Oct. 29, 2009 (PR Newswire) -- SAN DIEGO, Calif., Oct. 29 /PRNewswire-FirstCall/ -- Gen-Probe Incorporated (Nasdaq: GPRO) today reported financial results for the third quarter of 2009, with record product sales and total revenues driving non-GAAP earnings per share (EPS) of $0.47.

"Gen-Probe posted very good financial results in the third quarter of 2009, driven by strong growth in our base STD testing business and revenue from our recent Tepnel acquisition," said Carl Hull, the Company's president and chief executive officer. "We also advanced several strategic priorities by acquiring the infectious disease company Prodesse, spinning off our industrial testing business, and initiating two pivotal clinical studies in oncology and women's health."

Comparisons to the third quarter of 2008 were negatively affected by a one-time, $10.0 million milestone payment in the prior year period, as described below.

In the third quarter of 2009, product sales were $119.0 million, compared to $108.3 million in the prior year period, an increase of 10%. Compared to the third quarter of 2008, the stronger US dollar reduced product sales growth by an estimated $2.5 million, or 2%(2). Total revenues for the third quarter of 2009 were $122.7 million, compared to $121.2 million in the prior year period, an increase of 1%.

Net income was $23.8 million ($0.47 per share) on a non-GAAP basis in the third quarter of 2009, compared to $29.1 million ($0.52 per share) in the prior year period, a decrease of 18% (10% per share). Including $1.6 million of after-tax expenses ($0.03 per share) related to the Company's acquisitions of Tepnel and Prodesse and the industrial spin-off, net income in the third quarter of 2009 was $22.2 million ($0.44 per share) on a GAAP basis.

For the first nine months of 2009, product sales were $348.3 million, compared to $323.5 million in the prior year period, an increase of 8%. Compared to the first nine months of 2008, the stronger US dollar reduced product sales growth by an estimated $11.1 million, or 3%. Total revenues for the first nine months of 2009 were $359.4 million, compared to $363.6 million in the prior year period, a decrease of 1%.

Net income was $74.0 million ($1.43 per share) on a non-GAAP basis in the first nine months of 2009, compared to $85.8 million ($1.55 per share) in the prior year period, a decrease of 14% (8% per share). Including $6.3 million of after-tax expenses ($0.12 per share) related to the Company's acquisitions of Tepnel and Prodesse and the industrial spin-off, net income in the first nine months of 2009 was $67.8 million ($1.31 per share) on a GAAP basis.

As previously disclosed, Gen-Probe's total revenues, net income and EPS in the first nine months of 2008 benefited from a number of non-recurring items. The two most significant benefits were:

--  $16.4 million of royalty and license revenue ($0.20 of EPS), which was
recorded in the first quarter of 2008 based on the settlement of patent
infringement litigation against Bayer (now Siemens Healthcare
Diagnostics).

--  $10.0 million of collaborative research revenue ($0.12 of EPS), which
was recorded from the Company's commercial partner, Novartis
Diagnostics, in the third quarter of 2008 based on the full approval by
the US Food and Drug Administration (FDA) of the PROCLEIX® ULTRIO®
assay on the TIGRIS® system.

By comparison, the Company's product sales, total revenues, net income and EPS in the first nine months of 2009 benefited from $8.2 million of one-time revenue ($0.10 of EPS) recorded in the first quarter associated with the previously announced renegotiation of the Company's collaboration agreement with Novartis Diagnostics.

Detailed Results

Gen-Probe's clinical diagnostics sales of $69.6 million in the third quarter of 2009 benefited from revenue associated with Tepnel's transplant diagnostics and genetic testing products, and continued strong growth of the APTIMA Combo 2® assay, an amplified nucleic acid test (NAT) for simultaneously detecting Chlamydia trachomatis and Neisseria gonorrhoeae. Clinical diagnostics sales were negatively affected by the stronger US dollar, which reduced growth by an estimated $0.8 million, or more than 1%, compared to the prior year period.

In blood screening, product sales of $45.4 million in the third quarter of 2009 were negatively affected by $7.9 million of lower product shipments to Novartis. This reduction, which was expected, resulted primarily from: lower US shipments of the PROCLEIX HIV-1/HCV assay as customers began to adopt the PROCLEIX ULTRIO assay; lower US shipments of the PROCLEIX ULTRIO assay due to the post-marketing study in the prior year period; and lower West Nile virus assay shipments due to previously discussed ordering patterns. Blood screening sales growth also was negatively affected by the stronger US dollar, which reduced growth by an estimated $1.7 million, or 3%. "As we forecast three months ago, blood screening sales in the third quarter continued to be affected by negative ordering patterns that outweighed a 1% increase in underlying donations tested," Mr. Hull said.

Sales of research products and services in the third quarter of 2009 were $3.9 million. These sales, resulting from the Tepnel acquisition, were not included in Gen-Probe's prior year results.

Third quarter product sales were, in millions:

Three Months
Ended Sept. 30,             Change
---------------      --------------------
As        Constant
2009       2008      Reported    Currency
----       ----      --------    --------
Clinical
Diagnostics                     $69.6      $55.5        25%          27%
Blood Screening                  $45.4      $52.7       -14%         -11%
Research Products and Services    $3.9        N/A       N/A          N/A
----        ---       ---          ---
Total Product Sales             $119.0     $108.3        10%          12%

Product sales in the first nine months of 2009 were, in millions:

Nine Months
Ended Sept. 30,             Change
---------------      --------------------
As       Constant
2009       2008      Reported    Currency
----       ----      --------    --------
Clinical Diagnostics            $196.6     $165.2        19%          21%
Blood Screening                 $144.1     $158.2        -9%          -4%
Research Products and Services    $7.6        N/A       N/A          N/A
----        ---       ---          ---
Total Product Sales             $348.3     $323.5         8%          11%

Collaborative research revenues in the third quarter of 2009 were $2.0 million, compared to $11.3 million in the prior year period. As discussed above, this significant decrease resulted primarily from a $10.0 million milestone the Company earned from Novartis in the prior year period based on the full FDA approval of the PROCLEIX ULTRIO assay on the TIGRIS system. For the first nine months of 2009, collaborative research revenues were $5.9 million, compared to $18.5 million in the prior year period.

Royalty and license revenues for the third quarter of 2009 were $1.8 million, compared to $1.6 million in the prior year period, an increase of 13%. For the first nine months of 2009, royalty and license revenues were $5.3 million, compared to $21.6 million in the prior year period. As discussed above, this significant decrease resulted primarily from $16.4 million of revenue that was recorded in the first quarter of 2008 associated with the settlement of Gen-Probe's patent infringement litigation against Bayer.

Gross margin on product sales in the third quarter of 2009 was 69.5% on a non-GAAP basis that excludes $0.1 million of acquisition-related depreciation expense, compared to 71.7% in the prior year period. This decrease resulted primarily from the stronger US dollar, the addition of Tepnel's generally lower-margin revenues, and lower sales of blood screening products. For the first nine months of 2009, gross margin on product sales was 69.1% on a non-GAAP basis that excludes $0.2 million of acquisition-related depreciation expense, compared to 70.4% in the prior year period. On a GAAP basis, gross margin on product sales was 69.4% in the third quarter of 2009, and 69.0% for the first nine months of the year.

Acquisition-related intangible amortization expenses were $1.1 million in the third quarter of 2009 and $2.3 million in the first nine months of the year, compared to $0 in the comparable prior year periods.

Research and development (R&D) expenses in the third quarter of 2009 were $27.5 million, compared to $24.5 million in the prior year period, an increase of 12% that resulted primarily from expenses associated with clinical trials of the Company's HPV, PCA3 and trichomonas assays, and from the addition of Tepnel's R&D activities. For the first nine months of 2009, R&D expenses were $78.5 million, compared to $76.9 million in the prior year period, an increase of 2%.

Marketing and sales expenses in the third quarter of 2009 were $13.5 million, compared to $10.7 million in the prior year period, an increase of 26% that resulted primarily from the addition of Tepnel's cost structure, and European sales force expansion and market development efforts. For the first nine months of 2009, marketing and sales expenses were $38.5 million, compared to $34.1 million in the prior year period, an increase of 13%.

General and administrative (G&A) expenses in the third quarter of 2009 were $14.2 million on a non-GAAP basis that excludes $1.1 million of transaction-related expense, compared to $12.9 million in the prior year period. This increase of 10% resulted primarily from the addition of Tepnel's cost structure. For the first nine months of 2009, G&A expenses were $41.0 million on a non-GAAP basis that excludes $5.9 million of transaction-related expense, compared to $38.5 million in the prior year period, an increase of 6%. On a GAAP basis, G&A expenses were $15.2 million in the third quarter of 2009, up 18% compared to the prior year period, and $46.9 million for the first nine months of the year, up 22% compared to the prior year period.

Total other income in the third quarter of 2009 was $4.3 million, compared to $2.2 million in the prior year period, an increase of 95% that resulted primarily from a $1.6 million impairment charge in the prior year period associated with the Company's equity investment in Qualigen, Inc. For the first nine months of 2009, total other income was $17.4 million, compared to $11.6 million in the prior year period, an increase of 50% that resulted primarily from investment gains realized from selling portions of the Company's municipal bond portfolio.

In the third quarter of 2009, Gen-Probe generated net cash of $31.9 million from its operating activities, substantially higher than GAAP net income of $22.2 million. The Company spent $7.6 million on property, plant and equipment in the quarter.

In the third quarter of 2009, the Company repurchased approximately 1.8 million shares of its stock for $69.3 million, completing the share repurchase program announced in August of 2008. Throughout the program, the Company repurchased approximately 6.0 million shares of its common stock for $249.8 million.

Gen-Probe continues to have a strong balance sheet. As of September 30, 2009, the Company had $517.9 million of cash, cash equivalents and short-term investments, and $240.8 million of short-term debt. The Company currently pays interest on substantially all of this debt at a rate 0.6 percent above the one-month London Interbank Offered Rate (LIBOR), which was recently below 0.3 percent.