full-year guidance for earnings per share (EPS).

"Gen-Probe posted very good financial results in the third quarter of 2008, driven by solid growth in both our clinical diagnostics and blood screening businesses and substantially improved gross margins," said Henry L. Nordhoff, the Company's chairman and chief executive officer.

In the third quarter of 2008, product sales were $108.3 million, compared to $97.4 million in the prior year period, an increase of 11%. Total revenues for the third quarter of 2008 were $121.2 million, compared to $101.7 million in the prior year period, an increase of 19%. Net income was $29.1 million ($0.53 per share) in the third quarter of 2008, compared to $17.3 million ($0.31 per share) in the prior year period, an increase of 68% (71% per share).

For the first nine months of 2008, product sales were $323.5 million, compared to $278.5 million in the prior year period, an increase of 16%. Total revenues for the first nine months of 2008 were $363.6 million, compared to $304.1 million in the prior year period, an increase of 20%. Net income was $85.8 million ($1.56 per share) in the first nine months of 2008, compared to $65.7 million ($1.21 per share) in the prior year period, an increase of 31% (29% per share).

In this press release, all per share amounts are calculated on a fully diluted basis, and all results are presented on a U.S. GAAP basis. Some totals may not foot due to rounding.

Detailed Results

Gen-Probe's clinical diagnostics sales in the third quarter of 2008 benefited from continued growth of 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 increased based on market share gains on both the Company's semi-automated instrument platform and on the high-throughput, fully automated TIGRIS(R) system. Revenue from the PACE(R) product line, the Company's non-amplified tests for the same microorganisms, 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 2008 benefited from increased international and domestic sales of the PROCLEIX(R) ULTRIO(R) assay, and from approximately $1.8 million of foreign exchange benefit compared to the prior year. Chiron, a business unit of Novartis Vaccines and Diagnostics, markets the Company's blood screening products worldwide.

Product sales were, in millions:

Three Months Ended Nine Months Ended

Sept. 30, Sept. 30,

2008 2007 Increase 2008 2007 Increase

Clinical diagnostics $55.5 $51.8* 7% $165.2 $149.5 11%

Blood screening $52.7 $45.6 16% $158.2 $129.0 23%

Total product sales $108.3 $97.4 11% $323.5 $278.5 16%

* As previously disclosed, clinical diagnostics sales in the third quarter

of 2007 included approximately $3 million of one-time, incremental

instrument sales. Excluding these sales from the prior year period,

clinical diagnostics growth in the third quarter of 2008 would have been

approximately 14%, and total product sales growth would have been about

15%.

Collaborative research revenues in the third quarter of 2008 were $11.3 million, compared to $3.1 million in the prior year period. This significant increase resulted primarily from a $10 million milestone the Company earned from Chiron based on the full approval by the US Food and Drug Administration (FDA) of the PROCLEIX ULTRIO assay on the TIGRIS system. For the first nine months of 2008, collaborative research revenues were $18.5 million, compared to $11.2 million in the prior year period, an increase of 65%.

Royalty and license revenues for the third quarter of 2008 were $1.6 million, compared to $1.2 million in the prior year period, an increase of 33% that resulted primarily from higher royalties from Chiron associated with the use of Gen-Probe's technologies in the plasma screening market. For the first nine months of 2008, royalty and license revenues were $21.6 million, compared to $14.4 million in the prior year period, an increase of 50% that resulted primarily from revenue that was recorded in the first quarters of 2007 and 2008 associated with the settlement of Gen-Probe's patent infringement litigation against Bayer (now Siemens Medical Solutions Diagnostics). Specifically, Gen-Probe recorded $10.3 million of revenue from this settlement in the first quarter of 2007, and a final payment of $16.4 million in the first quarter of 2008.

Gross margin on product sales in the third quarter of 2008 was 71.7%, compared to 67.3% in the prior year period. This increase resulted primarily from increased sales of blood screening products and APTIMA(R) assays, reduced sales of lower-margin instrumentation, and operational efficiencies. For the first nine months of 2008, gross margin on product sales was 70.4%, compared to 67.3% in the prior year period.

Research and development (R&D) expenses in the third quarter of 2008 were $24.5 million, compared to $27.6 million in the prior year period, a decrease of 11% that resulted primarily from the purchase of human papillomavirus (HPV) oligonucleotides from Roche in the prior year period. For the first nine months of 2008, R&D expenses were $76.9 million, compared to $72.8 million in the prior year period, an increase of 6% that resulted primarily from costs associated with key development programs such as the post-marketing studies of the PROCLEIX ULTRIO assay in the United States, the investigational APTIMA human papillomavirus (HPV) assay, and Gen-Probe's fully automated instrument system for low- and mid-volume labs, known as PANTHER.

Marketing and sales expenses in the third quarter of 2008 were $10.7 million, compared to $9.7 million in the prior year period, an increase of 10% that resulted primarily from European market development efforts related to the Company's APTIMA Combo 2, APTIMA HPV and PROGENSATM PCA3 assays. For the first nine months of 2008, marketing and sales expenses were $34.1 million, compared to $28.6 million in the prior year period, an increase of 19%.

General and administrative (G&A) expenses in the third quarter of 2008 were $12.9 million, compared to $11.4 million in the prior year period, an increase of 13% that resulted primarily from increased compensation and legal costs. For the first nine months of 2008, G&A expenses were $38.5 million, compared to $34.7 million in the prior year period, an increase of 11%.

Total other income in the third quarter of 2008 was $2.2 million, compared to $3.3 million in the prior year period, a decrease of 33% that resulted primarily from a $1.6 million impairment charge associated with the Company's equity investment in Qualigen, Inc. The Company reviews its investments regularly and records impairment charges when an investment has experienced a decline that is expected to be other-than temporary. For the first nine months of 2008, total other income was $11.6 million, compared to $8.6 million in the prior year period, an increase of 35% that resulted primarily from higher short-term investment balances.

Gen-Probe continues to have a strong balance sheet. As of September 30, 2008, the Company had $555.5 million of cash, cash equivalents and short-term investments, and no debt. In the third quarter of 2008, the Company generated net cash of $67.3 million from its operating activities, while spending $4.8 million on property, plant and equipment. In the first nine months of 2008, Gen-Probe generated net cash of $159.0 million from its operating activities, compared to the Company's year-to-date net income of $85.8 million.

Updated 2008 Financial Guidance

"Based on our strong performance in the third quarter, we are raising our full-year 2008 EPS guidance and tightening our revenue range upward," said Herm Rosenman, the Company's senior vice president of finance and chief financial officer. Gen-Probe's 2008 financial guidance is:

Current Guidance Previous Guidance

Total revenues $470 million to $467 million to

$472 million $472 million

Product gross margins 70% 69% to 70%

R&D expenses 22% 22% to 23%

Marketing and sales expenses 10% 9% to 10%

G&A expenses 11% 11%

Tax rate 34% 34%

Diluted shares outstanding 55 million 55 million to 56 million

EPS $1.91 to $1.93 $1.83 to $1.87

Recent Events

-- FDA Approves PROCLEIX ULTRIO Assay. On August 13, Gen-Probe announced

that the FDA had approved the Company's supplemental regulatory

application to use the PROCLEIX ULTRIO assay to screen donated blood

for the hepatitis B virus (HBV). The FDA had previously approved the

assay to screen donated blood for HIV-1 and the hepatitis C virus

(HCV). The assay is now approved to screen donated blood, plasma,

organs and tissue for the three viruses in individual blood donations

or in pools of up to 16 blood samples. The assay may be run on the

enhanced semi-automated PROCLEIX system (eSAS) and on the fully

automated, high-throughput TIGRIS system.

-- PROCLEIX ULTRIO Study Results. On October 7, independent investigators

presented key results of the PROCLEIX ULTRIO post-marketing HBV "yield"

studies at the annual meeting of the AABB. A total of 3.7 million

blood donations were screened in the two studies. Approximately 54% of

the donations were tested in pools of 16 donations, 30% were tested in

pools of eight donations, and 16% were tested as individual donations.

The ULTRIO assay detected eight cases of HBV yield, with yield defined

as HBV-infected blood donations that were missed by serology screening.

These donations therefore could have been transfused if not for the use

of the ULTRIO assay. In addition, the ULTRIO assay had a specificity

of greater than 99.9% in both studies, meaning that it generated fewer

than 0.1% "false positive" results. Based in part on the results of

these studies, the FDA fully approved the assay as described above.

-- $250 Million Stock Repurchase Plan. On August 26, Gen-Probe announced

that its board of directors had authorized the repurchase of up to

$250 million of the Company's common stock over the two years following

adoption of the program. Under the plan, repurchases may occur from

time to time and at Gen-Probe's discretion, depending on market

conditions and other factors. Shares may be purchased on the open

market or through private transactions, pursuant to Rule 10b5-1 trading

plans or other available means. The Company repurchased approximately

$10 million of its stock in the third quarter.

Webcast Conference Call

A live webcast of Gen-Probe's third quarter 2008 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) 505-9257 for domestic callers and (203) 369-1881 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 NATs that are used primarily to diagnose human diseases and screen donated human blood. Gen-Probe has approximately 25 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 2008 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 2008 growth, revenue, earnings or other financial targets, (ii) 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, (iii) 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, (iv) the risk that new products or indications may not be approved by regulatory authorities or become commercially available in the time frame we anticipate, or at all, (v) we may not be able to compete effectively, (vi) we may not be able to maintain our current corporate collaborations and enter into new corporate collaborations or customer contracts, (vii) we are dependent on Novartis, Siemens (as assignee of Bayer) and other third parties for the distribution of some of our products, (viii) we are dependent on a small number of customers, contract manufacturers and single source suppliers of raw materials, (ix) changes in third-party reimbursement policies regarding our products could adversely affect sales of our products, (x) changes in government regulation affecting our diagnostic products could harm our sales and increase our development costs, (xi) the risk that our intellectual property may be infringed by third parties or invalidated, and (xii) our involvement in patent and other intellectual property and commercial litigation could be expensive, could divert management's attention, and could interfere with our ability to develop and distribute products. 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 December

30, 31,

2008 2007

(Unaudited)

Assets

Current assets:

Cash and cash equivalents $74,366 $75,963

Short-term investments 481,127 357,531

Trade accounts receivable, net of allowance

for doubtful accounts of $700 and $719 at

September 30, 2008 and December 31, 2007,

respectively 28,632 32,678

Accounts receivable - other 3,684 11,044

Inventories 53,241 48,540

Deferred income tax - short term 9,985 8,825

Prepaid income tax 2,358 2,390

Prepaid expenses 10,409 17,505

Other current assets 7,068 4,402

Total current assets 670,870 558,878

Property, plant and equipment, net 139,554 129,493

Capitalized software, net 14,037 15,923

Goodwill 18,621 18,621

Deferred income tax - long term 7,744 7,942

License, manufacturing access fees and other

assets, net 58,368 58,196

Total assets $909,194 $789,053

Liabilities and stockholders' equity

Current liabilities:

Accounts payable $19,163 $11,777

Accrued salaries and employee benefits 25,908 20,997

Other accrued expenses 4,081 4,014

Income tax payable 3,909 846

Deferred revenue - short term 1,544 2,836

Total current liabilities 54,605 40,470

Non-current income tax payable 4,216 3,958

Deferred income tax - long term 69 75

Deferred revenue - long term 2,500 4,607

Deferred rent - 10

Deferred compensation plan liabilities 2,330 1,893

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, 54,374,929

and 53,916,298 shares issued and outstanding

at September 30, 2008 and December 31, 2007,

respectively 5 5

Additional paid-in capital 439,402 415,229

Accumulated other comprehensive (loss) / income (949) 1,604

Retained earnings 407,016 321,202

Total stockholders' equity 845,474 738,040

Total liabilities and stockholders' equity $909,194 $789,053

Gen-Probe Incorporated

Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

Three Months Ended Nine Months Ended

September 30, September 30,

2008 2007 2008 2007

Revenues:

Product sales $108,253 $97,402 $323,461 $278,451

Collaborative research revenue 11,343 3,118 18,453 11,239

Royalty and license revenue 1,581 1,213 21,640 14,375

Total revenues 121,177 101,733 363,554 304,065

Operating expenses:

Cost of product sales 30,681 31,810 95,827 91,148

Research and development 24,507 27,582 76,941 72,813

Marketing and sales 10,709 9,651 34,070 28,580

General and administrative 12,908 11,380 38,516 34,742

Total operating expenses 78,805 80,423 245,354 227,283

Income from operations 42,372 21,310 118,200 76,782

Interest income 4,167 3,327 12,274 8,935

Interest expense (1) - (3) 30

Other income/(expense) (1,929) 6 (647) (355)

Total other income, net 2,237 3,333 11,624 8,610

Income before income tax 44,609 24,643 129,824 85,392

Income tax expense 15,531 7,392 44,010 19,664

Net income $29,078 $17,251 $85,814 $65,728

Net income per share:

Basic $0.54 $0.32 $1.59 $1.25

Diluted $0.53 $0.31 $1.56 $1.21

Weighted average shares

outstanding:

Basic 54,084 53,221 53,882 52,661

Diluted 55,322 54,857 55,117 54,210

Gen-Probe Incorporated

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Nine Months Ended

September 30,

2008 2007

Operating activities:

Net income $85,814 $65,728

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation and amortization 26,217 25,518

Amortization of premiums on investments, net of

accretion of discounts 5,118 3,379

Stock-based compensation charges 15,012 14,487

Stock-based compensation income tax benefits 3,025 2,031

Excess tax benefit from stock-based compensation (2,510) (13,055)

Gain on sale of stock holdings of Molecular

Profiling Institute, Inc. (1,600) -

Impairment charges 5,086 -

Loss on disposal of property and equipment 38 202

Changes in assets and liabilities:

Accounts receivable 11,403 (15,861)

Inventories (4,270) 2,660

Prepaid expenses 7,060 (6,538)

Other current assets (2,255) (2,756)

Other long term assets (510) (930)

Accounts payable 7,381 1,116

Accrued salaries and employee benefits 4,922 6,328

Other accrued expenses 96 5,343

Income tax payable 2,926 (14,544)

Deferred revenue (3,399) 202

Deferred income tax (961) 794

Deferred rent (10) (88)

Deferred compensation plan liabilities 436 544

Net cash provided by operating activities 159,019 74,560

Investing activities:

Proceeds from sales and maturities of short-term

investments 94,103 54,012

Purchases of short-term investments (225,290) (182,449)

Purchases of property, plant and equipment (30,530) (17,674)

Capitalization of intangible assets, including

license and manufacturing access fees (1,868) (2,127)

Sale of stock holdings of Molecular Profiling

Institute, Inc. 4,100 -

Cash paid for Roche manufacturing access fees (10,000) -

Other items, net 10 (334)

Net cash used in investing activities (169,475) (148,572)

Financing activities:

Repurchase and retirement of restricted stock for

payment of taxes (1,309) (1,020)

Repurchase and retirement of common stock (9,992) -

Excess tax benefit from stock-based compensation 2,510 13,055

Proceeds from issuance of common stock 17,848 40,677

Net cash provided by financing activities 9,057 52,712

Effect of exchange rate changes on cash and cash

equivalents (198) 283

Net decrease in cash and cash equivalents (1,597) (21,017)

Cash and cash equivalents at the beginning of period 75,963 87,905

Cash and cash equivalents at the end of period $74,366 $66,888


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SOURCE Gen-Probe Incorporated
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