##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)R
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the quarterly period ended September 30, 2005OR£
    
    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
 R £
 R £
 £ R




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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
    
    
    14Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    41Item 4. Controls and Procedures
    
    
    41PART IIItem 1. Legal Proceedings
    
    
    42Item 6. Exhibits
    
    
    43SIGNATURESEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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##### Table of Contents



GEN-PROBE INCORPORATED
 CONSOLIDATED BALANCE SHEETS
  September 30,
    
    
    December 31,2005
    
    
    2004(unaudited)Current assets:Cash and cash equivalents
    
    $
    45,590
    
    
    $
    25,498Short-term investments
    
    
    175,095
    
    
    
    168,328Trade accounts receivable, net of allowance
for doubtful accounts of $730 at September
30, 2005 and $664 at December 31, 2004,
respectively
    
    
    29,159
    
    
    
    21,990Accounts receivable  other
    
    
    1,405
    
    
    
    3,136Inventories
    
    
    34,109
    
    
    
    27,308Deferred income taxes
    
    
    7,081
    
    
    
    7,725Prepaid expenses
    
    
    12,277
    
    
    
    8,517Other current assets
    
    
    7,480
    
    
    
    5,447Total current assets
    
    
    312,196
    
    
    
    267,949Property, plant and equipment, net
    
    
    94,175
    
    
    
    76,651Capitalized software
    
    
    21,580
    
    
    
    23,466Goodwill
    
    
    18,621
    
    
    
    18,621License, manufacturing and other access fees
    
    
    44,009
    
    
    
    24,395Total assets
    
    $
    490,581
    
    
    $
    411,082Current liabilities:Accounts payable
    
    
    12,237
    
    
    
    6,729Accrued salaries and employee benefits
    
    
    16,678
    
    
    
    11,912Other accrued expenses
    
    
    3,225
    
    
    
    4,451Income tax payable
    
    
    7,625
    
    
    
    1,188Deferred revenue
    
    
    15,220
    
    
    
    9,467Total current liabilities
    
    
    54,985
    
    
    
    33,747Deferred income taxes
    
    
    6,403
    
    
    
    9,187Deferred revenue
    
    
    4,500
    
    
    
    5,000Deferred rent
    
    
    262
    
    
    
    309Minority interest
    
    
    
    
    
    
    1,810Commitments 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, 50,812,945
and 50,035,490 shares issued and outstanding
at September 30, 2005 and December 31, 2004,
respectively
    
    
    5
    
    
    
    5Additional paid-in capital
    
    
    270,651
    
    
    
    248,767Deferred compensation
    
    
    (1,632
    )
    
    
    (1,104
    )Accumulated other comprehensive income (loss)
    
    
    (481
    )
    
    
    807Retained earnings
    
    
    155,888
    
    
    
    112,554Total stockholders equity
    
    
    424,431
    
    
    
    361,029Total liabilities and stockholders equity
    
    $
    490,581
    
    
    $
    411,082
  3




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##### Table of Contents



GEN-PROBE INCORPORATED
 CONSOLIDATED STATEMENTS OF INCOME
 
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Product sales
    
    $
    68,941
    
    
    $
    56,447
    
    
    $
    193,651
    
    
    $
    164,077Collaborative research revenue
    
    
    6,336
    
    
    
    5,532
    
    
    
    19,358
    
    
    
    19,270Royalty and license revenue
    
    
    994
    
    
    
    1,508
    
    
    
    4,984
    
    
    
    17,851Total revenues
    
    
    76,271
    
    
    
    63,487
    
    
    
    217,993
    
    
    
    201,198Operating expenses:Cost of product sales
    
    
    21,399
    
    
    
    15,272
    
    
    
    57,247
    
    
    
    42,300Research and development
    
    
    17,506
    
    
    
    15,646
    
    
    
    53,597
    
    
    
    49,961Marketing and sales
    
    
    7,555
    
    
    
    6,568
    
    
    
    22,365
    
    
    
    19,958General and administrative
    
    
    7,822
    
    
    
    9,058
    
    
    
    22,793
    
    
    
    23,817Total operating expenses
    
    
    54,282
    
    
    
    46,544
    
    
    
    156,002
    
    
    
    136,036Income from operations
    
    
    21,989
    
    
    
    16,943
    
    
    
    61,991
    
    
    
    65,162Total other income, net
    
    
    1,318
    
    
    
    769
    
    
    
    3,400
    
    
    
    1,467Income before income taxes
    
    
    23,307
    
    
    
    17,712
    
    
    
    65,391
    
    
    
    66,629Income tax expense
    
    
    6,890
    
    
    
    6,602
    
    
    
    22,057
    
    
    
    24,030Net income
    
    $
    16,417
    
    
    $
    11,110
    
    
    $
    43,334
    
    
    $
    42,599Net income per share:Basic
    
    $
    0.32
    
    
    $
    0.22
    
    
    $
    0.86
    
    
    $
    0.86Diluted
    
    $
    0.31
    
    
    $
    0.22
    
    
    $
    0.83
    
    
    $
    0.83Weighted average shares outstanding:Basic
    
    
    50,726
    
    
    
    49,654
    
    
    
    50,518
    
    
    
    49,284Diluted
    
    
    52,464
    
    
    
    51,516
    
    
    
    52,381
    
    
    
    51,302
  4




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GEN-PROBE INCORPORATED
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Nine Months EndedSeptember 30,2005
    
    
    2004Operating activitiesNet income
    
    $
    43,334
    
    
    $
    42,599Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    16,694
    
    
    
    12,988Stock compensation charges
    
    
    445
    
    
    
    1,051Loss on disposal of property and equipment
    
    
    262
    
    
    
    58Stock option income tax benefits
    
    
    6,948
    
    
    
    9,639Changes in assets and liabilities:Accounts receivable
    
    
    (5,562
    )
    
    
    (5,775
    )Inventories
    
    
    (6,809
    )
    
    
    (15,710
    )Prepaid expenses
    
    
    (3,760
    )
    
    
    (3,734
    )Other current assets
    
    
    (2,033
    )
    
    
    (1,903
    )Accounts payable
    
    
    5,525
    
    
    
    4,694Accrued salaries and employee benefits
    
    
    4,767
    
    
    
    976Other accrued expenses
    
    
    (1,169
    )
    
    
    (291
    )Income tax payable
    
    
    6,467
    
    
    
    (3,393
    )Deferred revenue
    
    
    5,253
    
    
    
    2,468Deferred income taxes
    
    
    (2,134
    )
    
    
    2,755Deferred rent
    
    
    (47
    )
    
    
    (10
    )Minority interest
    
    
    
    
    
    
    (27
    )Net cash provided by operating activities
    
    
    68,181
    
    
    
    46,385Investing activitiesProceeds from sales and maturities of short-term investments
    
    
    98,693
    
    
    
    148,444Purchases of short-term investments
    
    
    (105,672
    )
    
    
    (188,644
    )Cash paid for acquisition of minority interest in Molecular Light Technology
    
    
    (1,539
    )
    
    
    (376
    )Purchases of property, plant and equipment
    
    
    (29,894
    )
    
    
    (15,572
    )Capitalization of intangible assets, including manufacturing and license fees
    
    
    (22,450
    )
    
    
    (23,180
    )Other assets
    
    
    (821
    )
    
    
    (182
    )Net cash used in investing activities
    
    
    (61,683
    )
    
    
    (79,510
    )Financing activitiesProceeds from issuance of common stock
    
    
    13,963
    
    
    
    15,819Net cash provided by financing activities
    
    
    13,963
    
    
    
    15,819Effect of exchange rate changes on cash and cash equivalents
    
    
    (369
    )
    
    
    679Net increase (decrease) in cash and cash equivalents
    
    
    20,092
    
    
    
    (16,627
    )Cash and cash equivalents at the beginning of the period
    
    
    25,498
    
    
    
    35,973Cash and cash equivalents at the end of the period
    
    $
    45,590
    
    
    $
    19,346Supplemental disclosure of cash flow information:Cash paid for:Income taxes
    
    $
    10,187
    
    
    $
    15,692Interest
    
    $
    149
    
    
    $
    33
  5




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Notes to the Consolidated Financial Statements (unaudited)
       Recent accounting pronouncements
   6




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Contingencies
  Principles of consolidation
   Use of estimates
  Foreign currencies
  7




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##### Table of Contents



Reclassifications
      Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Risk-free interest rate
    
    
    3.91
    %
    
    
    3.15
    %
    
    
    3.76
    %
    
    
    3.17
    %Volatility
    
    
    45
    %
    
    
    62
    %
    
    
    53
    %
    
    
    63
    %Expected life (years)
    
    
    5.4
    
    
    
    4.0
    
    
    
    4.9
    
    
    
    4.0Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Resulting average fair value
    
    $
    19.76
    
    
    $
    18.28
    
    
    $
    22.18
    
    
    $
    18.82
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Risk-free interest rate
    
    
    3.35
    %
    
    
    1.04
    %
    
    
    3.04
    %
    
    
    1.04
    %Volatility
    
    
    40
    %
    
    
    66
    %
    
    
    48
    %
    
    
    59
    %Expected life (years)
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Resulting average fair value
    
    $
    9.14
    
    
    $
    10.61
    
    
    $
    10.86
    
    
    $
    9.80
 8




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income:As reported
    
    $
    16,417
    
    
    $
    11,110
    
    
    $
    43,334
    
    
    $
    42,599Stock-based employee compensation
expense included in reported net
income, net of related tax effects
    
    
    87
    
    
    
    491
    
    
    
    205
    
    
    
    547Total stock based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects
    
    
    (3,924
    )
    
    
    (2,870
    )
    
    
    (12,278
    )
    
    
    (7,151
    )Pro forma net income
    
    $
    12,580
    
    
    $
    8,731
    
    
    $
    31,261
    
    
    $
    35,995Net income per share:As reportedBasic
    
    $
    0.32
    
    
    $
    0.22
    
    
    $
    0.86
    
    
    $
    0.86Diluted
    
    $
    0.31
    
    
    $
    0.22
    
    
    $
    0.83
    
    
    $
    0.83Pro formaBasic
    
    $
    0.25
    
    
    $
    0.18
    
    
    $
    0.62
    
    
    $
    0.73Diluted
    
    $
    0.24
    
    
    $
    0.17
    
    
    $
    0.60
    
    
    $
    0.70
      Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    16,417
    
    
    $
    11,110
    
    
    $
    43,334
    
    
    $
    42,599Weighted average shares outstanding
 Basic
    
    
    50,726
    
    
    
    49,654
    
    
    
    50,518
    
    
    
    49,284Effect of dilutive common stock
options outstanding
    
    
    1,738
    
    
    
    1,862
    
    
    
    1,863
    
    
    
    2,018Weighted average shares outstanding
 Diluted
    
    
    52,464
    
    
    
    51,516
    
    
    
    52,381
    
    
    
    51,302Net income per share:Basic
    
    $
    0.32
    
    
    $
    0.22
    
    
    $
    0.86
    
    
    $
    0.86Diluted
    
    $
    0.31
    
    
    $
    0.22
    
    
    $
    0.83
    
    
    $
    0.83
 9




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    16,417
    
    
    $
    11,110
    
    
    $
    43,334
    
    
    $
    42,599Foreign currency translation
adjustment
    
    
    (244
    )
    
    
    (231
    )
    
    
    (562
    )
    
    
    273Change in unrealized gain (loss) on
investments
    
    
    (238
    )
    
    
    330
    
    
    
    (726
    )
    
    
    (43
    )Comprehensive income
    
    $
    15,935
    
    
    $
    11,209
    
    
    $
    42,046
    
    
    $
    42,829
   September 30, 2005
    
    
    December 31, 2004Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedGross
    
    
    Amortization
    
    
    Net
    
    
    Gross
    
    
    Amortization
    
    
    NetIntangible assets subject to
amortization:Capitalized software
    
    $
    25,142
    
    
    $
    3,562
    
    
    $
    21,580
    
    
    $
    25,142
    
    
    $
    1,676
    
    
    $
    23,466Patents
    
    
    15,655
    
    
    
    14,633
    
    
    
    1,022
    
    
    
    15,305
    
    
    
    14,062
    
    
    
    1,243Purchased intangible assets
    
    
    33,636
    
    
    
    32,246
    
    
    
    1,390
    
    
    
    33,636
    
    
    
    31,994
    
    
    
    1,642License, manufacturing
and other access fees
    
    
    44,354
    
    
    
    2,757
    
    
    
    41,597
    
    
    
    22,262
    
    
    
    752
    
    
    
    21,510Total
    
    $
    118,787
    
    
    $
    53,198
    
    
    $
    65,589
    
    
    $
    96,345
    
    
    $
    48,484
    
    
    $
    47,861Goodwill
    
    $
    26,298
    
    
    $
    7,677
    
    
    $
    18,621
    
    
    $
    26,298
    
    
    $
    7,677
    
    
    $
    18,621
   10




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##### Table of Contents



September 30,
    
    
    December 31,2005
    
    
    2004Raw materials and supplies
    
    $
    4,664
    
    
    $
    5,345Work in process
    
    
    15,310
    
    
    
    10,429Finished goods
    
    
    14,135
    
    
    
    11,534$
    34,109
    
    
    $
    27,308
       11




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##### Table of Contents



Balance at December 31, 2004
    
    $
    361,029Net income
    
    
    43,334Other
comprehensive loss
    
    
    (1,288
    )Net proceeds from the issuance of common stock
    
    
    12,515Purchase of common shares through ESPP
    
    
    1,448Purchase of common stock by board members
    
    
    102Amortization of deferred compensation
    
    
    343Tax benefit from the exercise of stock options
    
    
    6,948Balance at September 30, 2005
    
    $
    424,431
      Enzo Biochem, Inc.
 Neisseria gonorrhoeae Neisseria gonorrhoeae
 12




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Bayer Corporation
       13




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##### Table of Contents



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




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Corporate Collaborations
   Licensing
   Supply Agreement
  15




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##### Table of Contents



Product Development
  Chlamydia trachomatis Neisseria gonorrhoeae
  Arbitration Award
  Revenues
  16




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##### Table of Contents



Product sales
   Collaborative research revenue
    17




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##### Table of Contents



Royalty and license revenue
   Cost of product sales
    Research and development
   18




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##### Table of Contents



Critical accounting policies and estimates
   Revenue Recognition
   Future Accounting Requirements
  19




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##### Table of Contents



Results of Operations
  Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Total revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Product sales
    
    
    91
    %
    
    
    89
    %
    
    
    89
    %
    
    
    81
    %Collaborative research revenue
    
    
    8
    %
    
    
    9
    %
    
    
    9
    %
    
    
    10
    %Royalty and license revenue
    
    
    1
    %
    
    
    2
    %
    
    
    2
    %
    
    
    9
    %Operating expenses:Cost of product sales
    
    
    28
    %
    
    
    24
    %
    
    
    26
    %
    
    
    21
    %Research and development
    
    
    23
    %
    
    
    25
    %
    
    
    25
    %
    
    
    25
    %Marketing and sales
    
    
    10
    %
    
    
    10
    %
    
    
    10
    %
    
    
    10
    %General and administrative
    
    
    10
    %
    
    
    14
    %
    
    
    11
    %
    
    
    12
    %Total operating expenses
    
    
    71
    %
    
    
    73
    %
    
    
    72
    %
    
    
    68
    %Income from operations
    
    
    29
    %
    
    
    27
    %
    
    
    28
    %
    
    
    32
    %Total other income, net
    
    
    2
    %
    
    
    1
    %
    
    
    2
    %
    
    
    1
    %Income before income taxes
    
    
    31
    %
    
    
    28
    %
    
    
    30
    %
    
    
    33
    %Income tax expense
    
    
    9
    %
    
    
    10
    %
    
    
    10
    %
    
    
    12
    %Net income
    
    
    22
    %
    
    
    18
    %
    
    
    20
    %
    
    
    21
    %
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    % Change
    
    
    2005
    
    
    2004
    
    
    % Change(in millions, except per share data)Statement of income:Revenues:Product sales
    
    $
    69.0
    
    
    $
    56.5
    
    
    
    22
    %
    
    $
    193.6
    
    
    $
    164.1
    
    
    
    18
    %Collaborative research revenue
    
    
    6.3
    
    
    
    5.5
    
    
    
    15
    %
    
    
    19.4
    
    
    
    19.3
    
    
    
    1
    %Royalty and license revenue
    
    
    1.0
    
    
    
    1.5
    
    
    
    (33
    %)
    
    
    5.0
    
    
    
    17.8
    
    
    
    (72
    %)Total revenues
    
    
    76.3
    
    
    
    63.5
    
    
    
    20
    %
    
    
    218.0
    
    
    
    201.2
    
    
    
    8
    %Operating expenses:Cost of product sales
    
    
    21.4
    
    
    
    15.3
    
    
    
    40
    %
    
    
    57.2
    
    
    
    42.3
    
    
    
    35
    %Research and development
    
    
    17.5
    
    
    
    15.6
    
    
    
    12
    %
    
    
    53.6
    
    
    
    50.0
    
    
    
    7
    %Marketing and sales
    
    
    7.6
    
    
    
    6.6
    
    
    
    15
    %
    
    
    22.4
    
    
    
    19.9
    
    
    
    12
    %General and administrative
    
    
    7.8
    
    
    
    9.1
    
    
    
    (14
    %)
    
    
    22.8
    
    
    
    23.8
    
    
    
    (4
    %)Total operating expenses
    
    
    54.3
    
    
    
    46.6
    
    
    
    17
    %
    
    
    156.0
    
    
    
    136.0
    
    
    
    15
    %Income from operations
    
    
    22.0
    
    
    
    16.9
    
    
    
    30
    %
    
    
    62.0
    
    
    
    65.2
    
    
    
    (5
    %)Net income
    
    $
    16.4
    
    
    $
    11.1
    
    
    
    48
    %
    
    $
    43.3
    
    
    $
    42.6
    
    
    
    2
    %Net income per shareBasic
    
    $
    0.32
    
    
    $
    0.22
    
    
    
    45
    %
    
    $
    0.86
    
    
    $
    0.86
    
    
    
    0
    %Diluted
    
    $
    0.31
    
    
    $
    0.22
    
    
    
    41
    %
    
    $
    0.83
    
    
    $
    0.83
    
    
    
    0
    %Weighted average shares outstandingBasic
    
    
    50.7
    
    
    
    49.7
    
    
    
    
    
    
    
    50.5
    
    
    
    49.3Diluted
    
    
    52.5
    
    
    
    51.5
    
    
    
    
    
    
    
    52.4
    
    
    
    51.3
 
  20




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Product sales
    Collaborative research revenue
    Royalty and license revenue
   21




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Cost of product sales
    Research and development
   22




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##### Table of Contents



Marketing and sales
   General and administrative
   Total other income, net
  Income tax expense
  Liquidity and capital resources
 September 30,
    
    
    December 31,2005
    
    
    2004Cash, cash equivalents and short-term investments
    
    $
    220,685
    
    
    $
    193,826Working capital
    
    
    257,211
    
    
    
    234,202
 Nine Months EndedSeptember 30,2005
    
    
    2004
    
    
    $ ChangeCash provided by (used in):Operating activities
    
    $
    68,181
    
    
    $
    46,385
    
    
    $
    21,796Investing activities
    
    
    (61,683
    )
    
    
    (79,510
    )
    
    
    17,827Financing activities
    
    
    13,963
    
    
    
    15,819
    
    
    
    (1,856
    )Purchases of property, plant
and equipment (included in
investing activities above)
    
    
    (29,894
    )
    
    
    (15,572
    )
    
    
    (14,322
    )
 23




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24




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Contractual obligations and commercial commitments
  
    
    Roche.As part of our HPV DNA probes supply and purchase agreement, we paid Roche $20.0
million in May 2005 and agreed to pay $10.0 million upon achievement of certain future
commercial events, but not later than December 1, 2008. In addition, we have agreed to pay
Roche transfer fees for the HPV products.
    
    Vendors.The Company is obligated to purchase raw materials used in manufacturing and
instrumentation from two key vendors during 2005. The outstanding minimum purchase
commitment for 2005 is approximately $2.5 million.
  
    
    Chiron.We are obligated to manufacture and supply our blood screening assay to Chiron,
and Chiron 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 Chiron intends to take delivery, and
certain quantities determined on a rolling 12-month forecast.
    Stock Options
 Option program description
  25




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General option and equity compensation plan information
 Summary of Option and Equity Compensation Activity
 Shares
    
    
    Options OutstandingRemaining
    
    
    Number of
    
    
    Weighted
    
    
    DeferredAvailable
    
    
    Shares to be
    
    
    Average
    
    
    Issuance
    
    
    Directorfor Future
    
    
    Issued Upon
    
    
    Exercise
    
    
    Restricted
    
    
    StockIssuance
    
    
    Exercise
    
    
    Price
    
    
    Stock Award
    
    
    PurchasesDecember 31, 2003
    
    
    3,647
    
    
    
    5,473
    
    
    $
    18.10
    
    
    
    20
    
    
    
    Grants
    
    
    (2,084
    )
    
    
    2,061
    
    
    
    37.21
    
    
    
    20
    
    
    
    3Exercises
    
    
    
    
    
    
    (1,178
    )
    
    
    14.15
    
    
    
    
    
    
    
    (3
    )Cancellations
    
    
    352
    
    
    
    (352
    )
    
    
    24.97
    
    
    
    
    
    
    
    December 31, 2004
    
    
    1,915
    
    
    
    6,004
    
    
    $
    25.03
    
    
    
    40
    
    
    
    Grants
    
    
    (531
    )
    
    
    509
    
    
    
    44.83
    
    
    
    20
    
    
    
    2Exercises
    
    
    
    
    
    
    (728
    )
    
    
    17.19
    
    
    
    
    
    
    
    (2
    )Cancellations
    
    
    301
    
    
    
    (301
    )
    
    
    31.55
    
    
    
    
    
    
    
    September 30, 2005
    
    
    1,685
    
    
    
    5,484
    
    
    $
    27.55
    
    
    
    60
    
    
    
    
 In-the-Money and Out-of-the-Money Option Information
 Exercisable
    
    
    Unexercisable
    
    
    TotalWtd. Avg.
    
    
    
    
    
    
    Wtd. Avg.
    
    
    
    
    
    
    Wtd. Avg.Exercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseAs of September 30, 2005
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceIn-the-Money
    
    
    2,771
    
    
    $
    21.44
    
    
    
    2,671
    
    
    $
    33.53
    
    
    
    5,442
    
    
    $
    27.37Out-of-the-Money(1)
    
    
    
    
    
    
    
    
    
    
    42
    
    
    $
    50.63
    
    
    
    42
    
    
    $
    50.63Total Options Outstanding
    
    
    2,771
    
    
    
    
    
    
    
    2,713
    
    
    
    
    
    
    
    5,484
 
 (1)
    
    Out-of-the-Money options are those options with an exercise price equal to or greater than
the fair market value of Gen-Probe Common Stock, $49.45, at the close of business on September
30, 2005. Risk Factors
  Our quarterly revenue and operating results may vary significantly in future periods and our stock price may decline.
  26




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We are dependent on Chiron 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.
      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 Chiron with respect to blood screening would have a material
adverse effect on our business.
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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.
  We face intense competition, and our failure to compete effectively could decrease our revenues
and harm our profitability and results of operations.
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Our profit margin percentage on the sale of blood screening assays may decrease upon the
implementation of 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.
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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.
  30




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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.
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Our future success will depend in part upon our ability to enhance existing products and to
develop and introduce new products.
   We 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.
   
    
    for research and development to successfully develop new technologies and products,
    
    to conduct clinical trials,
    
    to obtain regulatory approval for new products,
    
    to file and prosecute patent applications and defend and assert patents to protect our
technologies, including through costly litigation,
    
    to manufacture additional products ourselves or through third parties,
    
    to market different products to different markets, either through building our own
sales and distribution capabilities or relying on third parties, and
    
    to acquire new technologies, products or companies.
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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 cost and in compliance with regulatory
requirements, our ability to sell our products will be harmed.
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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.
   34




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
    
    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.
    If third-party payors do not reimburse our customers for the use of our products or if they
reduce reimbursement levels, our ability to sell our products will be harmed.
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Disruptions in the supply of raw materials from our single source suppliers, including the Roche
Molecular Biochemicals division of Roche Diagnostics GmbH, which is an affiliate of one of our
primary competitors, could result in a significant disruption in sales and profitability.
  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.
   36




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We may acquire other businesses or form joint ventures that could decrease our profitability,
result in dilution to stockholders or cause us to incur debt or significant expense.
   We and our customers are subject to various governmental regulations, and we may incur
significant expenses to comply with these regulations and develop products compatible with these
regulations.
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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, provisions of
Delaware law and our rights plan could delay or prevent a change of control that our
stockholders may favor.
  38




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##### Table of Contents




    
    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.
 If we do not effectively manage our growth, it could affect our ability to pursue opportunities
and expand our business.
  39




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Future changes in financial accounting standards or practices or existing taxation rules or
practices may cause adverse unexpected revenue fluctuations and affect our reported results of
operations.
  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.
  40




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Available Information
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
    41




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  42




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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(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, 2003.10.83(6)
    
    Employment Offer Letter, dated July 15, 2005, between Gen-Probe Incorporated and
Stephen J. Kondor.31.1
    
    Certification dated November 4, 2005, 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 November 4, 2005, 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 November 4, 2005, 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 November 4, 2005, 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.
    
    Indicates management contract or compensatory plan, contract or arrangement.(1)
    
    Incorporated by reference to Gen-Probes Amendment No. 2 to Registration Statement on Form 10
filed with the SEC on August 14, 2002.(2)
    
    Incorporated by reference to Gen-Probes 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.(6)
    
    Incorporated by reference to Gen-Probes Report on Form 8-K filed with the SEC on August 1,
2005. 43




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SIGNATURES
  DATE: November 4, 2005
    By:
    /s/ Henry L. NordhoffHenry L. NordhoffChairman, President and Chief Executive
Officer (Principal Executive Officer) DATE: November 4, 2005
    By:
    /s/ Herm RosenmanHerm RosenmanVice President  Finance and Chief Financial
Officer (Principal Financial Officer and
Principal Accounting Officer)