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Gen-Probe Reports 5 Percent Q3 Revenue Growth, Takes Loss on PacBio Investment

NEW YORK (GenomeWeb News) – Gen-Probe's revenues rose 5 percent year over year for the third quarter but fell short of analyst expectations, the San Diego molecular diagnostics company reported after the close of the market on Wednesday.

Total revenues for the three months ended Sept. 30 came in a $139.1 million, up from $132.6 million a year ago, but missing analysts' consensus forecast of $140.6 million. Its product sales totaled $136.4 million, a 6 percent increase from $128.3 million a year ago with clinical diagnostic products climbing 16 percent to $86.6 million, driven by domestic and international growth of the firm's Aptima Combo 2 assay for chlamydia and gonorrhea, it said, and sales from GTI Diagnostics, which Gen-Probe acquired in December 2010.

Also within product sales, blood screening sales were down 6 percent to $47.4 million, due to lower shipments of instruments to Novartis, Gen-Probe's blood screening partner. Research products and services slid 23 percent to $2.4 million.

Gen-Probe's collaborative research revenues were down 68 percent to $1.1 million, resulting from "an expected decrease in funding from Novartis associated with the development of the fully automated Panther instrument for the blood screening market," it said, while royalty and license revenues doubled to $1.6 million due to increased royalties from Novartis related to the plasma testing market.

Gen-Probe's R&D spending in the quarter inched up 2 percent year over year to $27.9 million from $27.4 million. Its SG&A spending came in at $35.6 million for the quarter, up 40 percent from $25.4 million a year ago.

The increase in SG&A expenses was due to the addition of GTI's cost structure, an ongoing European commercial expansion, and higher stock-based compensation charges, Gen-Probe said.

Also, during the year-ago period SG&A levels were "unusually low" because of a $2.9 million arbitration award from Qiagen, which Gen-Probe recorded as a credit to expenses, it added.

Gen-Probe reported a net loss of $15.4 million, or $.33 per share for the quarter, compared to a profit of $27.4 million, or $.56 per share, a year ago. The company said that the loss was caused by a $39.5 million non-cash write-down in the value of its equity investment in Pacific Biosciences. Gen-Probe recognized the loss "because the trading price of Pacific Biosciences' stock may remain below [Gen-Probe's] cost basis for an extended period of time," it said.

Since going public in October 2010, PacBio's stock price has plummeted to about $4 from $16. A week ago, PacBio reported third-quarter revenues of $10.5 million, and lowered full-year 2011 guidance.

Gen-Probe made its investment in PacBio in June 2010 and the firms continue to collaborate on the development of a third-generation sequencing system for the diagnostics market.

On an adjusted basis, Gen-Probe's EPS for the quarter was $.57, beating Wall Street estimates of $.54.

On a conference call following the release of its earnings results, President and CEO Carl Hull said that while Gen-Probe is "very disappointed" by the results of the investment "we remain pleased with how our early-stage research work with PacBio is progressing. We continue to believe that sequencing will play an important long term role in diagnostics, based on the assumption that key issues such as robust sample prep, integrative workflow, and bioinformatics interpretation can be solved."

On the blood screening business, he said that despite the slide in the quarter year over year, sequentially the business grew by about $4 million from the second quarter. Hull added that during the third quarter it had started working through supply chain issues that it encountered in the second quarter.

That process continues "and we expect to see further significant increases in shipments of assays and instruments to Novartis," he said. "All told, we still feel very good about the blood screening business. We see the underlying dynamics being fairly consistent with what you've seen the last few quarters."

Earlier this week, the US Food and Drug Administration gave 510(k) clearance to Gen-Probe's Aptima HPV assay, a molecular test to detect high-risk strains of human papillomavirus. While calling the approval a "major milestone" for the company, he acknowledged that getting market share of the HPV space, currently dominated by Qiagen, would not happen overnight.

Asked for a timeline on when he expects the assay to achieve significant market share, he said that Hologic's Cervista test took about two-and-a-half years to get about 10 percent of the market.

"I would tell you that our expectations would be that we could certainly do that and better," Hull said.

The firm also has an application with the FDA for its Panther system and its Progensa PCA3 assay for prostate cancer. Hull said that approval for Panther will likely not happen before the end of the year, which had been Gen-Probe's best-case scenario, and expectations now are that approval would come late in the first quarter of 2012 or early in the second quarter of 2012.

In August FDA told the firm that the Immunology Panel of FDA's Medical Devices Advisory Committee would not review Gen-Probe's submission for the Progensa PCA3 assay in October as had been previously scheduled. Hull said on the call that no new review date has been given by the agency, "but we expect to have clarity on that issue soon."

Gen-Probe lowered the high end of its full-year 2011 guidance for both revenues and EPS to reflect "the puts and takes over the last three months," CFO Herm Rosenman said on the conference call. On revenues, the company is now providing guidance of between $575 million and $580 million, down from an earlier guidance of $575 million to $590 million.

Its EPS guidance range was lowered to $2.28 to $2.32 from $2.28 to $2.37.

The company today also announced board authorization for the repurchase of an additional $100 million of its stock through June 2012.

Gen-Probe ended the third quarter with $142.1 million in cash and cash equivalents and $160.3 million in marketable securities.