##### 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 For the quarterly period ended March 31, 2008
  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(Address of Principal Executive
    
    92121Offices)
    
    (Zip Code)
 (858) 410-8000
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



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
    
    
    16Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    27PART IIItem 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 6. Exhibits
    
    
    44SIGNATURES
    
    
    45EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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GEN-PROBE INCORPORATED
 CONSOLIDATED BALANCE SHEETS
  March 31,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    46,299
    
    
    $
    75,963Short-term investments
    
    
    441,330
    
    
    
    357,531Trade accounts receivable, net of allowance for
doubtful accounts of $700 and $719 at March 31, 2008
and December 31, 2007, respectively
    
    
    36,759
    
    
    
    32,678Accounts receivable  other
    
    
    3,118
    
    
    
    11,044Inventories
    
    
    50,448
    
    
    
    48,540Deferred income tax  short term
    
    
    8,137
    
    
    
    8,825Prepaid income tax
    
    
    
    
    
    
    2,390Prepaid expenses
    
    
    14,056
    
    
    
    17,505Other current assets
    
    
    6,056
    
    
    
    4,402Total current assets
    
    
    606,203
    
    
    
    558,878Property, plant and equipment, net
    
    
    142,662
    
    
    
    129,493Capitalized software, net
    
    
    15,295
    
    
    
    15,923Goodwill
    
    
    18,621
    
    
    
    18,621Deferred income tax  long term
    
    
    7,942
    
    
    
    7,942License, manufacturing access fees and other assets, net
    
    
    54,825
    
    
    
    58,196Total assets
    
    $
    845,548
    
    
    $
    789,053LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    14,945
    
    
    $
    11,777Accrued salaries and employee benefits
    
    
    17,929
    
    
    
    20,997Other accrued expenses
    
    
    4,977
    
    
    
    4,014Income tax payable
    
    
    13,957
    
    
    
    846Deferred revenue  short term
    
    
    2,957
    
    
    
    2,836Total current liabilities
    
    
    54,765
    
    
    
    40,470Non-current income tax payable
    
    
    4,341
    
    
    
    3,958Deferred income tax  long term
    
    
    75
    
    
    
    75Deferred revenue  long term
    
    
    4,441
    
    
    
    4,607Deferred rent
    
    
    
    
    
    
    10Deferred compensation plan liabilities
    
    
    2,348
    
    
    
    1,893Commitments 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, 53,992,269 and
53,916,298 shares issued and outstanding at March
31, 2008 and December 31, 2007, respectively
    
    
    5
    
    
    
    5Additional paid-in capital
    
    
    423,452
    
    
    
    415,229Accumulated other comprehensive income
    
    
    2,974
    
    
    
    1,604Retained earnings
    
    
    353,147
    
    
    
    321,202Total stockholders equity
    
    
    779,578
    
    
    
    738,040Total liabilities and stockholders equity
    
    $
    845,548
    
    
    $
    789,053
  3




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GEN-PROBE INCORPORATED
 CONSOLIDATED STATEMENTS OF INCOME
 
 Three Months EndedMarch 31,2008
    
    
    2007Revenues:Product sales
    
    $
    101,507
    
    
    $
    87,152Collaborative research revenue
    
    
    2,459
    
    
    
    2,352Royalty and license revenue
    
    
    18,597
    
    
    
    11,547Total revenues
    
    
    122,563
    
    
    
    101,051Operating expenses:Cost of product sales
    
    
    32,636
    
    
    
    29,160Research and development
    
    
    23,066
    
    
    
    20,258Marketing and sales
    
    
    11,908
    
    
    
    9,536General and administrative
    
    
    11,937
    
    
    
    11,281Total operating expenses
    
    
    79,547
    
    
    
    70,235Income from operations
    
    
    43,016
    
    
    
    30,816Interest income
    
    
    4,207
    
    
    
    2,675Other income/(expense)
    
    
    1,473
    
    
    
    (130
    )Total other income, net
    
    
    5,680
    
    
    
    2,545Income before income tax
    
    
    48,696
    
    
    
    33,361Income tax expense
    
    
    16,751
    
    
    
    11,886Net income
    
    $
    31,945
    
    
    $
    21,475Net income per share:Basic
    
    $
    0.59
    
    
    $
    0.41Diluted
    
    $
    0.58
    
    
    $
    0.40Weighted average shares outstanding:Basic
    
    
    53,796
    
    
    
    52,170Diluted
    
    
    55,023
    
    
    
    53,634
  4




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GEN-PROBE INCORPORATED
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Three Months EndedMarch 31,2008
    
    
    2007Operating activitiesNet income
    
    $
    31,945
    
    
    $
    21,475Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    8,608
    
    
    
    8,273Amortization of premiums on investments, net of accretion of discounts
    
    
    1,735
    
    
    
    1,052Stock-based compensation charges
    
    
    5,192
    
    
    
    5,105Stock option income tax benefits
    
    
    369
    
    
    
    58Excess tax benefit from employee stock options
    
    
    (145
    )
    
    
    (1,284
    )Gain on sale of stock holdings of Molecular Profiling Institute, Inc.
    
    
    (1,600
    )
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    3,842
    
    
    
    (2,649
    )Inventories
    
    
    (1,796
    )
    
    
    (39
    )Prepaid expenses
    
    
    3,447
    
    
    
    (2,478
    )Other current assets
    
    
    (1,161
    )
    
    
    (1,354
    )Other long term assets
    
    
    (743
    )
    
    
    (598
    )Accounts payable
    
    
    3,181
    
    
    
    (1,549
    )Accrued salaries and employee benefits
    
    
    (3,069
    )
    
    
    (891
    )Other accrued expenses
    
    
    965
    
    
    
    (25
    )Income tax payable
    
    
    15,663
    
    
    
    7,815Deferred revenue
    
    
    (45
    )
    
    
    (330
    )Deferred income tax
    
    
    688
    
    
    
    106Deferred rent
    
    
    (10
    )
    
    
    (28
    )Deferred compensation plan liabilities
    
    
    454
    
    
    
    269Net cash provided by operating activities
    
    
    67,520
    
    
    
    32,928Investing activitiesProceeds from sales and maturities of short-term investments
    
    
    97,290
    
    
    
    14,819Purchases of short-term investments
    
    
    (181,546
    )
    
    
    (65,863
    )Purchases of property, plant and equipment
    
    
    (20,033
    )
    
    
    (5,894
    )Capitalization of intangible assets, including license and manufacturing access fees
    
    
    (194
    )
    
    
    (1,817
    )Sale of stock holdings of Molecular Profiling Institute, Inc.
    
    
    4,100
    
    
    
    Other items, net
    
    
    75
    
    
    
    (352
    )Net cash used in investing activities
    
    
    (100,308
    )
    
    
    (59,107
    )Financing activitiesRepurchase and retirement of restricted stock for payment of taxes
    
    
    (41
    )
    
    
    Excess tax benefit from employee stock options
    
    
    145
    
    
    
    1,284Proceeds from issuance of common stock
    
    
    3,027
    
    
    
    4,402Net cash provided by financing activities
    
    
    3,131
    
    
    
    5,686Effect of exchange rate changes on cash and cash equivalents
    
    
    (7
    )
    
    
    16Net decrease in cash and cash equivalents
    
    
    (29,664
    )
    
    
    (20,477
    )Cash and cash equivalents at the beginning of period
    
    
    75,963
    
    
    
    87,905Cash and cash equivalents at the end of period
    
    $
    46,299
    
    
    $
    67,428
  5




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Notes to the Consolidated Financial Statements (unaudited)
  Basis of presentation
    Principles of consolidation
  Use of estimates
  Foreign currencies
  6




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Revenue recognition
        7




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Adoption of recent accounting pronouncements
 SFAS No. 157
   SFAS No. 159
   8




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EITF No. 07-3
     Three Months EndedMarch 31,2008
    
    
    2007Cost of product sales
    
    $
    595
    
    
    $
    999Research and development
    
    
    1,435
    
    
    
    1,490Marketing and sales
    
    
    695
    
    
    
    548General and administrative(1)
    
    
    2,467
    
    
    
    2,068Total
    
    $
    5,192
    
    
    $
    5,105
 
 (1)
  Stock Options
    
    
    ESPP2008
    
    
    2007
    
    
    2008
    
    
    2007Risk-free interest rate
    
    
    2.8
    %
    
    
    4.5
    %
    
    
    3.3
    %
    
    
    5.1
    %Volatility
    
    
    35
    %
    
    
    36
    %
    
    
    34
    %
    
    
    29
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected term (years)
    
    
    4.2
    
    
    
    4.2
    
    
    
    0.5
    
    
    
    0.5Resulting average fair value
    
    $
    17.55
    
    
    $
    17.66
    
    
    $
    14.82
    
    
    $
    12.03
  Weighted Average
    
    
    UnrecognizedRemaining Expense
    
    
    Expense as ofAwards
    
    Life (Years)
    
    
    March 31, 2008Options
    
    
    1.8
    
    
    $
    45,793ESPP
    
    
    0.2
    
    
    
    81Restricted stock
    
    
    1.5
    
    
    
    9,323Deferred issuance restricted stock
    
    
    1.4
    
    
    
    1,873$
    57,070
  9




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Three Months EndedMarch 31,2008
    
    
    2007Net income
    
    $
    31,945
    
    
    $
    21,475Weighted average shares outstanding  Basic
    
    
    53,796
    
    
    
    52,170Effect of dilutive common stock options outstanding
    
    
    1,227
    
    
    
    1,464Weighted average shares outstanding  Diluted
    
    
    55,023
    
    
    
    53,634Net income per share:Basic
    
    $
    0.59
    
    
    $
    0.41Diluted
    
    $
    0.58
    
    
    $
    0.40
    
    
    Level 1  Quoted prices for identical instruments in active markets.
    
    Level 2  Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model-derived
valuations in which all significant inputs and significant value drivers are observable in
active markets.
    
    Level 3  Valuations derived from valuation techniques in which one or more significant
inputs or significant value drivers are unobservable.
  Determination of fair value
  10




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Assets and liabilities measured at fair value on a recurring basis:
 Short-term investments
   Quoted prices
    
    
    Significantin active
    
    
    other
    
    
    Significant
    
    
    Total carryingmarkets for
    
    
    observable
    
    
    unobservable
    
    
    value in theidentical assets
    
    
    inputs
    
    
    inputs
    
    
    consolidated(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    balance sheetShort-term investments
    
    $
    441,330
    
    
    $
    
    
    
    $
    
    
    
    $
    441,330Total assets at fair value
    
    $
    441,330
    
    
    $
    
    
    
    $
    
    
    
    $
    441,330
 Assets and liabilities measured at fair value on a non-recurring basis:
  Equity investment in private company
    Inventories
 March 31,
    
    
    December 31,2008
    
    
    2007Raw materials and supplies
    
    $
    8,441
    
    
    $
    7,774Work in process
    
    
    23,156
    
    
    
    23,829Finished goods
    
    
    18,851
    
    
    
    16,937$
    50,448
    
    
    $
    48,540
 11




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##### Table of Contents



Property, plant and equipment, net
 March 31,
    
    
    December 31,2008
    
    
    2007Land
    
    $
    18,804
    
    
    $
    13,862Building
    
    
    80,718
    
    
    
    69,946Machinery and equipment
    
    
    142,937
    
    
    
    139,871Building improvements
    
    
    33,303
    
    
    
    32,614Furniture and fixtures
    
    
    16,043
    
    
    
    16,146Construction in-progress
    
    
    114
    
    
    
    181Property, plant and equipment, at cost
    
    
    291,919
    
    
    
    272,620Less accumulated depreciation and amortization
    
    
    (149,257
    )
    
    
    (143,127
    )Property, plant and equipment, net
    
    $
    142,662
    
    
    $
    129,493
 License, manufacturing access fees and other assets, net
 March 31,
    
    
    December 31,2008
    
    
    2007Patents
    
    $
    17,498
    
    
    $
    17,304Purchased intangible assets
    
    
    33,636
    
    
    
    33,636License and manufacturing access fees
    
    
    53,326
    
    
    
    53,326Investment in Molecular Profiling Institute, Inc.
    
    
    
    
    
    
    2,500Investment in Qualigen, Inc.
    
    
    6,993
    
    
    
    6,993Other assets
    
    
    4,161
    
    
    
    3,911License, manufacturing access fees and other assets, at cost
    
    
    115,614
    
    
    
    117,670Less accumulated amortization
    
    
    (60,789
    )
    
    
    (59,474
    )License, manufacturing access fees and other assets, net
    
    $
    54,825
    
    
    $
    58,196
    Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueMunicipal securities
    
    $
    437,049
    
    
    $
    4,902
    
    
    $
    (621
    )
    
    $
    441,330
  Less than 12 Months
    
    
    More than 12 MonthsEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesMunicipal securities
    
    $
    83,655
    
    
    $
    (549
    )
    
    $
    9,534
    
    
    $
    (72
    )
  12




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Balance at December 31, 2007
    
    $
    738,040Net income
    
    
    31,945Other comprehensive income, net
    
    
    1,370Net proceeds from the issuance of common stock
    
    
    3,027Purchase of common stock by board members
    
    
    30Cancellation of restricted stock awards
    
    
    (60
    )Repurchase and retirement of restricted stock for payment of taxes
    
    
    (41
    )Stock-based compensation expense
    
    
    5,122Tax benefit from the exercise of stock options
    
    
    145Balance at March 31, 2008
    
    $
    779,578
 Comprehensive income
   Three Months EndedMarch 31,2008
    
    
    2007Net income
    
    $
    31,945
    
    
    $
    21,475Change in net unrealized gain on investments
    
    
    1,278
    
    
    
    191Foreign currency translation adjustment
    
    
    92
    
    
    
    (108
    )Other comprehensive income, net
    
    
    1,370
    
    
    
    83Comprehensive income
    
    $
    33,315
    
    
    $
    21,558
 13




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Stock options
  WeightedAverageRemaining
    
    
    AggregateNumber of
    
    
    Weighted Average
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Life (Years)
    
    
    ValueOutstanding at December 31, 2007
    
    
    5,518
    
    
    $
    40.86Granted
    
    
    28
    
    
    
    56.09Exercised
    
    
    (83
    )
    
    
    36.42Cancelled
    
    
    (71
    )
    
    
    50.89Outstanding at March 31, 2008
    
    
    5,392
    
    
    
    40.95
    
    
    
    5.9
    
    
    $
    54,017Exercisable at March 31, 2008
    
    
    3,231
    
    
    $
    32.78
    
    
    
    5.6
    
    
    $
    51,230
    Bayer Corporation (now Siemens Healthcare Diagnostics, Inc.)
     14




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Digene Corporation
   15




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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
 Pseudomonas aeruginosa Pseudomonas
aeruginosa
 16




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Product Development
   Final Payment Received in Litigation Settlement
    17




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Critical accounting policies and estimates
   Adoption of recent accounting pronouncements
 SFAS No. 157
  
    
    Level 1  Quoted prices for identical instruments in active markets.
    
    Level 2  Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model-derived
valuations in which all significant inputs and significant value drivers are observable in
active markets.
    
    Level 3  Valuations derived from valuation techniques in which one or more significant
inputs or significant value drivers are unobservable.
  Determination of fair value
   18




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Short-term investments
  Equity investment in private company
  SFAS No. 159
  EITF
Issue No. 07-3
  Results of Operations
 (Dollars in millions)
    
    Three Months Ended March 31,2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeProduct Sales
    
    $
    101.5
    
    
    $
    87.2
    
    
    $
    14.3
    
    
    
    16
    %As a percent of total revenues
    
    
    83
    %
    
    
    86
    %
   19




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##### Table of Contents



(Dollars in millions)
    
    Three Months Ended March 31,2008
    
    
    2007
    
    

$ Change
    
    
    % ChangeCollaborative Research Revenue
    
    $
    2.5
    
    
    $
    2.4
    
    
    $
    0.1
    
    
    
    4
    %As a percent of total revenues
    
    
    2
    %
    
    
    2
    %
    20




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Staphylococcus aureus
   (Dollars in millions)
    
    Three Months Ended March 31,2008
    
    
    2007
    
    

$ Change
    
    
    % ChangeRoyalty and License Revenue
    
    $
    18.6
    
    
    $
    11.5
    
    
    $
    7.1
    
    
    
    62
    %As a percent of total revenues
    
    
    15
    %
    
    
    11
    %
    (Dollars in millions)
    
    Three Months Ended March 31,2008
    
    
    2007
    
    

$ Change
    
    
    % ChangeCost of Product Sales
    
    $
    32.6
    
    
    $
    29.2
    
    
    $
    3.4
    
    
    
    12
    %Gross profit margin as a percent of product sales
    
    
    68
    %
    
    
    67
    %
  21




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22




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(Dollars in millions)
    
    Three Months Ended March 31,2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeResearch and Development
    
    $
    23.1
    
    
    $
    20.3
    
    
    $
    2.8
    
    
    
    14
    %As a percent of total revenues
    
    
    19
    %
    
    
    20
    %
   (Dollars in millions)
    
    Three Months Ended March 31,2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeMarketing and Sales
    
    $
    11.9
    
    
    $
    9.5
    
    
    $
    2.4
    
    
    
    25
    %As a percent of total revenues
    
    
    10
    %
    
    
    9
    %
  (Dollars in millions)
    
    Three Months Ended March 31,2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeGeneral and Administrative
    
    $
    11.9
    
    
    $
    11.3
    
    
    $
    0.6
    
    
    
    5
    %As a percent of total revenues
    
    
    10
    %
    
    
    11
    %
  (Dollars in millions)
    
    Three Months Ended March 31,2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeInterest Income
    
    $
    4.2
    
    
    $
    2.6
    
    
    $
    1.6
    
    
    
    62
    %Other Income / (Expense)
    
    
    1.5
    
    
    
    (0.1
    )
    
    
    1.6
    
    
    
    N/M
    %Other Income / (Expense), net
    
    $
    5.7
    
    
    $
    2.5
    
    
    $
    3.2
    
    
    
    128
    %
  23




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(Dollars in millions)
    
    Three Months Ended March 31,2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeIncome Tax Expense
    
    $
    16.8
    
    
    $
    11.9
    
    
    $
    4.9
    
    
    
    41
    %As a percent of income before tax
    
    
    34
    %
    
    
    36
    %
  Liquidity and capital resources
 March 31,
    
    
    December 31,2008
    
    
    2007(In thousands)Cash, cash equivalents and short-term investments
    
    $
    487,629
    
    
    $
    433,494Working capital
    
    $
    551,438
    
    
    $
    518,408Current ratio
    
    
    11:1
    
    
    
    14:1
   Three Months EndedMarch 31,2008
    
    
    2007
    
    
    $ Change(In thousands)Cash provided by (used in):Operating activities
    
    $
    67,520
    
    
    $
    32,928
    
    
    $
    34,592Investing activities
    
    
    (100,308
    )
    
    
    (59,107
    )
    
    
    41,201Financing activities
    
    
    3,131
    
    
    
    5,686
    
    
    
    (2,555
    )Purchases of property,
plant and equipment
(included in investing
activities above)
    
    $
    (20,033
    )
    
    $
    (5,894
    )
    
    $
    14,139
   24




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##### Table of Contents



Contractual obligations and commercial commitments
  Less than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsMaterial purchase commitments (1)
    
    $
    17,468
    
    
    $
    15,811
    
    
    $
    1,657
    
    
    $
    
    
    
    $
    Collaborative commitments (2)
    
    
    10,755
    
    
    
    2,805
    
    
    
    7,000
    
    
    
    450
    
    
    
    500Supply agreements (3)
    
    
    10,000
    
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    Total (4)
    
    $
    38,223
    
    
    $
    28,616
    
    
    $
    8,657
    
    
    $
    450
    
    
    $
    500
 
 (1)
    
    Amounts represent our minimum purchase commitments from key vendors for the TIGRIS
and Panther instruments, as well as raw materials used in
manufacturing. Of the $17.5 million total,
$13.1 million is expected to be used to purchase TIGRIS instruments, of which we anticipate
that approximately $8.7 million of these instruments will be sold to Novartis. Not included in
the $17.5 million is $11.4 million expected to be used to 25




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##### Table of Contents



purchase prototype, validation,
pre-production and production instruments, and associated tooling, pursuant to our development
agreement with Stratec for the Panther instrument and potential minimum purchase
commitments under our supply agreement. Our obligations under the supply agreement are
contingent on successful completion of all activities under the development agreement.(2)
    
    In addition to the minimum payments due under our collaborative agreements, we may
be required to pay up to $10.1 million in milestone payments, plus royalties on net sales of
any products using specified technology.(3)
    
    Amount reflected relates to our obligations under our supply and purchase agreement
with Roche Molecular Systems. We are obligated to pay $10.0 million to Roche upon the
occurrence of certain future commercial events, but not later than December 1, 2008.(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
  Foreign Currency Exchange Risk
  26




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Item 4. Controls and Procedures
     27




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##### Table of Contents



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.*
   28




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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.*
    29




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##### Table of Contents



If our TIGRIS instrument reliability does not meet market expectations, we may be unable to retain
our existing customers and attract new customers.
  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.
    30




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##### Table of Contents



We have 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.
  Pseudomonas
aeruginosa.
 Failure to manufacture our products in accordance with product specifications could result in
increased costs, lost revenues, customer dissatisfaction or voluntary product recalls, any of
which could harm our profitability and commercial reputation.
  31




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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.
   We have only one third-party manufacturer for each of our instrument product lines, which exposes
us to increased risks associated with production delays, delivery schedules, manufacturing
capability, quality control, quality assurance and costs.
   32




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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.
   Trichomonas vaginalis.
     33




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##### Table of Contents



Our products are subject to recalls even after receiving FDA approval or clearance.
  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.
   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.
  34




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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.*
   35




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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.
  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.*
   36




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##### Table of Contents



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.
   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.
   37




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##### Table of Contents



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.
  38




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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.*
    39




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##### Table of Contents



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.
   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.
   
    
    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 includes significant 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.
  40




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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,
    
    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.
  41




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##### Table of Contents



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.
  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.
  42




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Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 Total Numberof SharesPurchased
    
    
    Approximateas Part of
    
    
    Dollar Value ofPublicly
    
    
    Shares that MayTotal Number
    
    
    Average
    
    
    Announced
    
    
    Yet Be Purchasedof Shares
    
    
    Price Paid
    
    
    Plans or
    
    
    Under the Plans orPurchased
    
    
    Per Share
    
    
    Programs
    
    
    ProgramsJanuary 1-31, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    February 1-29, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    March 1-31, 2008
    
    
    863
    
    
    
    47.81
    
    
    
    
    
    
    
    Total
    
    
    863
    (1)
    
    $
    47.81
    
    
    
    
    
    
    $
    
 
 (1)
    
    During the first quarter of 2008, we repurchased and retired 863 shares of our
common stock, at an average per share price of $47.81, withheld by us to satisfy employee tax
obligations upon vesting of restricted stock granted under our 2003 Incentive Award Plan. We
may make similar repurchases in the future to satisfy employee tax obligations upon vesting of
restricted stock and deferred issuance restricted stock. As of March 31, 2008, we had an
aggregate of 209,669 shares of restricted stock and 80,000 shares of deferred issuance
restricted stock awards outstanding. 43




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Item 6. Exhibits
 ExhibitNumber
    
    Description3.1(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. Series A Junior Participating3.4(4)
    
    Certificate of Elimination of the Preferred Stock of Gen-Probe Incorporated.4.1(1)
    
    Specimen common stock certificate.31.1
    
    Certification dated April 30, 2008, 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 April 30, 2008, 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 April 30, 2008, 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 April 30, 2008, 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.*
    
    Gen-Probe has requested confidential treatment with respect to certain portions of this
exhibit.(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. 44




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SIGNATURES
  GEN-PROBE INCORPORATEDDATE: April 30, 2008
    By:
    /s/ Henry L. NordhoffHenry L. NordhoffChairman and Chief Executive Officer

(Principal Executive Officer)DATE: April 30, 2008
    By:
    /s/ Herm RosenmanHerm RosenmanSenior Vice President   Finance and
Chief Financial Officer (Principal Financial
Officer and Principal
Accounting Officer) 45