##### 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
  Large Accelerated Filer þ
    
    Accelerated Filer o
    
    Non-Accelerated Filer o
 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
    
    
    27Item 4. Controls and Procedures
    
    
    27PART IIItem 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 5. Other Information
    
    
    41Item 6. Exhibits
    
    
    42SIGNATURESEXHIBIT 10.88EXHIBIT 10.89EXHIBIT 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 31,2006
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    44,590
    
    
    $
    32,328Short-term investments
    
    
    198,496
    
    
    
    187,960Trade accounts receivable, net of allowance for
doubtful accounts of $790 as of March 31, 2006
and December 31, 2005
    
    
    28,569
    
    
    
    31,930Accounts receivable  other
    
    
    2,742
    
    
    
    1,924Inventories
    
    
    37,717
    
    
    
    36,342Deferred income taxes
    
    
    10,574
    
    
    
    10,389Prepaid expenses
    
    
    7,523
    
    
    
    10,768Other current assets
    
    
    5,450
    
    
    
    4,184Total current assets
    
    
    335,661
    
    
    
    315,825Property, plant and equipment, net
    
    
    118,587
    
    
    
    105,190Capitalized software
    
    
    20,323
    
    
    
    20,952Goodwill
    
    
    18,621
    
    
    
    18,621License, manufacturing access fees and other assets
    
    
    50,545
    
    
    
    49,648Total assets
    
    $
    543,737
    
    
    $
    510,236LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    13,435
    
    
    $
    14,029Accrued salaries and employee benefits
    
    
    16,624
    
    
    
    14,910Other accrued expenses
    
    
    4,515
    
    
    
    3,264Income tax payable
    
    
    12,815
    
    
    
    13,192Deferred revenue
    
    
    5,429
    
    
    
    7,771Total current liabilities
    
    
    52,818
    
    
    
    53,166Deferred income taxes
    
    
    5,124
    
    
    
    5,124Deferred revenue
    
    
    4,167
    
    
    
    4,333Deferred rent
    
    
    211
    
    
    
    240Commitments and contingencies
Stockholders 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, 51,559,833 and
51,137,541 shares issued and outstanding at March
31, 2006 and December 31, 2005, respectively
    
    
    5
    
    
    
    5Additional paid-in capital
    
    
    295,607
    
    
    
    281,907Deferred compensation
    
    
    
    
    
    
    (5,951
    )Accumulated other comprehensive (loss) income
    
    
    (1,370
    )
    
    
    (1,231
    )Retained earnings
    
    
    187,175
    
    
    
    172,643Total stockholders equity
    
    
    481,417
    
    
    
    447,373Total liabilities and stockholders equity
    
    $
    543,737
    
    
    $
    510,236
  3




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##### Table of Contents



GEN-PROBE INCORPORATED
 CONSOLIDATED STATEMENTS OF INCOME
   Three Months EndedMarch 31,2006
    
    
    2005Revenues:Product sales
    
    $
    78,528
    
    
    $
    59,579Collaborative research revenue
    
    
    6,885
    
    
    
    6,344Royalty and license revenue
    
    
    843
    
    
    
    2,905Total revenues
    
    
    86,256
    
    
    
    68,828Operating expenses:Cost of product sales
    
    
    26,112
    
    
    
    15,498Research and development
    
    
    19,326
    
    
    
    18,683Marketing and sales
    
    
    8,862
    
    
    
    7,426General and administrative
    
    
    10,658
    
    
    
    7,191Total operating expenses
    
    
    64,958
    
    
    
    48,798Income from operations
    
    
    21,298
    
    
    
    20,030Total other income, net
    
    
    1,757
    
    
    
    1,081Income before income taxes
    
    
    23,055
    
    
    
    21,111Income tax expense
    
    
    8,523
    
    
    
    7,650Net income
    
    $
    14,532
    
    
    $
    13,461Net income per share:Basic
    
    $
    0.28
    
    
    $
    0.27Diluted
    
    $
    0.27
    
    
    $
    0.26Weighted average shares outstanding:Basic
    
    
    51,248
    
    
    
    50,282Diluted
    
    
    52,865
    
    
    
    52,367
   4




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##### Table of Contents



GEN-PROBE INCORPORATED
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 
  Three Months EndedMarch 31,2006
    
    
    2005Operating activitiesNet income
    
    $
    14,532
    
    
    $
    13,461Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    6,061
    
    
    
    5,413Stock-based compensation charges  restricted stock
    
    
    456
    
    
    
    125Stock-based
compensation charges  all other
    
    
    4,667
    
    
    
    Stock option income tax benefits
    
    
    
    
    
    
    4,692Excess tax benefit from employee stock options
    
    
    (4,394
    )
    
    
    (Gain)/loss on disposal of property and equipment
    
    
    (21
    )
    
    
    39Changes in assets and liabilities:Accounts receivable
    
    
    2,571
    
    
    
    (2,070
    )Inventories
    
    
    (688
    )
    
    
    (822
    )Prepaid expenses
    
    
    3,246
    
    
    
    (5,359
    )Other current assets
    
    
    (1,320
    )
    
    
    (439
    )Accounts payable
    
    
    (601
    )
    
    
    5,963Accrued salaries and employee benefits
    
    
    1,715
    
    
    
    (253
    )Other accrued expenses
    
    
    1,240
    
    
    
    (525
    )Income tax payable
    
    
    4,015
    
    
    
    2,827Deferred revenue
    
    
    (2,507
    )
    
    
    2,296Deferred income taxes
    
    
    (188
    )
    
    
    (465
    )Deferred rent
    
    
    (29
    )
    
    
    (10
    )Minority interest
    
    
    
    
    
    
    (58
    )Net cash provided by operating activities
    
    
    28,755
    
    
    
    24,815Investing activitiesProceeds from sales and maturities of short-term investments
    
    
    25,935
    
    
    
    20,790Purchases of short-term investments
    
    
    (36,742
    )
    
    
    (32,900
    )Purchases of property, plant and equipment
    
    
    (17,768
    )
    
    
    (10,228
    )Capitalization of intangible assets, including license and manufacturing access fees
    
    
    (1,852
    )
    
    
    (1,643
    )Other assets
    
    
    17
    
    
    
    (791
    )Net cash used in investing activities
    
    
    (30,410
    )
    
    
    (24,772
    )Financing activitiesExcess tax benefit from employee stock options
    
    
    4,394
    
    
    
    Proceeds from issuance of common stock
    
    
    9,449
    
    
    
    6,705Net cash provided by financing activities
    
    
    13,843
    
    
    
    6,705Effect of exchange rate changes on cash and cash equivalents
    
    
    74
    
    
    
    86Net increase in cash and cash equivalents
    
    
    12,262
    
    
    
    6,834Cash and cash equivalents at the beginning of period
    
    
    32,328
    
    
    
    25,498Cash and cash equivalents at the end of period
    
    $
    44,590
    
    
    $
    32,332
  5




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##### Table of Contents



Notes to the Consolidated Financial Statements (unaudited)
      Recent accounting pronouncements
 No.
123(R)
  Contingencies
  Principles of consolidation
   6




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##### Table of Contents



Use of estimates
  Foreign currencies
   Valuation and amortization method
  Weighted AverageRemaining ExpenseAwards
    
    Life (Years)
    
    
    March 31,2006Options
    
    
    1.7
    
    
    $
    25,360,000ESPP
    
    
    0.2
    
    
    
    268,000Restricted stock
    
    
    1.8
    
    
    
    4,156,000Deferred issuance restricted stock
    
    
    1.3
    
    
    
    1,344,000$
    31,128,000
   Expected term
  7




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##### Table of Contents



Expected volatility
  Risk-free interest rate
  Dividends
  Forfeitures
  Assumptions
  Stock Option Plans
    
    
    ESPP2006
    
    
    2005
    
    
    2006
    
    
    2005Risk-free interest rate
    
    
    4.4
    %
    
    
    3.6
    %
    
    
    4.0
    %
    
    
    2.6
    %Volatility
    
    
    44
    %
    
    
    59
    %
    
    
    41
    %
    
    
    59
    %Dividend yield
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Expected life (years)
    
    
    5.4
    
    
    
    4.0
    
    
    
    0.5
    
    
    
    0.5Resulting average fair value
    
    $
    23.13
    
    
    $
    23.60
    
    
    $
    12.52
    
    
    $
    13.24
 8




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##### Table of Contents



Pro forma information for period prior to adoption of SFAS No. 123(R)
  Three Months EndedMarch 31, 2005Net income:As reported
    
    $
    13,461Stock-based employee
compensation expense included
in reported net income, net of
related tax effects
    
    
    54Total stock-based employee
compensation expense
determined under fair value
based method for all options,
net of related tax effects
    
    
    (3,927
    )Pro forma net income
    
    $
    9,588Net income per share:As reportedBasic
    
    $
    0.27Diluted
    
    $
    0.26Pro formaBasic
    
    $
    0.19Diluted
    
    $
    0.18
 Impact of the adoption of SFAS No. 123(R)
  Three Months EndedMarch 31, 2006Cost of product sales
    
    $
    133Research and development
    
    
    1,889Marketing and sales
    
    
    793General and administrative
    
    
    1,852Reduction of operating income before income taxes
    
    
    4,667Income tax benefit
    
    
    (1,651
    )Reduction of net income
    
    $
    3,016Reduction of net income per share:Basic
    
    $
    0.06Diluted
    
    $
    0.06
    9




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##### Table of Contents



Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueMunicipal securities
    
    $
    195,612
    
    
    $
    31
    
    
    $
    (1,984
    )
    
    $
    193,659Foreign debt securities
    
    
    4,837
    
    
    
    
    
    
    
    
    
    
    
    4,837Total short-term investments
    
    $
    200,449
    
    
    $
    31
    
    
    $
    (1,984
    )
    
    $
    198,496
 continuous unrealized loss position
 Less than 12 Months
    
    
    More than 12 MonthsEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesMunicipal securities
    
    $
    75,923
    
    
    $
    (735
    )
    
    $
    102,375
    
    
    $
    (1,249
    )Foreign debt securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total short-term investments
    
    $
    75,923
    
    
    $
    (735
    )
    
    $
    102,375
    
    
    $
    (1,249
    )
    Three Months EndedMarch 31,2006
    
    
    2005Net income
    
    $
    14,532
    
    
    $
    13,461Weighted average shares outstanding  Basic
    
    
    51,248
    
    
    
    50,282Effect of dilutive common stock options outstanding
    
    
    1,617
    
    
    
    2,085Weighted average shares outstanding  Diluted
    
    
    52,865
    
    
    
    52,367Net income per share:Basic
    
    $
    0.28
    
    
    $
    0.27Diluted
    
    $
    0.27
    
    
    $
    0.26
  10




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##### Table of Contents



Three Months EndedMarch 31,2006
    
    
    2005Net income
    
    $
    14,532
    
    
    $
    13,461Change in unrealized loss on investments
    
    
    (349
    )
    
    
    (825
    )Foreign currency translation adjustment
    
    
    210
    
    
    
    190Other comprehensive loss, net
    
    
    (139
    )
    
    
    (635
    )Comprehensive income
    
    $
    14,393
    
    
    $
    12,826
   Inventories
 March 31,
    
    
    December 31,2006
    
    
    2005Raw materials and supplies
    
    $
    5,180
    
    
    $
    5,430Work in process
    
    
    18,942
    
    
    
    17,934Finished goods
    
    
    13,595
    
    
    
    12,978$
    37,717
    
    
    $
    36,342
 Property, plant and equipment
 March 31,
    
    
    December 31,2006
    
    
    2005Land
    
    $
    9,100
    
    
    $
    9,100Building
    
    
    39,581
    
    
    
    39,535Machinery and equipment
    
    
    111,774
    
    
    
    106,433Leasehold improvements
    
    
    16,204
    
    
    
    16,301Furniture and fixtures
    
    
    10,613
    
    
    
    10,346Construction in-progress
    
    
    44,112
    
    
    
    32,143Property, plant and equipment (at cost)
    
    
    231,384
    
    
    
    213,858Less accumulated depreciation and amortization
    
    
    (112,797
    )
    
    
    (108,668
    )Property, plant and equipment (net)
    
    $
    118,587
    
    
    $
    105,190
 License, manufacturing access fees and other assets
 March 31, 2006
    
    
    December 31, 2005Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedGross
    
    
    Amortization
    
    
    Net
    
    
    Gross
    
    
    Amortization
    
    
    NetIntangible assets subject to amortization:Capitalized software
    
    $
    25,142
    
    
    $
    4,819
    
    
    $
    20,323
    
    
    $
    25,142
    
    
    $
    4,190
    
    
    $
    20,952Patents
    
    
    16,074
    
    
    
    14,917
    
    
    
    1,157
    
    
    
    15,822
    
    
    
    14,817
    
    
    
    1,005Purchased intangible assets
    
    
    33,636
    
    
    
    32,414
    
    
    
    1,222
    
    
    
    33,636
    
    
    
    32,330
    
    
    
    1,306License, manufacturing and other access fees
    
    
    50,007
    
    
    
    4,341
    
    
    
    45,666
    
    
    
    48,354
    
    
    
    3,517
    
    
    
    44,837Total
    
    $
    124,859
    
    
    $
    56,491
    
    
    $
    68,368
    
    
    $
    122,954
    
    
    $
    54,854
    
    
    $
    68,100Goodwill
    
    $
    26,298
    
    
    $
    7,677
    
    
    $
    18,621
    
    
    $
    26,298
    
    
    $
    7,677
    
    
    $
    18,621Investment in Molecular Profiling Institute,
Inc.
    
    $
    2,500
    
    
    $
    
    
    
    $
    2,500
    
    
    $
    2,500
    
    
    $
    
    
    
    $
    2,500
 11




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##### Table of Contents



WeightedAverage
    
    
    AggregateRemaining
    
    
    IntrinsicNumber of
    
    
    Weighted Average
    
    
    Contractual
    
    
    ValueShares
    
    
    Exercise Price
    
    
    Life (Years)
    
    
    (in thousands)Outstanding at December 31, 2005
    
    
    5,953,586
    
    
    $
    29.53Granted
    
    
    90,450
    
    
    
    49.68Exercised
    
    
    (421,892
    )
    
    
    22.40Cancelled
    
    
    (61,046
    )
    
    
    37.31Outstanding at March 31, 2006
    
    
    5,561,098
    
    
    
    30.31
    
    
    
    7.6
    
    
    $
    136,791Exercisable at March 31, 2006
    
    
    2,843,377
    
    
    $
    23.25
    
    
    
    6.7
    
    
    $
    90,054
  12




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##### Table of Contents



WeightedAverageWeighted Average
    
    
    RemainingNumber of
    
    
    Grant-Date
    
    
    ContractualShares
    
    
    Fair Value
    
    
    Life (Years)Non-vested at December 31, 2005
    
    
    3,013,593
    
    
    $
    17.09Granted
    
    
    90,450
    
    
    
    23.13Vested
    
    
    (325,406
    )
    
    
    13.21Forfeited
    
    
    (60,916
    )
    
    
    17.87Non-vested at March 31, 2006
    
    
    2,717,721
    
    
    $
    17.48
    
    
    
    8.6
   Balance at December 31, 2005
    
    $
    447,373Net income
    
    
    14,532Other comprehensive loss, net
    
    
    (139
    )Net proceeds from the issuance of common stock
    
    
    9,449Purchase of common stock by board members
    
    
    34Stock-based compensation expense  restricted stock
    
    
    422Stock-based compensation expense  all other
    
    
    4,667Stock-based compensation  net capitalized to inventory
    
    
    685Tax benefit from the exercise of stock options
    
    
    4,394Balance at March 31, 2006
    
    $
    481,417
   Bayer Corporation
 Arbitration I
   13




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Arbitration II
  Patent Litigation
    14




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##### Table of Contents



®
 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
  Licensing
   16




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Product Development
      Revenues
  17




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##### Table of Contents



Product sales
   Collaborative research revenue
   Royalty and license revenue
  18




---



##### Table of Contents



Cost of product sales
     Research and development
    19




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Critical accounting policies and estimates
   Stock-based compensation expense
    20




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##### Table of Contents



Results of Operations
 Three Months EndedMarch 31,
    
    
    Change2006
    
    
    2005
    
    
    Amount
    
    
    %(In millions, except per share data)Statement of income:Revenues:Product sales
    
    $
    78.5
    
    
    $
    59.6
    
    
    $
    18.9
    
    
    
    32
    %Collaborative research revenue
    
    
    6.9
    
    
    
    6.3
    
    
    
    0.6
    
    
    
    10
    %Royalty and license revenue
    
    
    0.9
    
    
    
    2.9
    
    
    
    (2.0
    )
    
    
    (69
    %)Total revenues
    
    
    86.3
    
    
    
    68.8
    
    
    
    17.5
    
    
    
    25
    %Operating expenses:Cost of product sales
    
    
    26.1
    
    
    
    15.5
    
    
    
    10.6
    
    
    
    68
    %Research and development
    
    
    19.3
    
    
    
    18.7
    
    
    
    0.6
    
    
    
    3
    %Marketing and sales
    
    
    8.9
    
    
    
    7.4
    
    
    
    1.5
    
    
    
    20
    %General and administrative
    
    
    10.7
    
    
    
    7.2
    
    
    
    3.5
    
    
    
    49
    %Total operating expenses
    
    
    65.0
    
    
    
    48.8
    
    
    
    16.2
    
    
    
    33
    %Income from operations
    
    
    21.3
    
    
    
    20.0
    
    
    
    1.3
    
    
    
    7
    %Total other income, net
    
    
    1.7
    
    
    
    1.1
    
    
    
    0.6
    
    
    
    55
    %Income tax expense
    
    
    8.5
    
    
    
    7.7
    
    
    
    0.8
    
    
    
    10
    %Net income
    
    $
    14.5
    
    
    $
    13.4
    
    
    $
    1.1
    
    
    
    8
    %Net income per shareBasic
    
    $
    0.28
    
    
    $
    0.27
    
    
    $
    0.01
    
    
    
    4
    %Diluted
    
    $
    0.27
    
    
    $
    0.26
    
    
    $
    0.01
    
    
    
    4
    %Weighted average shares outstandingBasic
    
    
    51.2
    
    
    
    50.3Diluted
    
    
    52.9
    
    
    
    52.4
 
 Amounts and percentages in this table and throughout our discussion and analysis of financial
conditions and results of operations may reflect rounding adjustments. Percentages have been
rounded to the nearest whole percentage. 21




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##### Table of Contents



Product sales
   Collaborative research revenue
   Royalty and license revenue
   Cost of product sales
   22




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##### Table of Contents



Research and development
  Marketing and sales
  General and administrative
  Total other income, net
  Income tax expense
  23




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##### Table of Contents



Liquidity and capital resources
 March 31,
    
    
    December 31,2006
    
    
    2005Cash, cash equivalents and short-term investments
    
    $
    243,086
    
    
    $
    220,288Working capital
    
    $
    282,843
    
    
    $
    262,659Current ratio
    
    
    6:1
    
    
    
    6:1
 Three Months EndedMarch 31,2006
    
    
    2005
    
    
    $ ChangeCash provided by (used in):Operating activities
    
    $
    28,755
    
    
    $
    24,815
    
    
    $
    3,940Investing activities
    
    
    (30,410
    )
    
    
    (24,772
    )
    
    
    (5,638
    )Financing activities
    
    
    13,843
    
    
    
    6,705
    
    
    
    7,138Purchases of property, plant and equipment (included in investing activities above)
    
    $
    (17,768
    )
    
    $
    (10,228
    )
    
    $
    (7,540
    )
       24




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##### Table of Contents



Contractual obligations and commercial commitments
  Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    ThereafterOperating leases (1)
    
    $
    2,504
    
    
    $
    1,404
    
    
    $
    863
    
    
    $
    167
    
    
    $
    70
    
    
    $
    Material purchase commitments (2)
    
    
    23,301
    
    
    
    14,757
    
    
    
    8,544
    
    
    
    
    
    
    
    
    
    
    
    Collaborative commitments (3)
    
    
    17,454
    
    
    
    4,054
    
    
    
    2,650
    
    
    
    10,000
    
    
    
    750
    
    
    
    Total (4)
    
    $
    43,259
    
    
    $
    20,215
    
    
    $
    12,057
    
    
    $
    10,167
    
    
    $
    820
    
    
    $
    
 
 (1)
    
    Reflects obligations on facilities under operating leases in place as of March 31,
2006. 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 $19.2 million expected to be
purchased for TIGRIS instruments in 2006 and 2007, we anticipate that approximately $13.5
million will be reimbursed by Novartis.(3)
    
    In addition to the minimum payments due under our collaborative agreements, we may
be required to pay up to $4.25 million in milestone payments, plus royalties on net sales of
any products using specified technology. Further, on April 17, 2006 we exercised our option to
develop a point of sample collection NAT instrument, and purchased an equity interest in
Qualigen for approximately $7.0 million. We may pay up to an additional $3.0 million based on
development milestones, plus royalties on any eventual product sales.(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.      25




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##### Table of Contents



Stock Options
 Option program description
  General option and equity compensation plan information
 Summary of Option and Restricted Stock Activity
  Shares
    
    
    Options OutstandingRemaining
    
    
    Number of
    
    
    WeightedAvailable
    
    
    Shares to be
    
    
    Average
    
    
    Restricted
    
    
    Directorfor Future
    
    
    Issued Upon
    
    
    Exercise
    
    
    Stock
    
    
    StockIssuance
    
    
    Exercise
    
    
    Price
    
    
    Awards
    
    
    PurchasesDecember 31, 2004
    
    
    1,915
    
    
    
    6,004
    
    
    $
    25.03
    
    
    
    40
    
    
    
    Grants
    
    
    (1,363
    )
    
    
    1,228
    
    
    
    43.82
    
    
    
    132
    
    
    
    3Exercises
    
    
    
    
    
    
    (890
    )
    
    
    17.65
    
    
    
    
    
    
    
    (3
    )Cancellations
    
    
    388
    
    
    
    (388
    )
    
    
    32.78
    
    
    
    
    
    
    
    December 31, 2005
    
    
    940
    
    
    
    5,954
    
    
    $
    29.53
    
    
    
    172
    
    
    
    Grants
    
    
    (91
    )
    
    
    90
    
    
    
    49.68
    
    
    
    
    
    
    
    1Exercises
    
    
    
    
    
    
    (422
    )
    
    
    22.40
    
    
    
    
    
    
    
    (1
    )Cancellations
    
    
    61
    
    
    
    (61
    )
    
    
    37.31
    
    
    
    
    
    
    
    March 31, 2006
    
    
    910
    
    
    
    5,561
    
    
    $
    30.31
    
    
    
    172
    *
    
    
    
 
 *
    
    Includes 60,000 shares of Deferred Issuance Restricted Stock and approximately 112,000 shares
of Restricted Stock as of March 31, 2006. In-the-Money and Out-of-the-Money Option Information
  Exercisable
    
    
    Unexercisable
    
    
    TotalWtd.
    
    
    
    
    
    
    Wtd.
    
    
    
    
    
    
    Wtd.Avg.
    
    
    
    
    
    
    Avg.
    
    
    
    
    
    
    AvgExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseAs of March 31, 2006
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceIn-the-Money
    
    
    2,843
    
    
    $
    23.25
    
    
    
    2,718
    
    
    $
    37.69
    
    
    
    5,561
    
    
    $
    30.31Out-of-the Money(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Options Outstanding
    
    
    2,843
    
    
    
    
    
    
    
    2,718
    
    
    
    
    
    
    
    5,561
 
 (1)
    
    Out-of-the-money options are those options with an exercise price equal to or
greater than the fair market value of our common stock, $55.12, at the close of business on
March 31, 2006. 26




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##### Table of Contents



Available Information
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Foreign Currency Exchange Risk
   
 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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##### Table of Contents



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.
  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.
     30




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##### Table of Contents



We face intense competition, and our failure to compete effectively could decrease our revenues
and harm our profitability and results of operations.
     Our gross profit margin percentage on the sale of blood screening assays may decrease upon the
implementation of individual donor testing.
  31




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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.
     32




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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.
  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.
  33




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##### Table of Contents



Our future success will depend in part upon our ability to enhance existing products and to
develop and introduce new products.
   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.
  We expect to continue to incur significant research and development expenses, which may make it
difficult for us to maintain profitability.
  34




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##### Table of Contents



We may not have financing for future capital requirements, which may prevent us from addressing
gaps in our product offerings or improving our technology.
    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 cost and in compliance with regulatory requirements,
our ability to sell our products will be harmed.
  35




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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,
 36




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##### Table of Contents




    
    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.
   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.
    Disruptions in the supply of raw materials and consumable goods 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.
  37




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##### Table of Contents



We are dependent on technologies we license, and if we fail to 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.
   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.
   38




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##### Table of Contents



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, provisions of
Delaware law and our rights plan 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;
 39




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##### Table of Contents




    
    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.
  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.
  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.
  40




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##### Table of Contents



Compliance with changing corporate governance and public disclosure regulations may result in
additional expenses.
  Item 5. Other Information
  41




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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(5)
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation of
Gen-Probe Incorporated.3.3(1)
    
    Form of Amended and Restated Bylaws of Gen-Probe Incorporated.3.4(5)
    
    Certificate of Designations of the Series A Junior Participating Preferred Stock of
Gen-Probe Incorporated.4.1(1)
    
    Specimen common stock certificate.4.2(2)
    
    Rights Agreement, dated as of September 16, 2002, between Gen-Probe Incorporated
and Mellon Investor Services LLC, which includes the form of Certificate of
Designations of the Series A Junior Participating Preferred Stock of Gen-Probe
Incorporated as Exhibit A, the form of Right Certificate as Exhibit B and the
Summary of Rights to Purchase Preferred Shares as Exhibit C.4.3(3)
    
    First Amendment to Rights Agreement, dated October 9, 2002, between Gen-Probe
Incorporated and Mellon Investor Services LLC.4.4(4)
    
    Second Amendment to Rights Agreement, dated November 20, 2003.10.88
    
    Amendment No. 8 effective February 8, 2006 to the Agreement dated as of June 11,
1998 between Gen-Probe Incorporated and Chiron Corporation.10.89
    
    2006 Amendment
to the Renewed Distributorship Agreement and the Distributorship
Arrangements Agreement dated May 2, 1997 by and between Gen-Probe
Incorporated and bioMerieux S.A. entered into May 1, 2006.31.1
    
    Certification dated May 5, 2006, of Principal Executive Officer required pursuant
to 18 USC. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.31.2
    
    Certification dated May 5, 2006, of Principal Financial Officer required pursuant
to 18 USC. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.32.1
    
    Certification dated May 5, 2006, of Principal Executive Officer required pursuant
to 18 USC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.32.2
    
    Certification dated May 5, 2006, of Principal Financial Officer required pursuant
to 18 USC. 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 Report on Form 8-K filed with the SEC on September 17,
2002.(3)
    
    Incorporated by reference to Gen-Probes Quarterly Report on Form 10-Q filed with the SEC on
November 14, 2002.(4)
    
    Incorporated by reference to Gen-Probes Report on Form 8-K filed with the SEC on November 21,
2003.(5)
    
    Incorporated by reference to Gen-Probes Quarterly Report on Form 10-Q filed with the SEC on
August 9, 2004. 42




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##### Table of Contents



SIGNATURES
  DATE: May 5, 2006
    
    By:
    
    /s/ Henry L. NordhoffHenry L. NordhoffChairman, President and Chief Executive Officer(Principal Executive Officer)DATE: May 5, 2006
    
    By:
    
    /s/ Herm RosenmanHerm RosenmanVice President  Finance and Chief FinancialOfficer (Principal Financial Officer andPrincipal Accounting Officer)