Gen-Probe’s Q4 sales, earnings rise

Gen-Probe Inc. (NSDQ:GPRO) posted fourth-quarter sales of $128.9 million for the three months ended Dec. 31, 2009, up 27.2 percent compared with $109.1 million during the same period in 2008. Net income rose 13.6 percent to $24 million, compared with $21.1 million during Q4 2008:

Press Release

Gen-Probe Reports Financial Results for the Fourth Quarter of 2009

— Company Posts Non-GAAP EPS of $0.52(1), Excluding Transaction-Related Expenses, and GAAP EPS of $0.48 —

— Acquisitions of Tepnel and Prodesse Contribute to New Quarterly and Annual Records for Product Sales and Total Revenues —

— Company Generates $29.5 Million of Free Cash Flow in Quarter —

SAN DIEGO, Feb. 18 /PRNewswire-FirstCall/ — Gen-Probe Incorporated (Nasdaq: GPRO) today reported financial results for the fourth quarter of 2009, with record product sales and total revenues driving non-GAAP earnings per share (EPS) of $0.52 and GAAP EPS of $0.48.  

“Gen-Probe posted strong financial results in the fourth quarter of 2009 based on balanced performance across our key product areas: women’s health, infectious diseases, blood screening and transplant diagnostics,” said Carl Hull, the Company’s president and chief executive officer.  

    
    
    Key financial results for the fourth quarter of 2009 were
    ($ in millions, except EPS):
    
                              Non-GAAP                  GAAP
                        --------------------     -------------------
                        2009    2008  Change     2009   2008  Change
                        ----    ----  ------     ----   ----  ------
    Product sales     $135.5  $105.8    +28%   $135.5 $105.8    +28%
    Total revenues    $138.9  $109.1    +27%   $138.9 $109.1    +27%
    Operating profit   $37.4   $27.2    +37%    $34.9  $27.2    +28%
    Net income         $25.8   $21.1    +22%    $24.0  $21.1    +14%
    EPS                $0.52   $0.39    +33%    $0.48  $0.39    +23%
    Free cash flow(2)  $29.5   $10.4   +184%    $29.5  $10.4   +184%

    
    
    Key financial results for the full year 2009 were
    ($ in millions, except EPS):
    
                             Non-GAAP                    GAAP
                        --------------------     -------------------
                        2009    2008  Change     2009   2008  Change
                        ----    ----  ------     ----   ----  ------
    Product sales     $483.8  $429.2    +13%   $483.8 $429.2    +13%
    Total revenues    $498.3  $472.7     +5%   $498.3 $472.7     +5%
    Operating profit  $131.0  $145.4    -10%   $120.1 $145.4    -17%
    Net income         $99.8  $107.0     -7%    $91.8 $107.0    -14%
    EPS                $1.95   $1.95      0%    $1.79  $1.95     -8%
    Free cash flow    $112.7  $138.9    -19%   $112.7 $138.9    -19%

In 2008, Gen-Probe’s total revenues, net income, EPS and free cash flow 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) 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) 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.

In 2009, the Company’s product sales, total revenues, net income, EPS and free cash flow benefited from $8.2 million of one-time revenue ($0.10 of EPS) recorded in the first quarter associated with the renegotiation of the Company’s collaboration agreement with Novartis.  

Revenue Detail

In the fourth quarter of 2009, clinical diagnostics sales growth was driven by transplant diagnostics and influenza products, and the APTIMA Combo 2® assay for detecting Chlamydia and gonorrhea.  Compared to the prior year period, clinical diagnostics sales also benefited from the weaker US dollar, which added an estimated $0.8 million, or 1%, to growth.(3)

In blood screening, fourth quarter sales growth was driven mainly by higher sales of TIGRIS instruments to Novartis, which generally are a precursor to future assay sales.  Compared to the prior year period, blood screening sales also benefited from the weaker US dollar, which added an estimated $1.2 million, or 2%, to growth.

Sales of research products and services in the fourth quarter of 2009 were $4.4 million.  These sales, resulting from the Tepnel acquisition, were not included in Gen-Probe’s prior year results.

    
    
    Fourth quarter product sales were ($ in millions):
    
                       Three Months Ended Dec. 31,        Change
                       ---------------------------        ------
                                                       As     Constant
                              2009      2008        Reported  Currency
                              ----      ----        --------  --------
    Clinical Diagnostics     $77.6     $57.7           +34%     +33%
    Blood Screening          $53.4     $48.1           +11%      +9%
    Research Products
     and Services             $4.4       N/A           N/A      N/A
    -----------------         ----       ---           ---      ---
    Total Product Sales     $135.5    $105.8           +28%     +26%

For the full year 2009, clinical diagnostics sales were negatively affected by the stronger US dollar, which reduced growth by an estimated $2.9 million, or 1%, compared to the prior year.  In blood screening, full year 2009 sales also were negatively affected by the stronger US dollar, which reduced growth by an estimated $6.1 million, or 3%, compared to the prior year.  

    
    
    Product sales for the full year 2009 were ($ in millions):
    
                         12 Months Ended Dec. 31,          Change
                         ------------------------          ------
                                                        As       Constant
                              2009      2008         Reported    Currency
                              ----      ----         --------    --------
    Clinical Diagnostics    $274.2    $222.9            +23%        +24%
    Blood Screening         $197.5    $206.3             -4%         -1%
    Research Products
     and Services            $12.0       N/A            N/A         N/A
    -----------------        -----       ---            ---         ---
    Total Product Sales     $483.8    $429.2            +13%        +15%

Collaborative research revenues in the fourth quarter of 2009 were $2.0 million, compared to $2.1 million in the prior year period.  For the full year 2009, collaborative research revenues were $7.9 million, compared to $20.6 million in the prior year.  As discussed, this decrease resulted primarily from the $10.0 million milestone earned from Novartis in 2008 based on the full FDA approval of the PROCLEIX ULTRIO assay on the TIGRIS system.  

Royalty and license revenues for the fourth quarter of 2009 were $1.4 million, compared to $1.3 million in the prior year period.  For the full year 2009, royalty and license revenues were $6.6 million, compared to $22.9 million in the prior year.  As discussed, this decrease resulted primarily from $16.4 million of revenue that was recorded in 2008 associated with the settlement of patent infringement litigation against Bayer.  

Expense Detail

Gross margin on product sales in the fourth quarter of 2009 was 67.3% on a non-GAAP basis that excludes $0.1 million of acquisition-related depreciation expense, compared to 69.6% in the prior year period.  This decrease resulted mainly from increased sales of low-margin TIGRIS instruments to Novartis.  For the full year 2009, gross margin on product sales was 68.6% on a non-GAAP basis that excludes $0.3 million of acquisition-related depreciation expense, compared to 70.2% in the prior year.  On a GAAP basis, gross margin on product sales was 67.2% in the fourth quarter of 2009, and 68.5% for the full year.

Acquisition-related amortization expenses were $1.9 million in the fourth quarter of 2009 and $4.1 million for the full year, compared to $0 in the comparable periods of the prior year.

Research and development (R&D) expenses in the fourth quarter of 2009 were $27.4 million, compared to $24.2 million in the prior year period, an increase of 13% 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 full year 2009, R&D expenses were $106.0 million, compared to $101.1 million in the prior year, an increase of 5%.  R&D expenses represented 21.3% of total revenues in 2009, and 21.4% of total revenues in 2008.

Marketing and sales expenses in the fourth quarter of 2009 were $15.2 million on a non-GAAP basis that excludes $0.1 million of acquisition-related expense, compared to $11.8 million in the prior year period, an increase of 29% that resulted primarily from the addition of Tepnel’s cost structure, and European sales force expansion and market development efforts.  For the full year 2009, marketing and sales expenses were $53.8 million on a non-GAAP basis that excludes $0.1 million of acquisition-related expense, compared to $45.9 million in the prior year, an increase of 17%.  On a GAAP basis, marketing and sales expenses were $15.3 million in the fourth quarter of 2009, and $53.9 million for the full year.

General and administrative (G&A) expenses in the fourth quarter of 2009 were $14.5 million on a non-GAAP basis that excludes $0.4 million of transaction-related expense, compared to $13.8 million in the prior year period.  This increase of 5% resulted primarily from the addition of Tepnel’s cost structure.  For the full year 2009, G&A expenses were $55.5 million on a non-GAAP basis that excludes $6.3 million of transaction-related expense, compared to $52.3 million in the prior year, an increase of 6%.  On a GAAP basis, G&A expenses were $14.9 million in the fourth quarter of 2009, and $61.8 million for the full year.

Total other income in the fourth quarter of 2009 was $2.3 million, compared to $3.8 million in the prior year period.  This decrease of 39% resulted primarily from lower yields on the Company’s municipal bond portfolio, and lower investment balances following the completion of the Company’s $250 million share repurchase program and the acquisitions of Tepnel and Prodesse.  For the full year 2009, total other income was $19.7 million, compared to $15.5 million in the prior year, an increase of 27% that resulted primarily from realized investment gains.

In the fourth quarter of 2009, Gen-Probe generated net cash of $39.6 million from operating activities, substantially higher than GAAP net income of $24.0 million.  The Company spent $10.1 million on property, plant and equipment in the quarter, leading to free cash flow of $29.5 million.

Gen-Probe continues to have a strong balance sheet.  As of December 31, 2009, the Company had $501.1 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 0.3%.  

2010 Financial Guidance

“Based on the midpoints of our non-GAAP 2010 guidance, we expect to show solid, double-digit growth on both the top and bottom lines, as well as improved operating profit and very strong free cash flow,” said Herm Rosenman, Gen-Probe’s senior vice president – finance, and chief financial officer.  

    
    
    Gen-Probe 2010 financial guidance is described in the table below:
    
                                        Non-GAAP                  GAAP
                                        --------                  ----
    Total revenues                $540 to $565 million    $540 to $565 million
    Product gross margins               68% to 70%             68% to 70%
    Acquisition-related
     amortization                          N/A              $9 to $10 million
    Fair value adjustment of
     acquisition-related
     contingent consideration              N/A               $4 to $5 million
    Operating margin                    27% to 28%             24.5% to 25.5%
    Tax rate                            34% to 35%               34% to 35%
    Diluted shares                    ~ 50 million            ~ 50 million
    EPS                              $2.10 to $2.25           $1.90 to $2.05