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Gen-Probe Posts 2 Percent Revenue Decline

By a GenomeWeb staff reporter

NEW YORK (GenomeWeb News) – Gen-Probe announced after the close of the market Thursday that its second-quarter revenues declined 2 percent year over year, as blood screening revenues dropped sharply.

The San Diego-based molecular diagnostics firm brought in total revenues of $135.9 million for the three-month period ended June 30, compared with revenues of $138.6 million for the second quarter of 2010. Product sales were virtually flat at $132.9 million versus $132.7 million.

The firm missed Wall Street's consensus estimate for revenues of $138.3 million.

Gen-Probe said its sales were driven by clinical diagnostic products, which increased 18 percent year over year to $87.5 million from $73.9 million. It cited sales of its Aptima Combo 2 assay for chlamydia and gonorrhea as key contributors. In addition, the quarter included sales of GTI Diagnostics, a privately held firm focused on the transplant, blood banking, and specialty coagulation markets, that Gen-Probe acquired late last year.

The firm's blood screening business was the primary drag on its revenue growth. Overall, blood screening revenues were down 22 percent year over year to $43.2 million from $55.7 million, Gen-Probe President and CEO Carl Hull said during a conference call following the release of the financial results.

The company said that compared to Q2 2010 its assay shipments to blood screening partner Novartis had dropped by nearly $6 million, while blood screening instrument shipments dropped by nearly $5 million. In addition, supply chain fluctuations reduced sales by around $3 million.

"I want to be clear that we believe the strong fundamentals around our blood screening business have not changed," Hull said on the call. "Blood screening is a stable, highly profitable business for Gen-Probe, one with growth rates expected to be flat or up in the low-single digits on an underlying basis."

He also noted a tough year-over-year comparison, due to the installation of a large number of Tigris instruments in France. Hull said that blood screening instrument sales for Q2 2010 were nearly $7 million, compared to around $2 million in the most recent quarter. He also said the firm expects sales to Novartis to increase later this year due to customer demand.

Gen-Probe posted net income of $22.3 million, or $.45 per share, compared to $28.1 million, or $.57 per share, for Q2 2010. On a non-GAAP basis, its net income was $25.3 million, or $.51 per share, versus $26 million, or $.52 per share. The firm beat analysts' consensus estimate of $.49.

Its R&D spending for the quarter increased 2 percent to $27.7 million from $27.1 million, and its SG&A expenses jumped 18 percent to $36.2 million from $30.8 million.

Gen-Probe finished the quarter with $176.7 million in cash and cash equivalents and $212.5 million in marketable securities.

The firm adjusted its guidance for both revenues and EPS. On a GAAP basis, it expects revenues of between $575 million and $590 million versus a previous guidance of $570 million to $595 million. It expects EPS to be between $2.06 and $2.15, compared to its previous range of between $2.06 and $2.20. On a non-GAAP basis, it expects EPS of between $2.28 and $2.37.

Gen-Probe CFO Herm Rosenman said that the guidance assumes a "big fourth quarter on both the top and bottom lines." He said the firm anticipates that ordering patterns in blood screening will be more positive late in the year, women's health sales will continue to steadily grow, and Prodesse's sales will grow in the fourth quarter. In addition, Gen-Probe expects its expenses to be lower.

Gen-Probe currently has its Panther molecular diagnostics system and its Aptima human papillomavirus assay under review by the US Food and Drug Administration.

In early Friday trade on the Nasdaq shares of Gen-Probe were down 2 percent at $59.71.

Among the investment banks that cover the firm, Jefferies has a Buy rating and a $75 price target on Gen-Probe's shares, Baird has an Outperform rating and a $75 price target on the shares, and Raymond James has an Outperform rating and a $72 price target. Goldman Sachs lowered its six-month price target on the stock to $70 from a previous target of $74.

The firm's shares traded as high as $86.96 in mid-May amid speculation about potential bidders to acquire the firm. However, its stock tumbled after reports that those potential acquirers had dropped out of the bidding. Most recently, The Wall Street Journal reported that that Novartis, who is believed to have been the sole remaining bidder, was no longer "actively pursuing" a deal to acquire Gen-Probe.

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