##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  GEN-PROBE INCORPORATED
  Delaware
    
    33-0044608(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)10210 Genetic Center DriveSan Diego, CA
    
    92121(Address of Principal Executive
    
    (Zip Code)Offices)
 (858) 410-8000
 þ o
  þ o o
 o þ




---



##### 



GEN-PROBE INCORPORATED
 TABLE OF CONTENTS
FORM 10-Q
 PagePART IItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    23PART IIItem 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 6. Exhibits
    
    
    38SIGNATURES
    
    
    39EXHIBIT 10.97EXHIBIT 10.98EXHIBIT 10.99EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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##### Table of Contents



GEN-PROBE INCORPORATED
 CONSOLIDATED BALANCE SHEETS
  March 31,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    67,428
    
    
    $
    87,905Short-term investments
    
    
    252,240
    
    
    
    202,008Trade accounts receivable, net of allowance for
doubtful accounts of $620 and $670 at March 31,
2007 and December 31, 2006, respectively
    
    
    27,582
    
    
    
    25,880Accounts receivable  other
    
    
    2,604
    
    
    
    1,646Inventories
    
    
    51,713
    
    
    
    52,056Deferred income tax   short term
    
    
    6,905
    
    
    
    7,247Prepaid expenses
    
    
    13,840
    
    
    
    11,362Other current assets
    
    
    3,938
    
    
    
    2,583Total current assets
    
    
    426,250
    
    
    
    390,687Property, plant and equipment, net
    
    
    133,962
    
    
    
    134,614Capitalized software
    
    
    17,809
    
    
    
    18,437Goodwill
    
    
    18,621
    
    
    
    18,621Deferred income tax  long term
    
    
    2,064
    
    
    
    2,064License, manufacturing access fees and other assets
    
    
    60,813
    
    
    
    59,416Total assets
    
    $
    659,519
    
    
    $
    623,839LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    12,038
    
    
    $
    13,586Accrued salaries and employee benefits
    
    
    15,831
    
    
    
    16,723Other accrued expenses
    
    
    3,142
    
    
    
    3,320Income tax payable
    
    
    7,325
    
    
    
    14,075Deferred revenue
    
    
    758
    
    
    
    921Total current liabilities
    
    
    39,094
    
    
    
    48,625Non-current income tax payable
    
    
    14,008
    
    
    
    Deferred income tax
    
    
    4
    
    
    
    Deferred revenue
    
    
    3,500
    
    
    
    3,667Deferred rent
    
    
    100
    
    
    
    128Deferred compensation plan liabilities
    
    
    1,480
    
    
    
    1,211Commitments and contingenciesStockholders equity:Preferred stock, $.0001 par value per share;
20,000,000 shares authorized, none issued and
outstanding
    
    
    
    
    
    
    Common stock, $.0001 par value per share;
200,000,000 shares authorized, 52,405,312 and
52,233,656 shares issued and outstanding at
March 31, 2007 and December 31, 2006,
respectively
    
    
    5
    
    
    
    5Additional paid-in capital
    
    
    344,713
    
    
    
    334,184Accumulated other comprehensive income (loss)
    
    
    78
    
    
    
    (5
    )Retained earnings
    
    
    256,537
    
    
    
    236,024Total stockholders equity
    
    
    601,333
    
    
    
    570,208Total liabilities and stockholders equity
    
    $
    659,519
    
    
    $
    623,839
  3




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##### Table of Contents



GEN-PROBE INCORPORATED
 CONSOLIDATED STATEMENTS OF INCOME
 
 Three Months EndedMarch 31,2007
    
    
    2006Revenues:Product sales
    
    $
    87,152
    
    
    $
    78,528Collaborative research revenue
    
    
    2,352
    
    
    
    6,885Royalty and license revenue
    
    
    11,547
    
    
    
    843Total revenues
    
    
    101,051
    
    
    
    86,256Operating expenses:Cost of product sales
    
    
    29,160
    
    
    
    26,609Research and development
    
    
    20,258
    
    
    
    19,326Marketing and sales
    
    
    9,536
    
    
    
    8,862General and administrative
    
    
    11,281
    
    
    
    10,658Total operating expenses
    
    
    70,235
    
    
    
    65,455Income from operations
    
    
    30,816
    
    
    
    20,801Total other income, net
    
    
    2,545
    
    
    
    1,757Income before income tax
    
    
    33,361
    
    
    
    22,558Income tax expense
    
    
    11,886
    
    
    
    8,330Net income
    
    $
    21,475
    
    
    $
    14,228Net income per share:Basic
    
    $
    0.41
    
    
    $
    0.28Diluted
    
    $
    0.40
    
    
    $
    0.27Weighted average shares outstanding:Basic
    
    
    52,170
    
    
    
    51,248Diluted
    
    
    53,634
    
    
    
    52,865
  4




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##### Table of Contents



GEN-PROBE INCORPORATED
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Three Months EndedMarch 31,2007
    
    
    2006Operating activitiesNet income
    
    $
    21,475
    
    
    $
    14,228Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    8,273
    
    
    
    6,061Stock-based compensation charges
    
    
    5,105
    
    
    
    5,123Stock option income tax benefits
    
    
    58
    
    
    
    Excess tax benefit from employee stock options
    
    
    (1,284
    )
    
    
    (4,394
    )Gain on disposal of property and equipment
    
    
    
    
    
    
    (21
    )Changes in assets and liabilities:Accounts receivable
    
    
    (2,649
    )
    
    
    2,571Inventories
    
    
    (39
    )
    
    
    (191
    )Prepaid expenses
    
    
    (2,478
    )
    
    
    3,246Other current assets
    
    
    (1,354
    )
    
    
    (1,320
    )Other long term assets
    
    
    (598
    )
    
    
    Accounts payable
    
    
    (1,549
    )
    
    
    (601
    )Accrued salaries and employee benefits
    
    
    (891
    )
    
    
    1,715Other accrued expenses
    
    
    (25
    )
    
    
    1,240Income tax payable
    
    
    7,815
    
    
    
    3,822Deferred revenue
    
    
    (330
    )
    
    
    (2,507
    )Deferred income tax
    
    
    106
    
    
    
    (188
    )Deferred rent
    
    
    (28
    )
    
    
    (29
    )Deferred compensation plan liabilities
    
    
    269
    
    
    
    Net cash provided by operating activities
    
    
    31,876
    
    
    
    28,755Investing activitiesProceeds from sales and maturities of short-term investments
    
    
    15,871
    
    
    
    25,935Purchases of short-term investments
    
    
    (65,863
    )
    
    
    (36,742
    )Purchases of property, plant and equipment
    
    
    (5,894
    )
    
    
    (17,768
    )Capitalization of intangible assets, including license and manufacturing access fees
    
    
    (1,817
    )
    
    
    (1,852
    )Other assets
    
    
    (352
    )
    
    
    17Net cash used in investing activities
    
    
    (58,055
    )
    
    
    (30,410
    )Financing activitiesExcess tax benefit from employee stock options
    
    
    1,284
    
    
    
    4,394Proceeds from issuance of common stock
    
    
    4,402
    
    
    
    9,449Net cash provided by financing activities
    
    
    5,686
    
    
    
    13,843Effect of exchange rate changes on cash and cash equivalents
    
    
    16
    
    
    
    74Net (decrease) increase in cash and cash equivalents
    
    
    (20,477
    )
    
    
    12,262Cash and cash equivalents at the beginning of period
    
    
    87,905
    
    
    
    32,328Cash and cash equivalents at the end of period
    
    $
    67,428
    
    
    $
    44,590
  5




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Notes to the Consolidated Financial Statements (unaudited)
     Recent accounting pronouncements
   Contingencies
  Principles of consolidation
  Use of estimates
  6




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##### Table of Contents



Foreign currencies
   Share-based payments
    Stock Option Plans
    
    ESPP2007
    
    2006
    
    2007
    
    2006Risk-free interest rate
    
    
    4.5
    %
    
    
    4.4
    %
    
    
    5.1
    %
    
    
    4.0
    %Volatility
    
    
    36
    %
    
    
    44
    %
    
    
    29
    %
    
    
    41
    %Dividend yield
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Expected term (years)
    
    
    4.2
    
    
    
    5.4
    
    
    
    0.5
    
    
    
    0.5Resulting average fair value
    
    $
    17.66
    
    
    $
    23.13
    
    
    $
    12.03
    
    
    $
    12.52
  Weighted Average
    
    
    UnrecognizedRemaining Expense
    
    
    Expense as ofAwards
    
    Life (Years)
    
    
    March 31, 2007Options
    
    
    1.6
    
    
    $
    29,150ESPP
    
    
    0.2
    
    
    
    80Restricted stock
    
    
    1.6
    
    
    
    7,726Deferred Issuance Restricted Stock
    
    
    1.3
    
    
    
    1,592$
    38,548
 7




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##### Table of Contents



Impact of SFAS No. 123(R)
  Three Months EndedMarch 31,2007
    
    
    2006Cost of product sales
    
    $
    952
    
    
    $
    133Research and development
    
    
    1,243
    
    
    
    1,889Marketing and sales
    
    
    508
    
    
    
    793General and administrative
    
    
    1,582
    
    
    
    1,852Reduction of operating income before income tax
    
    
    4,285
    
    
    
    4,667Income tax benefit
    
    
    (1,879
    )
    
    
    (1,651
    )Reduction of net income
    
    $
    2,406
    
    
    $
    3,016Reduction of net income per share:Basic
    
    $
    0.05
    
    
    $
    0.06Diluted
    
    $
    0.04
    
    
    $
    0.06
    Three Months EndedMarch 31,2007
    
    
    2006Net income
    
    $
    21,475
    
    
    $
    14,228Weighted average shares outstanding  Basic
    
    
    52,170
    
    
    
    51,248Effect of dilutive common stock options outstanding
    
    
    1,464
    
    
    
    1,617Weighted average shares outstanding  Diluted
    
    
    53,634
    
    
    
    52,865Net income per share:Basic
    
    $
    0.41
    
    
    $
    0.28Diluted
    
    $
    0.40
    
    
    $
    0.27
    8




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##### Table of Contents



Three Months EndedMarch 31,2007
    
    
    2006Net income
    
    $
    21,475
    
    
    $
    14,228Change in unrealized gain (loss) on investments
    
    
    191
    
    
    
    (349
    )Foreign currency translation adjustment
    
    
    (108
    )
    
    
    210Other
comprehensive income (loss), net
    
    
    83
    
    
    
    (139
    )Comprehensive income
    
    $
    21,558
    
    
    $
    14,089
   Inventories
 March 31,
    
    
    December 31,2007
    
    
    2006Raw materials and supplies
    
    $
    9,554
    
    
    $
    9,479Work in process
    
    
    25,188
    
    
    
    25,018Finished goods
    
    
    16,971
    
    
    
    17,559$
    51,713
    
    
    $
    52,056
 Property, plant and equipment
 March 31,
    
    
    December 31,2007
    
    
    2006Land
    
    $
    13,862
    
    
    $
    13,862Building
    
    
    70,946
    
    
    
    70,928Machinery and equipment
    
    
    132,184
    
    
    
    128,572Tenant improvements
    
    
    28,932
    
    
    
    28,185Furniture and fixtures
    
    
    16,609
    
    
    
    15,995Construction in-progress
    
    
    1,138
    
    
    
    618Property, plant and equipment (at cost)
    
    
    263,671
    
    
    
    258,160Less accumulated depreciation and amortization
    
    
    (129,709
    )
    
    
    (123,546
    )Property, plant and equipment (net)
    
    $
    133,962
    
    
    $
    134,614
 License, manufacturing access fees and other assets
 March 31,
    
    
    December 31,2007
    
    
    2006Patents
    
    $
    16,906
    
    
    $
    16,689Purchased intangible assets
    
    
    33,636
    
    
    
    33,636License and manufacturing access fees
    
    
    53,326
    
    
    
    51,726Investment in Molecular Profiling Institute, Inc.
    
    
    2,500
    
    
    
    2,500Investment in Qualigen, Inc.
    
    
    6,993
    
    
    
    6,993Other assets
    
    
    2,890
    
    
    
    2,293116,251
    
    
    
    113,837Less accumulated amortization
    
    
    (55,438
    )
    
    
    (54,421
    )$
    60,813
    
    
    $
    59,416
 9




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##### Table of Contents



Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueMunicipal securities
    
    $
    251,757
    
    
    $
    92
    
    
    $
    (853
    )
    
    $
    250,996Foreign debt securities
    
    
    1,244
    
    
    
    
    
    
    
    
    
    
    
    1,244Total short-term investments
    
    $
    253,001
    
    
    $
    92
    
    
    $
    (853
    )
    
    $
    252,240
  Less than 12 Months
    
    
    More than 12 MonthsEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesMunicipal securities
    
    $
    85,639
    
    
    $
    (162
    )
    
    $
    107,657
    
    
    $
    (691
    )Foreign debt securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total short-term investments
    
    $
    85,639
    
    
    $
    (162
    )
    
    $
    107,657
    
    
    $
    (691
    )
        10




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##### Table of Contents



Stock options
   WeightedAverage
    
    
    AggregateRemaining
    
    
    IntrinsicNumber of
    
    
    Weighted Average
    
    
    Contractual
    
    
    ValueShares
    
    
    Exercise Price
    
    
    Life (Years)
    
    
    (in thousands)Outstanding at December 31, 2006
    
    
    6,300
    
    
    $
    34.99Granted
    
    
    134
    
    
    
    48.73Exercised
    
    
    (170
    )
    
    
    25.80Cancelled
    
    
    (107
    )
    
    
    43.63Outstanding at March 31, 2007
    
    
    6,157
    
    
    
    35.39
    
    
    
    6.7
    
    
    $
    71,972Exercisable at March 31, 2007
    
    
    3,447
    
    
    $
    27.72
    
    
    
    6.3
    
    
    $
    66,720
   Exercisable
    
    
    Unexercisable
    
    
    TotalWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseAs of March 31, 2007
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceIn-the-Money
    
    
    3,261
    
    
    $
    26.45
    
    
    
    1,197
    
    
    $
    39.12
    
    
    
    4,458
    
    
    $
    29.85Out-of-the-Money
    
    
    186
    
    
    
    50.12
    
    
    
    1,513
    
    
    
    49.91
    
    
    
    1,699
    
    
    
    49.93Total Options Outstanding
    
    
    3,447
    
    
    
    
    
    
    
    2,710
    
    
    
    
    
    
    
    6,157
  WeightedAverageWeighted Average
    
    
    RemainingNumber of
    
    
    Grant-Date
    
    
    ContractualShares
    
    
    Fair Value
    
    
    Life (Years)Non-vested at December 31, 2006
    
    
    2,959
    
    
    $
    19.51Granted
    
    
    134
    
    
    
    17.66Vested
    
    
    (278
    )
    
    
    17.87Forfeited
    
    
    (105
    )
    
    
    19.13Non-vested at March 31, 2007
    
    
    2,710
    
    
    $
    19.73
    
    
    
    7.3
 11




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##### Table of Contents



Balance at December 31, 2006
    
    $
    570,208Net income
    
    
    21,475Cumulative effect adjustment upon adoption of FIN No. 48
    
    
    (962
    )Other
comprehensive income, net
    
    
    83Net proceeds from the issuance of common stock
    
    
    4,402Purchase of common stock by board members
    
    
    34Cancellation of restricted stock awards
    
    
    (46
    )Stock-based compensation expense  restricted stock
    
    
    832Stock-based compensation expense  all other
    
    
    4,285Stock-based compensation  net capitalized to inventory
    
    
    (320
    )Tax benefit from the exercise of stock options
    
    
    1,342Balance at March 31, 2007
    
    $
    601,333
   Digene
Corporation
    12




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13




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Overview
    Recent Events
 Financial Results
  Corporate Collaborations
  14




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Product
Development
   Revenues
  Product sales
   Collaborative research revenue
  15




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##### Table of Contents



Royalty and license revenue
  Cost of product sales
     Research and development
   16




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Critical accounting policies and estimates
   New accounting requirement
  17




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##### Table of Contents



Results of Operations
 Three Months EndedMarch 31,
    
    
    Change2007
    
    
    2006
    
    
    Amount
    
    
    %(In millions, except per share data)Statement of income:Revenues:Product sales
    
    $
    87.2
    
    
    $
    78.5
    
    
    $
    8.7
    
    
    
    11
    %Collaborative research revenue
    
    
    2.4
    
    
    
    6.9
    
    
    
    (4.5
    )
    
    
    (65
    %)Royalty and license revenue
    
    
    11.5
    
    
    
    0.9
    
    
    
    10.6
    
    
    
    1178
    %Total revenues
    
    
    101.1
    
    
    
    86.3
    
    
    
    14.8
    
    
    
    17
    %Operating expenses:Cost of product sales
    
    
    29.2
    
    
    
    26.6
    
    
    
    2.6
    
    
    
    10
    %Research and development
    
    
    20.3
    
    
    
    19.3
    
    
    
    1.0
    
    
    
    5
    %Marketing and sales
    
    
    9.5
    
    
    
    8.9
    
    
    
    0.6
    
    
    
    7
    %General and administrative
    
    
    11.3
    
    
    
    10.7
    
    
    
    0.6
    
    
    
    6
    %Total operating expenses
    
    
    70.3
    
    
    
    65.5
    
    
    
    4.8
    
    
    
    7
    %Income from operations
    
    
    30.8
    
    
    
    20.8
    
    
    
    10.0
    
    
    
    48
    %Total other income, net
    
    
    2.6
    
    
    
    1.7
    
    
    
    0.9
    
    
    
    53
    %Income tax expense
    
    
    11.9
    
    
    
    8.3
    
    
    
    3.6
    
    
    
    43
    %Net income
    
    $
    21.5
    
    
    $
    14.2
    
    
    $
    7.3
    
    
    
    51
    %Net income per shareBasic
    
    $
    0.41
    
    
    $
    0.28
    
    
    $
    0.13
    
    
    
    46
    %Diluted
    
    $
    0.40
    
    
    $
    0.27
    
    
    $
    0.13
    
    
    
    48
    %Weighted average shares outstandingBasic
    
    
    52.2
    
    
    
    51.2Diluted
    
    
    53.6
    
    
    
    52.9
  Product sales
   Collaborative research revenue
  18




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##### Table of Contents



Royalty and license revenue
   Cost of product sales
     19




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##### Table of Contents



Research and development
  Marketing and sales
  General and administrative
  Total other income, net
  Income tax expense
  Liquidity and capital resources
  March 31,
    
    
    December 31,2007
    
    
    2006Cash, cash equivalents and short-term investments
    
    $
    319,668
    
    
    $
    289,913Working capital
    
    $
    387,156
    
    
    $
    342,062Current ratio
    
    
    11:1
    
    
    
    8:1
  Three Months EndedMarch 31,2007
    
    
    2006
    
    
    $ ChangeCash provided by (used in):Operating activities
    
    $
    31,876
    
    
    $
    28,755
    
    
    $
    3,121Investing activities
    
    
    (58,055
    )
    
    
    (30,410
    )
    
    
    27,645Financing activities
    
    
    5,686
    
    
    
    13,843
    
    
    
    (8,157
    )Purchases of property, plant and equipment (included in investing activities above)
    
    $
    (5,894
    )
    
    $
    (17,768
    )
    
    $
    (11,874
    )
 20




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Contractual obligations and commercial commitments
  Total
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterOperating leases (1)
    
    $
    887
    
    
    $
    650
    
    
    $
    167
    
    
    $
    70
    
    
    $
    
    
    
    $
    Material purchase commitments(2)
    
    
    20,923
    
    
    
    20,923
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Collaborative commitments(3)
    
    
    14,775
    
    
    
    1,960
    
    
    
    10,765
    
    
    
    1,400
    
    
    
    650
    
    
    
    Total (4)
    
    $
    36,585
    
    
    $
    23,533
    
    
    $
    10,932
    
    
    $
    1,470
    
    
    $
    650
    
    
    $
    
 
 (1)
    
    Reflects obligations on facilities under operating leases in place as of March 31,
2007. Future minimum lease payments are included in the table above. 21




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(2)
    
    Amounts represent our minimum purchase commitments from two key vendors for TIGRIS
instruments and raw materials used in manufacturing. Of the $15.4 million expected to be used
to purchase TIGRIS instruments, we anticipate that approximately $9.0 million will be sold to
Novartis.(3)
    
    In addition to the minimum payments due under our collaborative agreements included
in the table above, we may be required to pay up to $10.0 million in milestone payments, plus
royalties on net sales of any products using specified technology. Also, we may soon commit to
spend up to $6.0 million in R&D costs to develop a new instrument platform designed for mid to
low volume customers.(4)
    
    Does not include amounts relating to our obligations under our collaboration with
Novartis, pursuant to which both parties have obligations to each other. We are obligated to
manufacture and supply our blood screening assay to Novartis, and Novartis is obligated to
purchase all of the quantities of this assay specified on a 90-day demand forecast, due 90
days prior to the date Novartis intends to take delivery, and certain quantities specified on
a rolling 12-month forecast.      Available Information
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  22




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Foreign Currency Exchange Risk
   
 Item 4. Controls and Procedures
     23




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Our quarterly revenue and operating results may vary significantly in future periods and our stock
price may decline.*
  We are dependent on Novartis and other third parties for the distribution of some of our products.
If any of our distributors terminates its relationship with us or fails to adequately perform, our
product sales will suffer.*
    24




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If we cannot maintain our current corporate collaborations and enter into new corporate
collaborations, our product development could be delayed. In particular, any failure by us to
maintain our collaboration with Novartis with respect to blood screening would have a material
adverse effect on our business.
    If our TIGRIS instrument reliability does not meet market expectations, we may be unable to retain
our existing customers and attract new customers.*
  25




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Our future success will depend in part upon our ability to enhance existing products and to
develop and introduce new products.*
   We face intense competition, and our failure to compete effectively could decrease our revenues
and harm our profitability and results of operations.
     26




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We recently entered into collaboration agreements to develop NAT products for industrial testing
applications. We have limited experience operating in these markets and may not successfully
develop commercially viable products.
  Disruptions in the supply of raw materials and consumable goods or issues associated with the
quality thereof from our single source suppliers, including Roche Molecular Biochemicals, which is
an affiliate of one of our primary competitors, could result in a significant disruption in sales
and profitability.*
   27




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##### Table of Contents



We and our customers are subject to various governmental regulations, and we may incur significant
expenses to comply with, and experience delays in our product commercialization as a result of,
these regulations.*
        Our gross profit margin percentage on the sale of blood screening assays will decrease upon the
implementation of smaller pool size testing and individual donor testing.
   28




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##### Table of Contents



Because we depend on a small number of customers for a significant portion of our total revenues,
the loss of any of these customers or any cancellation or delay of a large purchase by any of
these customers could significantly reduce our revenues.*
  Intellectual property rights on which we rely to protect the technologies underlying our products
may be inadequate to prevent third parties from using our technologies or developing competing
products.
     29




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##### Table of Contents



The diagnostic products industry has a history of patent and other intellectual property
litigation, and we have been and may continue to be involved in costly intellectual property
lawsuits.
    We may be subject to future product liability claims that may exceed the scope and amount of our
insurance coverage, which would expose us to liability for uninsured claims.
  30




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##### Table of Contents



We are exposed to risks associated with acquisitions and other long-lived and intangible assets
that may become impaired and result in an impairment charge.*
  Future changes in financial accounting standards or practices or existing taxation rules or
practices may cause adverse unexpected revenue or expense fluctuations and affect our reported
results of operations.*
  We expect to continue to incur significant research and development expenses, which may make it
difficult for us to maintain profitability.
  We may not have financing for future capital requirements, which may prevent us from addressing
gaps in our product offerings or improving our technology.
    31




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##### Table of Contents



We have only one third-party manufacturer for each of our instrument product lines, which exposes
us to increased risks associated with delivery schedules, manufacturing capability, quality
control, quality assurance and costs.
    If we or our contract manufacturers are unable to manufacture our products in sufficient
quantities, on a timely basis, at acceptable costs and in compliance with regulatory requirements,
our ability to sell our products will be harmed.
     32




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##### Table of Contents



Our products are subject to recalls even after receiving FDA approval or clearance.
  Our sales to international markets are subject to additional risks.*
   
    
    the imposition of government controls,
    
    export license requirements,
    
    economic and political instability,
    
    price controls,
    
    trade restrictions and tariffs,
    
    differing local product preferences and product requirements, and
    
    changes in foreign medical reimbursement and coverage policies and programs.
   33




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##### Table of Contents



If third-party payors do not reimburse our customers for the use of our clinical diagnostic
products or if they reduce reimbursement levels, our ability to sell our products will be harmed.
    We are dependent on technologies we license, and if we fail to maintain our licenses or license
new technologies and rights to particular nucleic acid sequences for targeted diseases in the
future, we may be limited in our ability to develop new products.
    If we fail to attract, hire and retain qualified personnel, we may not be able to design, develop,
market or sell our products or successfully manage our business.*
  34




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##### Table of Contents



We may acquire other businesses or form collaborations, strategic alliances and joint ventures
that could decrease our profitability, result in dilution to stockholders or cause us to incur
debt or significant expense.
   If a natural or man-made disaster strikes our manufacturing facilities, we will be unable to
manufacture our products for a substantial amount of time and our sales will decline.
  If we use biological and hazardous materials in a manner that causes injury or violates laws, we
may be liable for damages.
  The anti-takeover provisions of our certificate of incorporation and by-laws, and provisions of
Delaware law could delay or prevent a change of control that our stockholders may favor.
  
    
    divide our board of directors into three classes, with members of each class to be elected for staggered three-year terms,
    
    limit the right of stockholders to remove directors,
 35




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##### Table of Contents




    
    regulate how stockholders may present proposals or nominate directors for election at annual meetings of stockholders, and
    
    authorize our board of directors to issue preferred stock in one or more series, without stockholder approval.
  We may not successfully integrate acquired businesses or technologies.
  
    
    the inability to retain or replace key employees of any acquired businesses or hire
enough qualified personnel to staff any new or expanded operations;
    
    the impairment of relationships with key customers of acquired businesses due to changes
in management and ownership of the acquired businesses;
    
    the exposure to federal, state, local and foreign tax liabilities in connection with any
acquisition or the integration of any acquired businesses;
    
    the exposure to unknown liabilities;
    
    higher than expected acquisition and integration costs that could cause our quarterly and
annual operating results to fluctuate;
    
    increased amortization expenses if an acquisition results in significant goodwill or other intangible assets;
    
    combining the operations and personnel of acquired businesses with our own, which could be difficult and costly; and
    
    integrating or completing the development and application of any acquired technologies,
which could disrupt our business and divert our managements time and attention.
 If we do not effectively manage our growth, it could affect our ability to pursue opportunities
and expand our business.
  Information technology systems implementation issues could disrupt our internal operations and
adversely affect our financial results.
  36




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##### Table of Contents



Our forecasts and other forward looking statements are based upon various assumptions that are
subject to significant uncertainties that may result in our failure to achieve our forecasted
results.
  Compliance with changing corporate governance and public disclosure regulations may result in
additional expenses.
  37




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##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    Description2.1(1)
    
    Separation and Distribution Agreement, dated and effective as of May 24, 2002, and amended and restated
as of August 6, 2002, by and between Chugai Pharmaceutical Co., Ltd. and Gen-Probe Incorporated.3.1(1)
    
    Form of Amended and Restated Certificate of Incorporation of Gen-Probe Incorporated.3.2(2)
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation of Gen-Probe Incorporated.3.3(3)
    
    Form of Amended and Restated Bylaws of Gen-Probe Incorporated.3.4(4)
    
    Certificate of Elimination of the Series A Junior Participating Preferred Stock of Gen-Probe Incorporated.4.1(1)
    
    Specimen common stock certificate.10.97
    
    Form of First Amendment to Employment Agreement (for Executive Vice Presidents and Vice Presidents).10.98
    
    Gen-Probe Incorporated 2007 Executive Bonus Plan.10.99
    
    Agreement between Gen-Probe Incorporated and Larry T. Mimms.31.1
    
    Certification dated May 1, 2007, of Principal Executive Officer required pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification dated May 1, 2007, of Principal Financial Officer required pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification dated May 1, 2007, of Principal Executive Officer required pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification dated May 1, 2007, of Principal Financial Officer required pursuant to 18 U.S.C. Section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
 
 
    
    Filed herewith.
    
    Indicates management contract or compensatory plan, contract or arrangement.(1)
    
    Incorporated by reference to Gen-Probes Amendment No. 2 to Registration Statement on Form 10
filed with the SEC on August 14, 2002.(2)
    
    Incorporated by reference to Gen-Probes Quarterly Report on Form 10-Q filed with the SEC on
August 9, 2004.(3)
    
    Incorporated by reference to Gen-Probes Report on Form 8-K filed with the SEC on February
14, 2007.(4)
    
    Incorporated by reference to Gen-Probes Annual Report on Form 10-K for the year ended
December 31, 2006 filed with the SEC on February 23, 2007. 38




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SIGNATURES
  DATE: May 1, 2007
    
    By:
    
    /s/ Henry L. NordhoffHenry L. NordhoffChairman, President and Chief Executive Officer(Principal Executive Officer)DATE: May 1, 2007
    
    By:
    
    /s/ Herm RosenmanHerm RosenmanVice President  Finance and Chief FinancialOfficer (Principal Financial Officer andPrincipal Accounting Officer)