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Hologic Nearly Doubles FY First-Quarter Diagnostics Revenues on Gen-Probe Contributions

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Hologic said this week that fiscal first-quarter clinical diagnostics revenues from Gen-Probe, acquired last summer, were up 9 percent over the comparable period last year, but that blood screening revenues contributed by Gen-Probe declined slightly year over year.

The uptick in Gen-Probe clinical diagnostics revenues helped drive 98 percent growth in Q1 revenues for Hologic's overall Diagnostics division, to $305.9 million from $154.1 million, on a GAAP basis. On a non-GAAP basis, which included $13.1 million earned under Gen-Probe's existing blood screening collaboration agreement with Novartis, revenues for the Diagnostics unit increased 107 percent to $319.2 million.

In addition, Hologic this week provided investors with an update on the integration of Gen-Probe, which Hologic acquired last year for $3.8 billion, noting that the integration has proceeded well ahead of schedule. The company also provided an update on its efforts to build out the menu and drive adoption for its recently launched Panther molecular diagnostics system.

Hologic did not break out separate figures for the Gen-Probe business, noting that all of the products from that business had been integrated into Hologic's Diagnostics group. However, during a conference call recapping the company's fiscal Q1 earnings, Glen Muri, CFO and executive vice president of finance and administration, noted that Gen-Probe's clinical diagnostics operations, which make up two-thirds of that business' total revenues, were up 9 percent year over year, while blood screening, which makes up the other third, was down "slightly" as the result of the timing of instrument sales to Novartis.

Based on Gen-Probe's revenues for the comparable year-ago quarter, in which it logged $90.6 million and $62.1 million in clinical diagnostics and blood screening revenues, respectively, Gen-Probe's clinical diagnostic products brought in approximately $98.75 million in revenues in Hologic's fiscal Q1, while its blood screening products contributed less than $62.1 million.

"Our Aptima [sexually transmitted disease] products remain the largest contributor to clinical diagnostics, led by Aptima Combo 2 for CT/GC, with increasing contributions from newer [Aptima] portfolio additions Trichomonas and [human papillomavirus]," Muir said. "The trends we saw in the first quarter from these primary business lines were positive and support our long-term expectations of the Gen-Probe business lines."

The Aptima products use Gen-Probe's transcription-mediated amplification technology. Aptima Combo 2 CT/GC assay and Trichomonas run on Gen-Probe's first-generation Tigris DTS (direct tube sampling) system and the next-generation Panther system; while its HPV assay currently runs only on Tigris but is currently being evaluated for use on Panther.

These products are also part of Hologic's women's health molecular diagnostics franchise, which also includes legacy Hologic products such as Cervista HPV, an assay that uses Invader signal amplification chemistry to detect DNA from 14 high-risk HPV types.

Overall, Hologic's women's health molecular diagnostics franchise grew 12 percent on a year-over-year basis in Q1, Muir noted during the call. This growth was primarily driven by Aptima Combo 2, "which continued its strong market leadership position in CT/GC testing and grew mid-to-high single digits year over year after adjusting for the impact of [Hurricane] Sandy," Muir said. "Our HPV franchise continues to perform well, posting strong growth of 27 percent on a year-over-year basis. Both Cervista and Aptima HPV posted solid growth in the quarter, each with double-digit year-over-year increases. Overall, our HPV franchise remains on track to exceed 20 percent growth through [2013], just as it did in the first quarter."

Hologic CEO Robert Cascella said during the call that the launch of Panther "continues to proceed quite well and is also according to plan." Gen-Probe launched the Panther system in Europe in late 2010; and last May, just after Hologic announced the acquisition of Gen-Probe, the US Food and Drug Administration cleared the system for marketing in the US.

"Our initial focus has been on upgrading existing [Tigris] DTS customers to Panther systems," Cascella said. "We are now shifting our emphasis to new Panther placements. As we move into this phase of our launch, we expect to see benefits from incremental CT/GC volumes. The recent clearance of Aptima Trich on Panther in the US makes it even more attractive to mid-tier labs, especially those looking to offer some differentiation in the form of test menu."

Cascella noted that Hologic next expects to offer HPV and hepatitis B genotyping tests on Panther by the end of calendar 2013.

"The Panther remains the premium automated solution for mid-tier labs," and is "fundamental" to Hologic's molecular diagnostics strategy," he added. "As menu expands on the system, we believe we provide powerful efficiencies and revenue benefits to our lab partners."

Cascella noted that Hologic and Gen-Probe previously said that they expected to place 1,000 Panthers by the end of fiscal year 2015, which would be by the end of September 2015.

During the call, analysts further pressed Hologic execs on the effort to build out Panther's test menu. One analyst asked when investors could start seeing the benefits of marrying Gen-Probe's molecular diagnostics portfolio with Hologic's sizeable sales and marketing force, to which Cascella replied benefits are already starting to manifest.

"Lab sales [are] … very time-consuming, it's not transactional, there's a lot of time that goes into education, there's a lot of time that goes into equipment validation assuming that you've won the account," he said. "It could be anywhere from 60 to 90 days from an order win or placement before you even start to see dollar one of revenue. There's a lot of activity that's going on with the combined teams today and driven by both the physician sales team as well as our laboratory sales team. [We believe] that we [will] start seeing the fruits of a lot of these efforts [in the second half of 2013]."

Another analyst bemoaned the current lack of menu on Panther, noting his sources have indicated that there is significant interest in Panther, but that several potential customers are waiting for at least an HPV assay on the platform.

Cascella reiterated that HPV and HBV genotyping are expected to be available on Panther by the end of this calendar year, and said that the recently launched Trichomonas assay was also expected to lure potential customers.

"But clearly, our goal is to get … locked in with now CT/GC and Trich and growing to HPV and to genotyping," he said. "What that will probably do is, on an interim basis, cause us to use our Cervista and [high-throughput automation]. It's kind of a bridging technology until we're ready to convert over to Panther. But it is … certainly both a demand and a requirement from our customers that we are growing menu on that product, and that is our full intention. And by the end of this year, I think we'll fulfill the initial requirement."

In general, Gen-Probe's integration into Hologic "is proceeding extremely well," Cascella said, noting that the combined company is on track to exceed its target of $40 million in cost synergies in the first year and $75 million within three years, and further noting that those targets were "very conservative."

The relatively quick success of this integration enabled the company to accelerate the timing of a number of planned strategic organizational changes.

"Based upon our progress, the timeline for Carl Hull to retire from his role as general manager of Diagnostics was expedited," Cascella said. "The reasons for acceleration of this timing are all related to positive factors and the achievement of key internal integration milestones, including a complete sales force training and integration program; our facility relocation plans progressing superbly at this point; the completion of organizational restructuring and customer hand-offs; and finally, the approval of Panther, HPV genotyping, and [Trichomonas] coming sooner than expected."

As previously disclosed, Hull will remain a consultant to Hologic through mid-August.

In overall earnings news, for the fiscal first quarter ended Dec. 29, 2012, Hologic logged $631.4 million in total revenues, compared to $472.7 million a year ago, missing the consensus Wall Street estimate of $645.9 million.

Product sales of $535.2 million were up 36 percent from $392.1 million a year ago, while service and other revenues increased 19 percent to $96.2 million from $80.6 million.

The aforementioned Diagnostics unit, which brought in $305.9 million in revenues, represented about 49 percent of Hologic's total business in the quarter.

Hologic also reported a 2.5 percent increase in Breast Health revenues, to $220.8 million from $215.4 million; a 3 percent uptick in GYN Surgical revenues, to $80.9 million from $78.5 million; and a 4.1 percent decrease in Skeletal Health revenues, to $23.7 million from $24.7 million in the year-ago period.

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