##### 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 June 30, 2007
  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 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)10210 Genetic Center DriveSan Diego, CA
    
    92121(Address of Principal Executive 
Offices)
    
    (Zip Code)
 (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
    
    
    25Item 4. Controls and Procedures
    
    
    25PART IIItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    42Item 6. Exhibits
    
    
    44SIGNATURES
    
    
    45EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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##### Table of Contents



GEN-PROBE INCORPORATED
 CONSOLIDATED BALANCE SHEETS
  June 30,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    39,429
    
    
    $
    87,905Short-term investments
    
    
    303,607
    
    
    
    202,008Trade accounts receivable, net of allowance for
doubtful accounts of $650 and $670 at June 30,
2007 and December 31, 2006, respectively
    
    
    32,675
    
    
    
    25,880Accounts receivable  other
    
    
    5,619
    
    
    
    1,646Inventories
    
    
    50,414
    
    
    
    52,056Deferred income tax  short term
    
    
    7,381
    
    
    
    7,247Prepaid income tax
    
    
    8,049
    
    
    
    Prepaid expenses
    
    
    13,172
    
    
    
    11,362Other current assets
    
    
    4,641
    
    
    
    2,583Total current assets
    
    
    464,987
    
    
    
    390,687Property, plant and equipment, net
    
    
    135,170
    
    
    
    134,614Capitalized software
    
    
    17,180
    
    
    
    18,437Goodwill
    
    
    18,621
    
    
    
    18,621Deferred income tax  long term
    
    
    2,092
    
    
    
    2,064License, manufacturing access fees and other assets
    
    
    60,097
    
    
    
    59,416Total assets
    
    $
    698,147
    
    
    $
    623,839LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    13,305
    
    
    $
    13,586Accrued salaries and employee benefits
    
    
    17,931
    
    
    
    16,723Other accrued expenses
    
    
    3,759
    
    
    
    3,320Income tax payable
    
    
    657
    
    
    
    14,075Deferred income tax  short term
    
    
    101
    
    
    
    Deferred revenue
    
    
    1,016
    
    
    
    921Total current liabilities
    
    
    36,769
    
    
    
    48,625Non-current income tax payable
    
    
    4,565
    
    
    
    Deferred revenue
    
    
    3,333
    
    
    
    3,667Deferred rent
    
    
    70
    
    
    
    128Deferred compensation plan liabilities
    
    
    1,630
    
    
    
    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, 52,935,270 and
52,233,656 shares issued and outstanding at
June 30, 2007 and December 31, 2006,
respectively
    
    
    5
    
    
    
    5Additional paid-in capital
    
    
    368,681
    
    
    
    334,184Accumulated other comprehensive income (loss)
    
    
    (445
    )
    
    
    (5
    )Retained earnings
    
    
    283,539
    
    
    
    236,024Total stockholders equity
    
    
    651,780
    
    
    
    570,208Total liabilities and stockholders equity
    
    $
    698,147
    
    
    $
    623,839
  3




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##### Table of Contents



GEN-PROBE INCORPORATED
 CONSOLIDATED STATEMENTS OF INCOME
 
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Product sales
    
    $
    93,897
    
    
    $
    77,813
    
    
    $
    181,049
    
    
    $
    156,341Collaborative research revenue
    
    
    5,769
    
    
    
    6,388
    
    
    
    8,121
    
    
    
    13,273Royalty and license revenue
    
    
    1,615
    
    
    
    1,021
    
    
    
    13,162
    
    
    
    1,864Total revenues
    
    
    101,281
    
    
    
    85,222
    
    
    
    202,332
    
    
    
    171,478Operating expenses:Cost of product sales
    
    
    30,178
    
    
    
    25,300
    
    
    
    59,338
    
    
    
    51,909Research and development
    
    
    24,973
    
    
    
    20,329
    
    
    
    45,231
    
    
    
    39,655Marketing and sales
    
    
    9,393
    
    
    
    9,145
    
    
    
    18,929
    
    
    
    18,007General and administrative
    
    
    12,081
    
    
    
    10,698
    
    
    
    23,362
    
    
    
    21,356Total operating expenses
    
    
    76,625
    
    
    
    65,472
    
    
    
    146,860
    
    
    
    130,927Income from operations
    
    
    24,656
    
    
    
    19,750
    
    
    
    55,472
    
    
    
    40,551Total other income, net
    
    
    2,732
    
    
    
    1,403
    
    
    
    5,277
    
    
    
    3,160Income before income tax
    
    
    27,388
    
    
    
    21,153
    
    
    
    60,749
    
    
    
    43,711Income tax expense
    
    
    386
    
    
    
    7,828
    
    
    
    12,272
    
    
    
    16,158Net income
    
    $
    27,002
    
    
    $
    13,325
    
    
    $
    48,477
    
    
    $
    27,553Net income per share:Basic
    
    $
    0.51
    
    
    $
    0.26
    
    
    $
    0.93
    
    
    $
    0.54Diluted
    
    $
    0.50
    
    
    $
    0.25
    
    
    $
    0.90
    
    
    $
    0.52Weighted average shares outstanding:Basic
    
    
    52,504
    
    
    
    51,563
    
    
    
    52,347
    
    
    
    51,403Diluted
    
    
    54,051
    
    
    
    53,186
    
    
    
    53,852
    
    
    
    53,023
  4




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##### Table of Contents



GEN-PROBE INCORPORATED
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Six Months EndedJune 30,2007
    
    
    2006Operating activitiesNet income
    
    $
    48,477
    
    
    $
    27,553Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    16,802
    
    
    
    12,507Stock-based compensation charges
    
    
    9,187
    
    
    
    10,733Stock option income tax benefits
    
    
    841
    
    
    
    Excess tax benefit from employee stock options
    
    
    (5,272
    )
    
    
    (6,918
    )Gain on disposal of property and equipment
    
    
    224
    
    
    
    (23
    )Changes in assets and liabilities:Accounts receivable
    
    
    (10,754
    )
    
    
    3,538Inventories
    
    
    1,338
    
    
    
    (2,546
    )Prepaid expenses
    
    
    (1,807
    )
    
    
    (564
    )Other current assets
    
    
    (2,051
    )
    
    
    997Other long term assets
    
    
    (821
    )
    
    
    (1,214
    )Accounts payable
    
    
    (288
    )
    
    
    (441
    )Accrued salaries and employee benefits
    
    
    1,208
    
    
    
    (1,768
    )Other accrued expenses
    
    
    427
    
    
    
    423Income tax payable
    
    
    (13,214
    )
    
    
    31Deferred revenue
    
    
    (239
    )
    
    
    (4,181
    )Deferred income tax
    
    
    (302
    )
    
    
    (374
    )Deferred rent
    
    
    (58
    )
    
    
    (58
    )Deferred compensation plan liabilities
    
    
    419
    
    
    
    512Net cash provided by operating activities
    
    
    44,117
    
    
    
    38,207Investing activitiesProceeds from sales and maturities of short-term investments
    
    
    28,156
    
    
    
    40,528Purchases of short-term investments
    
    
    (130,132
    )
    
    
    (62,225
    )Purchases of property, plant and equipment
    
    
    (14,223
    )
    
    
    (32,836
    )Capitalization of intangible assets, including license and manufacturing access fees
    
    
    (1,924
    )
    
    
    (2,074
    )Cash paid for investment in Qualigen
    
    
    
    
    
    
    (6,993
    )Other assets
    
    
    (263
    )
    
    
    42Net cash used in investing activities
    
    
    (118,386
    )
    
    
    (63,558
    )Financing activitiesExcess tax benefit from employee stock options
    
    
    5,272
    
    
    
    6,918Proceeds from issuance of common stock
    
    
    20,383
    
    
    
    14,822Net cash provided by financing activities
    
    
    25,655
    
    
    
    21,740Effect of exchange rate changes on cash and cash equivalents
    
    
    138
    
    
    
    408Net decrease in cash and cash equivalents
    
    
    (48,476
    )
    
    
    (3,203
    )Cash and cash equivalents at the beginning of period
    
    
    87,905
    
    
    
    32,328Cash and cash equivalents at the end of period
    
    $
    39,429
    
    
    $
    29,125
  5




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##### Table of Contents



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




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##### Table of Contents



Use of estimates
  Foreign currencies
   Share-based payments
    Stock Option Plans
    
    
    ESPPThree Months
    
    
    Six Months
    
    
    Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,
    
    
    Ended June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Risk-free
interest rate
    
    
    4.4
    %
    
    
    4.8
    %
    
    
    4.5
    %
    
    
    4.7
    %
    
    
    5.1
    %
    
    
    4.0
    %
    
    
    5.1
    %
    
    
    4.0
    %Volatility
    
    
    34
    %
    
    
    43
    %
    
    
    35
    %
    
    
    43
    %
    
    
    29
    %
    
    
    41
    %
    
    
    29
    %
    
    
    41
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected term
(years)
    
    
    4.2
    
    
    
    5.4
    
    
    
    4.2
    
    
    
    5.4
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5Resulting
average fair value
    
    $
    17.84
    
    
    $
    24.59
    
    
    $
    17.76
    
    
    $
    24.21
    
    
    $
    12.03
    
    
    $
    12.52
    
    
    $
    12.03
    
    
    $
    12.52
 7




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##### Table of Contents



Weighted Average
    
    
    UnrecognizedRemaining Expense
    
    
    Expense as ofAwards
    
    Life (Years)
    
    
    June 30, 2007Options
    
    
    1.5
    
    
    $
    30,166ESPP
    
    
    0.2
    
    
    
    73Restricted stock
    
    
    1.5
    
    
    
    6,374Deferred Issuance Restricted Stock
    
    
    1.2
    
    
    
    1,390$
    38,003
  Impact of SFAS No. 123(R)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Cost of product sales
    
    $
    730
    
    
    $
    490
    
    
    $
    1,682
    
    
    $
    623Research and development
    
    
    627
    
    
    
    1,785
    
    
    
    1,870
    
    
    
    3,674Marketing and sales
    
    
    463
    
    
    
    679
    
    
    
    971
    
    
    
    1,472General and administrative
    
    
    1,613
    
    
    
    2,154
    
    
    
    3,195
    
    
    
    4,006Reduction of operating income
before income tax
    
    
    3,433
    
    
    
    5,108
    
    
    
    7,718
    
    
    
    9,775Income tax benefit
    
    
    (1,550
    )
    
    
    (1,800
    )
    
    
    (3,429
    )
    
    
    (3,451
    )Reduction of net income
    
    $
    1,883
    
    
    $
    3,308
    
    
    $
    4,289
    
    
    $
    6,324Reduction of net income per share:Basic
    
    $
    0.04
    
    
    $
    0.06
    
    
    $
    0.08
    
    
    $
    0.12Diluted
    
    $
    0.03
    
    
    $
    0.06
    
    
    $
    0.08
    
    
    $
    0.12
   8




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    27,002
    
    
    $
    13,325
    
    
    $
    48,477
    
    
    $
    27,553Weighted average
shares outstanding 
Basic
    
    
    52,504
    
    
    
    51,563
    
    
    
    52,347
    
    
    
    51,403Effect of
dilutive common
stock options
outstanding
    
    
    1,547
    
    
    
    1,623
    
    
    
    1,505
    
    
    
    1,620Weighted average
shares outstanding 
Diluted
    
    
    54,051
    
    
    
    53,186
    
    
    
    53,852
    
    
    
    53,023Net income per share:Basic
    
    $
    0.51
    
    
    $
    0.26
    
    
    $
    0.93
    
    
    $
    0.54Diluted
    
    $
    0.50
    
    
    $
    0.25
    
    
    $
    0.90
    
    
    $
    0.52
     Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    27,002
    
    
    $
    13,325
    
    
    $
    48,477
    
    
    $
    27,553Change in unrealized gain (loss) on
investments
    
    
    (641
    )
    
    
    (212
    )
    
    
    (451
    )
    
    
    (561
    )Foreign currency translation adjustment
    
    
    118
    
    
    
    908
    
    
    
    11
    
    
    
    1,118Other comprehensive income (loss), net
    
    
    (523
    )
    
    
    696
    
    
    
    (440
    )
    
    
    557Comprehensive income
    
    $
    26,479
    
    
    $
    14,021
    
    
    $
    48,037
    
    
    $
    28,110
   Inventories
 June 30,
    
    
    December 31,2007
    
    
    2006Raw materials and supplies
    
    $
    8,523
    
    
    $
    9,479Work in process
    
    
    25,784
    
    
    
    25,018Finished goods
    
    
    16,107
    
    
    
    17,559$
    50,414
    
    
    $
    52,056
 Property, plant and equipment
 June 30,
    
    
    December 31,2007
    
    
    2006Land
    
    $
    13,862
    
    
    $
    13,862Building
    
    
    71,211
    
    
    
    70,928Machinery and equipment
    
    
    137,918
    
    
    
    128,572Tenant improvements
    
    
    29,154
    
    
    
    28,185Furniture and fixtures
    
    
    16,230
    
    
    
    15,995Construction in-progress
    
    
    1,442
    
    
    
    618Property, plant and equipment (at cost)
    
    
    269,817
    
    
    
    258,160Less accumulated depreciation and amortization
    
    
    (134,647
    )
    
    
    (123,546
    )Property, plant and equipment (net)
    
    $
    135,170
    
    
    $
    134,614
 9




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##### Table of Contents



License, manufacturing access fees and other assets
 June 30,
    
    
    December 31,2007
    
    
    2006Patents
    
    $
    17,013
    
    
    $
    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
    
    
    3,107
    
    
    
    2,293116,575
    
    
    
    113,837Less accumulated amortization
    
    
    (56,478
    )
    
    
    (54,421
    )$
    60,097
    
    
    $
    59,416
   Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueMunicipal securities
    
    $
    304,118
    
    
    $
    62
    
    
    $
    (1,841
    )
    
    $
    302,339Foreign debt securities
    
    
    1,268
    
    
    
    
    
    
    
    
    
    
    
    1,268Total short-term investments
    
    $
    305,386
    
    
    $
    62
    
    
    $
    (1,841
    )
    
    $
    303,607
  Less than 12 Months
    
    
    More than 12 MonthsEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesMunicipal securities
    
    $
    138,593
    
    
    $
    (997
    )
    
    $
    120,759
    
    
    $
    (844
    )Foreign debt securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total short-term investments
    
    $
    138,593
    
    
    $
    (997
    )
    
    $
    120,759
    
    
    $
    (844
    )
    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
    
    
    291
    
    
    
    50.79Exercised
    
    
    (681
    )
    
    
    27.34Cancelled
    
    
    (254
    )
    
    
    44.01Outstanding at June 30, 2007
    
    
    5,656
    
    
    
    36.26
    
    
    
    7.2
    
    
    $
    136,933Exercisable at June 30, 2007
    
    
    3,223
    
    
    $
    28.76
    
    
    
    6.2
    
    
    $
    102,433
  11




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##### Table of Contents



Exercisable
    
    
    Unexercisable
    
    
    TotalWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseAs of June 30, 2007
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceIn-the-Money
    
    
    3,223
    
    
    $
    28.76
    
    
    
    2,433
    
    
    $
    46.24
    
    
    
    5,656
    
    
    $
    36.26Out-of-the-Money
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Options Outstanding
    
    
    3,223
    
    
    
    
    
    
    
    2,433
    
    
    
    
    
    
    
    5,656
  WeightedAverageWeighted Average
    
    
    RemainingNumber of
    
    
    Grant-Date
    
    
    ContractualShares
    
    
    Fair Value
    
    
    Life (Years)Non-vested at December 31, 2006
    
    
    2,959
    
    
    $
    19.51Granted
    
    
    291
    
    
    
    17.76Vested
    
    
    (565
    )
    
    
    18.30Forfeited
    
    
    (252
    )
    
    
    19.25Non-vested at June 30, 2007
    
    
    2,433
    
    
    $
    19.75
    
    
    
    1.2
  Balance at December 31, 2006
    
    $
    570,208Net income
    
    
    48,477Cumulative effect adjustment upon adoption of FIN No. 48
    
    
    (962
    )Other comprehensive income, net
    
    
    (440
    )Net proceeds from the issuance of common stock
    
    
    18,643Purchase of common stock by board members
    
    
    68Purchase of common shares through ESPP
    
    
    1,740Cancellation of restricted stock awards
    
    
    (203
    )Stock-based compensation expense  restricted stock
    
    
    1,604Stock-based compensation expense  all other
    
    
    7,718Stock-based compensation  net capitalized to inventory
    
    
    (345
    )Tax benefit from the exercise of stock options
    
    
    5,272Balance at June 30, 2007
    
    $
    651,780
   Digene Corporation
  12




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13




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




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Corporate Collaborations
   Product Development
    Revenues
  15




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Product sales
   Collaborative research revenue
    Royalty and license revenue
  16




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Cost of product sales
     Research and development
    Critical accounting policies and estimates
  17




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New accounting requirement
  18




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Results of Operations
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    $ Change
    
    
    % Change
    
    
    2007
    
    
    2006
    
    
    $ Change
    
    
    % Change(In millions, except per share data)Statement of income:Revenues:Product sales
    
    $
    93.9
    
    
    $
    77.8
    
    
    $
    16.1
    
    
    
    21
    %
    
    $
    181.0
    
    
    $
    156.3
    
    
    $
    24.7
    
    
    
    16
    %Collaborative research revenue
    
    
    5.8
    
    
    
    6.4
    
    
    
    (0.6
    )
    
    
    (9
    )%
    
    
    8.1
    
    
    
    13.3
    
    
    
    (5.2
    )
    
    
    (39
    )%Royalty and license revenue
    
    
    1.6
    
    
    
    1.0
    
    
    
    0.6
    
    
    
    60
    %
    
    
    13.2
    
    
    
    1.9
    
    
    
    11.3
    
    
    
    595
    %Total revenues
    
    
    101.3
    
    
    
    85.2
    
    
    
    16.1
    
    
    
    19
    %
    
    
    202.3
    
    
    
    171.5
    
    
    
    30.8
    
    
    
    18
    %Operating expenses:Cost of product sales
    
    
    30.2
    
    
    
    25.3
    
    
    
    4.9
    
    
    
    19
    %
    
    
    59.3
    
    
    
    51.9
    
    
    
    7.4
    
    
    
    14
    %Research and development
    
    
    24.9
    
    
    
    20.3
    
    
    
    4.6
    
    
    
    23
    %
    
    
    45.2
    
    
    
    39.7
    
    
    
    5.5
    
    
    
    14
    %Marketing and sales
    
    
    9.4
    
    
    
    9.2
    
    
    
    0.2
    
    
    
    2
    %
    
    
    18.9
    
    
    
    18.0
    
    
    
    0.9
    
    
    
    5
    %General and administrative
    
    
    12.1
    
    
    
    10.7
    
    
    
    1.4
    
    
    
    13
    %
    
    
    23.4
    
    
    
    21.4
    
    
    
    2.0
    
    
    
    9
    %Total operating expenses
    
    
    76.6
    
    
    
    65.5
    
    
    
    11.1
    
    
    
    17
    %
    
    
    146.8
    
    
    
    131.0
    
    
    
    15.8
    
    
    
    12
    %Income from operations
    
    
    24.7
    
    
    
    19.7
    
    
    
    5.0
    
    
    
    25
    %
    
    
    55.5
    
    
    
    40.5
    
    
    
    15.0
    
    
    
    37
    %Total other income, net
    
    
    2.7
    
    
    
    1.4
    
    
    
    1.3
    
    
    
    93
    %
    
    
    5.3
    
    
    
    3.2
    
    
    
    2.1
    
    
    
    66
    %Income tax expense
    
    
    0.4
    
    
    
    7.8
    
    
    
    (7.4
    )
    
    
    (95
    )%
    
    
    12.3
    
    
    
    16.2
    
    
    
    (3.9
    )
    
    
    (24
    )%Net income
    
    $
    27.0
    
    
    $
    13.3
    
    
    $
    13.7
    
    
    
    103
    %
    
    $
    48.5
    
    
    $
    27.5
    
    
    $
    21.0
    
    
    
    76
    %Net income per shareBasic
    
    $
    0.51
    
    
    $
    0.26
    
    
    $
    0.25
    
    
    
    96
    %
    
    $
    0.93
    
    
    $
    0.54
    
    
    $
    0.39
    
    
    
    72
    %Diluted
    
    $
    0.50
    
    
    $
    0.25
    
    
    $
    0.25
    
    
    
    100
    %
    
    $
    0.90
    
    
    $
    0.52
    
    
    $
    0.38
    
    
    
    73
    %Weighted average shares
outstandingBasic
    
    
    52.5
    
    
    
    51.6
    
    
    
    
    
    
    
    
    
    
    
    52.3
    
    
    
    51.4Diluted
    
    
    54.1
    
    
    
    53.2
    
    
    
    
    
    
    
    
    
    
    
    53.9
    
    
    
    53.0
  Product sales
   19




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Collaborative research revenue
     20




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Royalty and license revenue
    Cost of product sales
      21




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Research and development
   Marketing and sales
  General and administrative
   Total other income, net
  Income tax expense
  22




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Liquidity and capital resources
  June 30,
    
    
    December 31,2007
    
    
    2006Cash, cash equivalents and short-term investments
    
    $
    343,036
    
    
    $
    289,913Working capital
    
    $
    428,218
    
    
    $
    342,062Current ratio
    
    
    13:1
    
    
    
    8:1
  Six Months EndedJune 30,2007
    
    
    2006
    
    
    $ ChangeCash provided by (used in):Operating activities
    
    $
    44,117
    
    
    $
    38,207
    
    
    $
    5,910Investing activities
    
    
    (118,386
    )
    
    
    (63,558
    )
    
    
    (54,828
    )Financing activities
    
    
    25,655
    
    
    
    21,740
    
    
    
    3,915Purchases of property, plant
and equipment (included in
investing activities above)
    
    $
    (14,223
    )
    
    $
    (32,836
    )
    
    $
    18,613
      23




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##### Table of Contents



Contractual obligations and commercial commitments
  Total
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterOperating leases (1)
    
    $
    887
    
    
    $
    650
    
    
    $
    167
    
    
    $
    70
    
    
    $
    
    
    
    $
    Material purchase commitments (2)
    
    
    30,183
    
    
    
    14,395
    
    
    
    15,788
    
    
    
    
    
    
    
    
    
    
    
    Collaborative commitments (3)
    
    
    13,775
    
    
    
    960
    
    
    
    10,765
    
    
    
    1,400
    
    
    
    650
    
    
    
    Total (4)
    
    $
    44,845
    
    
    $
    16,005
    
    
    $
    26,720
    
    
    $
    1,470
    
    
    $
    650
    
    
    $
    
 
 (1)
    
    Reflects obligations on facilities under operating leases in place as of June 30,
2007. Future minimum lease payments are included in the table above.(2)
    
    Amounts represent our minimum purchase commitments from two key vendors for TIGRIS
instruments and raw materials used in manufacturing. Of the $26.9 million expected to be used
to purchase TIGRIS instruments, we anticipate that approximately
$18.4 million of these instruments 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 $10.1 million in milestone payments, plus
royalties on net sales of any products using specified technology. Also excluded is our July
2007 commitment to Stratec to invest additional R&D funds to develop a new instrument platform designed
for low to mid-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.    24




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Available Information
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Foreign Currency Exchange Risk
   
 Item 4. Controls and Procedures
  25




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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.*
   27




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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.
    28




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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.*
   29




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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.*
 30




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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.*
    31




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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.*
  32




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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.
     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.*
  33




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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.*
  34




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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.
    35




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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.
    36




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37




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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.
   38




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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.
   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.
  40




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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.
  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.
 41




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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.
  
 Item 4. Submission of Matters to a Vote of Security Holders
  (1)
    
    To elect two (2) directors to hold office until the 2010 Annual Meeting of
Stockholders.
 
 42




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##### Table of Contents



(2)
    
    To approve the Gen-Probe Incorporated 2007 Executive Bonus Plan.
 
 (3)
    
    To ratify the selection by the Audit Committee of our Board of Directors of Ernst &
Young LLP as our independent auditors for the fiscal year ending December 31, 2007. The
number of votes were as follows:
 
  43




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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.31.1
    
    Certification dated August 7, 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 August 7, 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 August 7, 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 August 7, 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.(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
  DATE: August 7, 2007
    By:
    /s/ Henry L. NordhoffHenry L. NordhoffChairman, President and Chief Executive Officer

(Principal Executive Officer)DATE: August 7, 2007
    By:
    /s/ Herm RosenmanHerm RosenmanVice President  Finance and Chief Financial
Officer (Principal Financial Officer and

Principal
Accounting Officer) 45