Gen-Probe second-quarter 2010 product sales up 14%

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%.  

SOURCE Gen-Probe Incorporated