Gen-Probe Leaps Ahead of Forecast

Diagnostic product maker Gen-Probe Inc. (GPRO - Analyst Report) announced second-quarter fiscal 2010 adjusted earnings of 52 cents per share, exceeding the Zacks Consensus Estimate of 49 cents and the year-ago earnings of 45 cents. Net income soared 42% year-over-year to $28.1 million (or 57 cents a share), riding on solid top-line growth.

Revenues

Revenues surged 15% year over year to $138.6 million, beating the Zacks Consensus Estimate of $137 million, buoyed by double-digit sales growth from the clinical diagnostics and blood screening product businesses. Clinical diagnostic revenues grew 10%, fueled by higher adoption of APTIMA Combo 2 assay and Prodesse products.

Blood screening product sales cruised 22% year over year to $55.7 million. Growth was supported by higher shipment of Procleix Ultrio and West Nile virus assays, as well as favorable currency exchange translation and increased sales of TIGRIS systems to strategic partner Novartis (NVS - Snapshot Report).

Revenues from research products and services, however, dipped 11% year over year to $3.2 million, primarily due to the divestiture of the BioKits food testing business in 2009 and unfavorable foreign exchange swings.

Margins & Expenses

Adjusted (excluding acquisition-related depreciation charges) gross margin for the quarter fell to 66.7% from 67.3% a year ago as low-margin products mostly constituted the sales mix. Research and development expenses increased 4% year over year to $27.1 million, mainly stemming from the company's investment on developing the PANTHER instrument and PCA3 and trichomonas assays. Marketing and sales expenses rose 13% to $15.8 million as a result of sales force expansion in Europe and market development initiatives.

Balance Sheet, Cash Flow & Share Repurchases

Gen-probe exited the quarter with a healthy balance sheet. The company had cash and cash equivalents and marketable securities of $474.8 million (up 2.3% year over year) and short-term debt of $240.8 million (flat year over year).

Gen-Probe generated $41.1 million in cash flows from operations during the quarter and invested $6.7 million in capital expenditure, resulting in free cash flow of $34.4 million. The company repurchased 910,500 shares in the quarter for $41.3 million.

Outlook

The company provided its updated guidance for fiscal 2010 with EPS, on a reported basis, now projected in the range of $2.07-$2.20, up from $1.99-$2.12. However, it continues to expect adjusted EPS between $2.12 and $2.25 and revenues between $545 million and $565 million. Adjusted operating margin target remains at 27-28%.

California-based Gen-Probe has been a pioneer in the commercial and scientific development of nucleic acid testing (NAT) for the diagnosis of infectious diseases. The company sells its products in the clinical diagnostic as well as blood screening markets. Gen-Probe is a market leader in domestic gonorrhea and chlamydia testing with its PACE and APTIMA assay product lines.

Gen-Probe faces stiff competition from larger, more established firms in the molecular diagnostic industry such as Roche (RHHBY), Becton, Dickinson & Company (BDX - Analyst Report and Abbott Labs (ABT - Analyst Report).

Read the full analyst report on GPRO

Read the full analyst report on RHHBY

Read the full analyst report on BDX

Read the full analyst report on ABT

Read the full analyst report on NVS