SAN DIEGO, Nov. 2, 2011 /PRNewswire/ -- Gen-Probe Incorporated (NASDAQ: GPRO) today reported financial results for the third quarter of 2011, with total revenues of $139.1 million and non-GAAP earnings per share (EPS) of $0.57.
“Gen-Probe’s non-GAAP financial results in the third quarter of 2011 were in line with our expectations,” said Carl Hull, the Company’s president and chief executive officer. “In addition, we are pleased with the progress of our two ongoing new product introductions, and excited that we are already launching our APTIMA HPV assay, which was just approved by the FDA.”
On a GAAP basis, Gen-Probe reported a loss of ($0.33) per share in the third quarter, caused by a $39.5 million other-than-temporary impairment loss in the value of the Company’s equity investment in Pacific Biosciences of California, Inc. Gen-Probe recognized this loss because the trading price of Pacific Biosciences’ stock may remain below the Company’s cost basis for an extended period of time. In June 2010, Gen-Probe made a $50 million investment in Pacific Biosciences and the firms began working together to develop third-generation sequencing systems for the diagnostics market. That collaboration remains active.
Key financial results for the third quarter of 2011 were ($ in millions, except EPS):
Non-GAAP | GAAP | |||||||
2011 | 2010 | Change | 2011 | 2010 | Change | |||
Product sales | $136.4 | $128.3 | +6% | $136.4 | $128.3 | +6% | ||
Total revenues | $139.1 | $132.6 | +5% | $139.1 | $132.6 | +5% | ||
Operating profit | $37.1 | $38.4 | -3% | $32.4 | $35.4 | -8% | ||
Net income (loss) | $27.4 | $28.1 | -2% | ($15.4) | $27.4 | -156% | ||
EPS | $0.57 | $0.57 | -- | ($0.33) | $0.56 | -159% | ||
Revenue Detail
In the third quarter of 2011, clinical diagnostics product sales grew by 16% 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 product sales by GTI Diagnostics (GTI), which was not part of Gen-Probe in the prior year period. Foreign currency fluctuations increased clinical diagnostics sales by an estimated $0.7 million compared to the prior year period.
In blood screening, sales declined by 6% compared to the prior year period, as expected, mainly due to lower shipments of instruments to Novartis, the Company’s blood screening partner. Foreign currency fluctuations increased blood screening sales by an estimated $1.7 million compared to the prior year period.
Sales of research products and services in the third quarter of 2011 were $2.4 million, down 23% compared to the prior year period.
Third quarter product sales were ($ in millions):
Three Months Ended Sept. 30, | Change | |||||
2011 | 2010 | As Reported | Constant Currency | |||
Clinical Diagnostics | $86.6 | $74.9 | +16% | +15% | ||
Blood Screening | $47.4 | $50.3 | -6% | -9% | ||
Research Products and Services | $2.4 | $3.1 | -23% | -23% | ||
Total Product Sales | $136.4 | $128.3 | +6% | +4% | ||
Collaborative research revenues in the third quarter of 2011 were $1.1 million, compared to $3.4 million in the prior year period, a decrease of 68% 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. The PANTHER system remains on track to be launched into international blood screening markets next year.
Royalty and license revenues in the third quarter of 2011 were $1.6 million, compared to $0.8 million in the prior year period, an increase of 100% that resulted mainly from increased royalties received from Novartis related to the plasma testing market.
GAAP Income Statement Details
Gross margin on product sales was 70.3% in the third quarter of 2011, compared to 67.2% in the prior year period. This increase resulted mainly from a favorable product sales mix, with higher sales of APTIMA products and lower sales of instrumentation to Novartis.
Acquisition-related amortization expenses were $2.8 million in the third quarter of 2011, compared to $2.2 million in the prior year period, an increase of 27% that resulted mainly from the acquisition of GTI in December of 2010.
Research and development (R&D) expenses were $27.9 million in the third quarter of 2011, compared to $27.4 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 $17.3 million in the third quarter of 2011, compared to $13.9 million in the prior year period, an increase of 24% that resulted primarily from the addition of GTI’s cost structure and ongoing European commercial expansion.
General and administrative (G&A) expenses were $18.3 million in the third quarter of 2011, compared to $11.5 million in the prior year period, an increase of 59% that resulted mainly from increased legal expenses, the addition of GTI’s cost structure, and higher stock-based compensation charges. G&A expenses also were unusually low in the prior year period due to the receipt of a $2.9 million arbitration award from Qiagen, which was recorded as a credit to G&A expense.
Total other expense, net, was $37.7 million in the third quarter of 2011, compared to other income, net, of $4.4 million in the prior year period. As previously discussed, in the third quarter of 2011 the Company recognized a $39.5 million loss related to its investment in Pacific Biosciences. In addition, in the prior year period, the Company recorded a $1.5 million non-cash gain on a change in the fair value of contingent consideration in connection with the acquisition of PRODESSE.
Income tax expense was $10.0 million in the third quarter of 2011, as the other-than-temporary impairment loss was not tax-deductible.
Non-GAAP Income Statement Details
In the third quarter of 2011, non-GAAP gross margin on product sales, R&D expenses, and marketing and sales expenses were similar to the corresponding GAAP results.
Excluding transaction-related expenses, restructuring costs and non-recurring legal fees, non-GAAP G&A expenses were $16.5 million in the third quarter of 2011, compared to $10.8 million in the prior year period, an increase of 53%.
Total other income, net, was $1.8 million in the third quarter of 2011, compared to total other income, net, of $2.9 million in the prior year period, a decrease of 38%.
Non-GAAP income tax expense was $11.5 million in the third quarter of 2011, leading to an effective tax rate of 30%.
Cash Flows and Balance Sheet
In the third quarter of 2011, Gen-Probe generated net cash of $42.3 million from operating activities, and spent $11.2 million on property, plant and equipment, leading to free cash flow of $31.1 million.
Gen-Probe continues to have a strong balance sheet. As of September 30, 2011, the Company had $426.3 million of cash, cash equivalents and marketable securities, and $248.0 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 0.3%.
During the third quarter of 2011, Gen-Probe repurchased more than 1.7 million shares of Company stock for $102 million, at an average purchase price of $58.49 per share. This completed the $150 million repurchase plan that was authorized by Gen-Probe’s board of directors in February of 2011.
New Stock Repurchase Plan
Gen-Probe’s board of directors has authorized the repurchase of up to an additional $100 million of the Company’s stock through June of 2012. Repurchases may occur from time to time and at the Company’s discretion, depending on market conditions and other factors. Shares may be purchased on the open market or through private transactions, pursuant to Rule 10b5-1 trading plans or other available means.
