SAN DIEGO, July 28, 2011 /PRNewswire/ -- Gen-Probe Incorporated (NASDAQ: GPRO) today reported financial results for the second quarter of 2011, with total revenues of $135.9 million and non-GAAP earnings per share (EPS) of $0.51.
“Gen-Probe posted record sales of APTIMA women’s health products in the second quarter of 2011, while supply chain fluctuations caused blood screening revenue to decline compared to strong sales a year ago,” said Carl Hull, the Company’s president and chief executive officer. “In addition, we are off to a good start with the first of several new product launches in the United States, and with our PANTHER® introduction in Europe.”
Key financial results for the second quarter of 2011 were ($ in millions, except EPS):
Non-GAAP | GAAP | |||||||
2011 | 2010 | Change | 2011 | 2010 | Change | |||
Product sales | $132.9 | $132.7 | -- | $132.9 | $132.7 | -- | ||
Total revenues | $135.9 | $138.6 | -2% | $135.9 | $138.6 | -2% | ||
Operating profit | $34.1 | $37.2 | -8% | $29.8 | $34.2 | -13% | ||
Net income | $25.3 | $26.0 | -3% | $22.3 | $28.1 | -21% | ||
EPS | $0.51 | $0.52 | -2% | $0.45 | $0.57 | -21% | ||
Revenue Detail
In the second quarter of 2011, clinical diagnostics product sales grew by 18% compared to the prior year period. This increase was driven primarily by domestic and international growth of the APTIMA Combo 2® assay for detecting Chlamydia and gonorrhea, and by the inclusion of GTI product sales, which were not part of Gen-Probe in the prior year period. Foreign currency fluctuations increased clinical diagnostics sales by an estimated $1.3 million compared to the prior year period.
In blood screening, sales declined compared to the second quarter of 2010, as expected, due to lower shipments of assays and instruments to Novartis, the Company’s blood screening partner. Although total blood screening assay revenue for the joint business increased compared to the prior year period, Gen-Probe’s assay shipments to Novartis decreased by nearly $6 million, instrument shipments declined by nearly $5 million, and additional supply chain fluctuations reduced sales by approximately $3 million.
“We believe the decrease in blood screening sales resulted mainly from reductions in our partner’s inventory levels and lower instrument revenues,” said Hull. “The underlying fundamentals of our blood screening business remain healthy, evidenced by the solid donation volumes, market share and profitability we experienced in the second quarter.”
The percentage decline in blood screening sales in the second quarter of 2011 was magnified when compared to strong sales in the prior year period, which were more than $5 million higher than in any other quarter last year. Finally, foreign currency fluctuations increased blood screening sales by an estimated $1.1 million compared to the prior year period.
Sales of research products and services in the second quarter of 2011 were $2.3 million, down 28% compared to the prior year period due to continued market weakness affecting contract research organizations. Foreign currency fluctuations increased sales of research products and services by an estimated $0.2 million compared to the prior year period.
Second quarter product sales were ($ in millions):
Three Months Ended June 30, | Change | |||||
2011 | 2010 | As Reported | Constant Currency | |||
Clinical Diagnostics | $87.5 | $73.9 | +18% | +17% | ||
Blood Screening | $43.2 | $55.7 | -22% | -24% | ||
Research Products and Services | $2.3 | $3.2 | -28% | -34% | ||
Total Product Sales | $132.9 | $132.7 | -- | -2% | ||
Collaborative research revenues in the second quarter of 2011 were $1.6 million, compared to $4.1 million in the prior year period, a decrease of 61% that resulted primarily from an expected decrease in funding from Novartis associated with the development of the fully automated PANTHER instrument for the blood screening market.
Royalty and license revenues in the second quarter of 2011 were $1.4 million, compared to $1.8 million in the prior year period.
GAAP Income Statement Details
Gross margin on product sales was 70.3% in the second quarter of 2011, compared to 66.6% in the prior year period. This increase resulted mainly from a favorable product sales mix, namely higher sales of APTIMA products and lower sales of instrumentation to Novartis.
Acquisition-related amortization expenses were $2.7 million in the second quarter of 2011, compared to $2.2 million in the prior year period, an increase of 23% that resulted mainly from the acquisition of GTI in December of 2010.
Research and development (R&D) expenses were $27.7 million in the second quarter of 2011, compared to $27.1 million in the prior year period, an increase of 2% that resulted primarily from the addition of GTI’s R&D programs.
Marketing and sales expenses were $17.5 million in the second quarter of 2011, compared to $15.8 million in the prior year period, an increase of 11% that resulted primarily from the addition of GTI’s cost structure, and ongoing European commercial expansion.
General and administrative (G&A) expenses were $18.7 million in the second quarter of 2011, compared to $15.0 million in the prior year period, an increase of 25% that resulted from the addition of GTI’s cost structure, increased legal expenses, and higher stock-based compensation.
Total other income, net, was $3.8 million in the second quarter of 2011, compared to $6.9 million in the prior year period, a decrease of 45% that resulted primarily from a non-cash gain in the prior year period related to a change in the fair value of contingent consideration in connection with the acquisition of PRODESSE.
Income tax expense was $11.2 million in the second quarter of 2011, leading to a tax rate of 33%.
Non-GAAP Income Statement Details
Excluding $0.1 million of acquisition-related depreciation expense, gross margin on product sales was 70.4% in the second quarter of 2011, compared to 66.7% in the prior year period.
Excluding transaction-related and restructuring costs, G&A expenses were $17.3 million in the second quarter of 2011, compared to $14.3 million in the prior year period.
Income tax expense was $12.5 million in the second quarter of 2011, leading to a tax rate of 33%.
Cash Flows and Balance Sheet
In the second quarter of 2011, Gen-Probe generated net cash of $45.4 million from operating activities, more than double GAAP net income of $22.3 million. The Company spent $12.5 million on property, plant and equipment in the quarter, leading to free cash flow of $32.9 million.
Gen-Probe continues to have a strong balance sheet. As of June 30, 2011, the Company had $529.4 million of cash, cash equivalents and marketable securities, and $248 million of short-term debt. The Company pays interest on this debt at a rate 0.6% above the one-month London Interbank Offered Rate (LIBOR), which was recently below 0.2%.
Updated 2011 Financial Guidance
“We are tightening our 2011 revenue guidance based on our first-half performance,” said Herm Rosenman, the Company’s senior vice president, finance, and chief financial officer. “We also are adjusting our EPS guidance based on the higher share count and stock compensation expense resulting from the recent increase in our share price, the effects of which are partially offset by higher gross margins.” Gen-Probe’s updated 2011 financial guidance is provided below:
