##### 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 September 30, 2008
  o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
  GEN-PROBE INCORPORATED
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    33-0044608
(I.R.S. Employer
Identification Number)10210 Genetic Center Drive 
San Diego, CA
(Address of Principal Executive 
Offices)
    
    92121
(Zip Code)
 (858) 410-8000
 þ o
  Large accelerated filer þAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ




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##### 



GEN-PROBE INCORPORATED
 TABLE OF CONTENTS
FORM 10-Q
 PagePART IItem 1.
Consolidated 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
    
    
    28Item 4. Controls and Procedures
    
    
    28PART IIItem 1. Legal Proceedings
    
    
    29Item 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 6. Exhibits
    
    
    45SIGNATURES
    
    
    46EXHIBIT 10.107EXHIBIT 10.108EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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GEN-PROBE INCORPORATED
 
 CONSOLIDATED BALANCE SHEETS
  September 30,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    74,366
    
    
    $
    75,963Short-term investments
    
    
    481,127
    
    
    
    357,531Trade accounts receivable, net of allowance for doubtful
accounts of $700 and $719 at September 30, 2008 and
December 31, 2007, respectively
    
    
    28,632
    
    
    
    32,678Accounts receivable  other
    
    
    3,684
    
    
    
    11,044Inventories
    
    
    53,241
    
    
    
    48,540Deferred income tax  short term
    
    
    9,985
    
    
    
    8,825Prepaid income tax
    
    
    2,358
    
    
    
    2,390Prepaid expenses
    
    
    10,409
    
    
    
    17,505Other current assets
    
    
    7,068
    
    
    
    4,402Total current assets
    
    
    670,870
    
    
    
    558,878Property, plant and equipment, net
    
    
    139,554
    
    
    
    129,493Capitalized software, net
    
    
    14,037
    
    
    
    15,923Goodwill
    
    
    18,621
    
    
    
    18,621Deferred income tax  long term
    
    
    7,744
    
    
    
    7,942License, manufacturing access fees and other assets, net
    
    
    58,368
    
    
    
    58,196Total assets
    
    $
    909,194
    
    
    $
    789,053LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    19,163
    
    
    $
    11,777Accrued salaries and employee benefits
    
    
    25,908
    
    
    
    20,997Other accrued expenses
    
    
    4,081
    
    
    
    4,014Income tax payable
    
    
    3,909
    
    
    
    846Deferred revenue  short term
    
    
    1,544
    
    
    
    2,836Total current liabilities
    
    
    54,605
    
    
    
    40,470Non-current income tax payable
    
    
    4,216
    
    
    
    3,958Deferred income tax  long term
    
    
    69
    
    
    
    75Deferred revenue  long term
    
    
    2,500
    
    
    
    4,607Deferred rent
    
    
    
    
    
    
    10Deferred compensation plan liabilities
    
    
    2,330
    
    
    
    1,893Commitments and contingenciesStockholders equity:Preferred stock, $0.0001 par value per share; 20,000,000
shares authorized, none issued and outstanding
    
    
    
    
    
    
    Common stock, $0.0001 par value per share; 200,000,000
shares authorized, 54,374,929 and 53,916,298 shares issued
and outstanding at September 30, 2008 and December 31,
2007, respectively
    
    
    5
    
    
    
    5Additional paid-in capital
    
    
    439,402
    
    
    
    415,229Accumulated other comprehensive (loss)/income
    
    
    (949
    )
    
    
    1,604Retained earnings
    
    
    407,016
    
    
    
    321,202Total stockholders equity
    
    
    845,474
    
    
    
    738,040Total liabilities and stockholders equity
    
    $
    909,194
    
    
    $
    789,053
  3




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GEN-PROBE INCORPORATED
 CONSOLIDATED STATEMENTS OF INCOME
 
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Product sales
    
    $
    108,253
    
    
    $
    97,402
    
    
    $
    323,461
    
    
    $
    278,451Collaborative research revenue
    
    
    11,343
    
    
    
    3,118
    
    
    
    18,453
    
    
    
    11,239Royalty and license revenue
    
    
    1,581
    
    
    
    1,213
    
    
    
    21,640
    
    
    
    14,375Total revenues
    
    
    121,177
    
    
    
    101,733
    
    
    
    363,554
    
    
    
    304,065Operating expenses:Cost of product sales
    
    
    30,681
    
    
    
    31,810
    
    
    
    95,827
    
    
    
    91,148Research and development
    
    
    24,507
    
    
    
    27,582
    
    
    
    76,941
    
    
    
    72,813Marketing and sales
    
    
    10,709
    
    
    
    9,651
    
    
    
    34,070
    
    
    
    28,580General and administrative
    
    
    12,908
    
    
    
    11,380
    
    
    
    38,516
    
    
    
    34,742Total operating expenses
    
    
    78,805
    
    
    
    80,423
    
    
    
    245,354
    
    
    
    227,283Income from operations
    
    
    42,372
    
    
    
    21,310
    
    
    
    118,200
    
    
    
    76,782Interest income
    
    
    4,167
    
    
    
    3,327
    
    
    
    12,274
    
    
    
    8,935Interest expense
    
    
    (1
    )
    
    
    
    
    
    
    (3
    )
    
    
    30Other income/(expense)
    
    
    (1,929
    )
    
    
    6
    
    
    
    (647
    )
    
    
    (355
    )Total other income, net
    
    
    2,237
    
    
    
    3,333
    
    
    
    11,624
    
    
    
    8,610Income before income tax
    
    
    44,609
    
    
    
    24,643
    
    
    
    129,824
    
    
    
    85,392Income tax expense
    
    
    15,531
    
    
    
    7,392
    
    
    
    44,010
    
    
    
    19,664Net income
    
    $
    29,078
    
    
    $
    17,251
    
    
    $
    85,814
    
    
    $
    65,728Net income per share:Basic
    
    $
    0.54
    
    
    $
    0.32
    
    
    $
    1.59
    
    
    $
    1.25Diluted
    
    $
    0.53
    
    
    $
    0.31
    
    
    $
    1.56
    
    
    $
    1.21Weighted average shares outstanding:Basic
    
    
    54,084
    
    
    
    53,221
    
    
    
    53,882
    
    
    
    52,661Diluted
    
    
    55,322
    
    
    
    54,857
    
    
    
    55,117
    
    
    
    54,210
  4




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GEN-PROBE INCORPORATED
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Nine Months EndedSeptember 30,2008
    
    
    2007Operating activitiesNet income
    
    $
    85,814
    
    
    $
    65,728Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    26,217
    
    
    
    25,518Amortization of premiums on investments, net of accretion of discounts
    
    
    5,118
    
    
    
    3,379Stock-based compensation charges
    
    
    15,012
    
    
    
    14,487Stock-based compensation income tax benefits
    
    
    3,025
    
    
    
    2,031Excess tax benefit from stock-based compensation
    
    
    (2,510
    )
    
    
    (13,055
    )Gain on sale of stock holdings of Molecular Profiling Institute, Inc.
    
    
    (1,600
    )
    
    
    Impairment charges
    
    
    5,086
    
    
    
    Loss on disposal of property and equipment
    
    
    38
    
    
    
    202Changes in assets and liabilities:Accounts receivable
    
    
    11,403
    
    
    
    (15,861
    )Inventories
    
    
    (4,270
    )
    
    
    2,660Prepaid expenses
    
    
    7,060
    
    
    
    (6,538
    )Other current assets
    
    
    (2,255
    )
    
    
    (2,756
    )Other long term assets
    
    
    (510
    )
    
    
    (930
    )Accounts payable
    
    
    7,381
    
    
    
    1,116Accrued salaries and employee benefits
    
    
    4,922
    
    
    
    6,328Other accrued expenses
    
    
    96
    
    
    
    5,343Income tax payable
    
    
    2,926
    
    
    
    (14,544
    )Deferred revenue
    
    
    (3,399
    )
    
    
    202Deferred income tax
    
    
    (961
    )
    
    
    794Deferred rent
    
    
    (10
    )
    
    
    (88
    )Deferred compensation plan liabilities
    
    
    436
    
    
    
    544Net cash provided by operating activities
    
    
    159,019
    
    
    
    74,560Investing activitiesProceeds from sales and maturities of short-term investments
    
    
    94,103
    
    
    
    54,012Purchases of short-term investments
    
    
    (225,290
    )
    
    
    (182,449
    )Purchases of property, plant and equipment
    
    
    (30,530
    )
    
    
    (17,674
    )Capitalization of intangible assets, including license and manufacturing access fees
    
    
    (1,868
    )
    
    
    (2,127
    )Sale of stock holdings of Molecular Profiling Institute, Inc.
    
    
    4,100
    
    
    
    Cash paid for Roche manufacturing access fees
    
    
    (10,000
    )
    
    
    Other items, net
    
    
    10
    
    
    
    (334
    )Net cash used in investing activities
    
    
    (169,475
    )
    
    
    (148,572
    )Financing activitiesRepurchase and retirement of restricted stock for payment of taxes
    
    
    (1,309
    )
    
    
    (1,020
    )Repurchase and retirement of common stock
    
    
    (9,992
    )
    
    
    Excess tax benefit from stock-based compensation
    
    
    2,510
    
    
    
    13,055Proceeds from issuance of common stock
    
    
    17,848
    
    
    
    40,677Net cash provided by financing activities
    
    
    9,057
    
    
    
    52,712Effect of exchange rate changes on cash and cash equivalents
    
    
    (198
    )
    
    
    283Net decrease in cash and cash equivalents
    
    
    (1,597
    )
    
    
    (21,017
    )Cash and cash equivalents at the beginning of period
    
    
    75,963
    
    
    
    87,905Cash and cash equivalents at the end of period
    
    $
    74,366
    
    
    $
    66,888
  5




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




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Revenue recognition
        7




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Adoption of recent accounting pronouncements
 SFAS No. 157
    SFAS No. 159
   EITF No. 07-3
  8




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Cost of product sales
    
    $
    591
    
    
    $
    715
    
    
    $
    1,778
    
    
    $
    2,495Research and development
    
    
    1,744
    
    
    
    1,470
    
    
    
    4,445
    
    
    
    3,619Marketing and sales
    
    
    767
    
    
    
    661
    
    
    
    2,069
    
    
    
    1,712General and administrative
    
    
    2,682
    
    
    
    2,454
    
    
    
    6,720
    
    
    
    6,661Total
    
    $
    5,784
    
    
    $
    5,300
    
    
    $
    15,012
    
    
    $
    14,487
  Stock Option Plans
    
    
    ESPPThree Months Ended
    
    
    Nine Months Ended
    
    
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Risk-free interest rate
    
    
    3.1
    %
    
    
    4.7
    %
    
    
    3.0
    %
    
    
    4.7
    %
    
    
    3.3
    %
    
    
    5.0
    %
    
    
    3.3
    %
    
    
    5.0
    %Volatility
    
    
    33
    %
    
    
    37
    %
    
    
    33
    %
    
    
    36
    %
    
    
    34
    %
    
    
    29
    %
    
    
    34
    %
    
    
    29
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected term (years)
    
    
    4.2
    
    
    
    4.2
    
    
    
    4.2
    
    
    
    4.2
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5Resulting average fair value
    
    $
    18.90
    
    
    $
    22.42
    
    
    $
    18.64
    
    
    $
    21.13
    
    
    $
    12.07
    
    
    $
    13.82
    
    
    $
    13.22
    
    
    $
    12.89
  Weighted Average
    
    
    UnrecognizedRemaining Expense
    
    
    Expense as ofAwards
    
    Life (Years)
    
    
    September 30, 2008Options
    
    
    1.5
    
    
    $
    41,481ESPP
    
    
    0.2
    
    
    
    90Restricted stock
    
    
    2.1
    
    
    
    14,206Deferred issuance restricted stock
    
    
    1.7
    
    
    
    2,614$
    58,391
    9




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    29,078
    
    
    $
    17,251
    
    
    $
    85,814
    
    
    $
    65,728Weighted average shares outstanding  Basic
    
    
    54,084
    
    
    
    53,221
    
    
    
    53,882
    
    
    
    52,661Effect of dilutive securities outstanding
    
    
    1,238
    
    
    
    1,636
    
    
    
    1,235
    
    
    
    1,549Weighted average shares outstanding  Diluted
    
    
    55,322
    
    
    
    54,857
    
    
    
    55,117
    
    
    
    54,210Net income per share:Basic
    
    $
    0.54
    
    
    $
    0.32
    
    
    $
    1.59
    
    
    $
    1.25Diluted
    
    $
    0.53
    
    
    $
    0.31
    
    
    $
    1.56
    
    
    $
    1.21
    
    
    Level 1  Quoted prices for identical instruments in active markets.
    
    Level 2  Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model-derived
valuations in which all significant inputs and significant value drivers are observable in
active markets.
    
    Level 3  Valuations derived from valuation techniques in which one or more
significant inputs or significant value drivers are unobservable.
   Assets and liabilities measured at fair value on a recurring basis:
  10




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Quoted prices
    
    
    Significantin active
    
    
    other
    
    
    Significant
    
    
    Total carryingmarkets for
    
    
    observable
    
    
    unobservable
    
    
    value in theidentical assets
    
    
    inputs
    
    
    inputs
    
    
    consolidated(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    balance sheetMoney market funds
    
    $
    6,903
    
    
    $
    14,705
    
    
    $
    
    
    
    $
    21,608Short-term investments
    
    
    
    
    
    
    481,127
    
    
    
    
    
    
    
    481,127Total assets at fair value
    
    $
    6,903
    
    
    $
    495,832
    
    
    $
    
    
    
    $
    502,735
 Assets and liabilities measured at fair value on a non-recurring basis:
  Equity
investment in private company
   11




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Inventories
 September 30,
    
    
    December 31,2008
    
    
    2007Raw materials and supplies
    
    $
    6,023
    
    
    $
    7,774Work in process
    
    
    26,203
    
    
    
    23,829Finished goods
    
    
    21,015
    
    
    
    16,937$
    53,241
    
    
    $
    48,540
 Property, plant and equipment, net
 September 30,
    
    
    December 31,2008
    
    
    2007Land
    
    $
    18,804
    
    
    $
    13,862Building
    
    
    80,426
    
    
    
    69,946Machinery and equipment
    
    
    150,203
    
    
    
    139,871Building improvements
    
    
    34,288
    
    
    
    32,614Furniture and fixtures
    
    
    16,205
    
    
    
    16,146Construction in-progress
    
    
    11
    
    
    
    181Property, plant and equipment, at cost
    
    
    299,937
    
    
    
    272,620Less accumulated depreciation and amortization
    
    
    (160,383
    )
    
    
    (143,127
    )Property, plant and equipment, net
    
    $
    139,554
    
    
    $
    129,493
 License, manufacturing access fees and other assets, net
 September 30,
    
    
    December 31,2008
    
    
    2007Patents
    
    $
    13,860
    
    
    $
    17,304Purchased intangible assets
    
    
    33,636
    
    
    
    33,636License and manufacturing access fees
    
    
    64,507
    
    
    
    53,326Investment in Molecular Profiling Institute, Inc.
    
    
    
    
    
    
    2,500Investment in Qualigen, Inc.
    
    
    5,403
    
    
    
    6,993Other assets
    
    
    4,010
    
    
    
    3,911License, manufacturing access fees and other assets, at cost
    
    
    121,416
    
    
    
    117,670Less accumulated amortization
    
    
    (63,048
    )
    
    
    (59,474
    )License, manufacturing access fees and other assets, net
    
    $
    58,368
    
    
    $
    58,196
   12




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Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueMunicipal securities
    
    $
    482,618
    
    
    $
    2,009
    
    
    $
    (3,500
    )
    
    $
    481,127
  Less than 12 Months
    
    
    More than 12 MonthsEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesMunicipal securities
    
    $
    268,674
    
    
    $
    (3,278
    )
    
    $
    11,156
    
    
    $
    (222
    )
  13




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Balance at December 31, 2007
    
    $
    738,040Net income
    
    
    85,814Other comprehensive loss, net
    
    
    (2,553
    )Proceeds from the issuance of common stock
    
    
    16,059Purchase of common stock by board members
    
    
    103Purchase of common stock through ESPP
    
    
    1,789Cancellation of restricted stock awards
    
    
    (283
    )Repurchase and retirement of restricted stock for payment of taxes
    
    
    (1,309
    )Repurchase and retirement of common stock
    
    
    (9,992
    )Stock-based compensation charges
    
    
    15,296Excess tax benefit from stock-based compensation
    
    
    2,510Balance at September 30, 2008
    
    $
    845,474
 Comprehensive income
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    29,078
    
    
    $
    17,251
    
    
    $
    85,814
    
    
    $
    65,728Change in net unrealized (loss) / gain
on investments
    
    
    (950
    )
    
    
    1,466
    
    
    
    (2,475
    )
    
    
    1,015Foreign currency translation adjustment
    
    
    (162
    )
    
    
    (440
    )
    
    
    (78
    )
    
    
    (429
    )Other comprehensive (loss) / income, net
    
    
    (1,112
    )
    
    
    1,026
    
    
    
    (2,553
    )
    
    
    586Comprehensive income
    
    $
    27,966
    
    
    $
    18,277
    
    
    $
    83,261
    
    
    $
    66,314
 14




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##### Table of Contents



Stock options
  WeightedAverageRemaining
    
    
    AggregateNumber of
    
    
    Weighted Average
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Life (Years)
    
    
    ValueOutstanding at December 31, 2007
    
    
    5,518
    
    
    $
    40.86Granted
    
    
    892
    
    
    
    59.38Exercised
    
    
    (499
    )
    
    
    32.20Cancelled
    
    
    (210
    )
    
    
    49.24Outstanding at September 30, 2008
    
    
    5,701
    
    
    
    44.19
    
    
    
    5.6
    
    
    $
    63,482Exercisable at September 30, 2008
    
    
    3,403
    
    
    $
    35.99
    
    
    
    5.2
    
    
    $
    59,653
  Stock Repurchase Program
    Digene Corporation
   15




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##### Table of Contents



Item 2.    Managements Discussion and Analysis of Financial Condition and Results of Operations
   Overview
   Recent Events
 Financial Results
   16




---



##### Table of Contents



Stock Repurchase Program
  Voluntary Counterbid to Acquire Innogenetics
 
 Corporate Collaborations
  Pseudomonas aeruginosa Pseudomonas aeruginosa
 Product Development
    17




---



##### Table of Contents



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




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##### Table of Contents



Available-for-sale securities
  Equity investment in private company
   SFAS No. 159
  19




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##### Table of Contents



EITF Issue No. 07-3
  Results of Operations
 (Dollars in millions)
    
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    

$ Change
    
    

% Change
    
    
    2008
    
    
    2007
    
    

$ Change
    
    

% ChangeProduct Sales
    
    $
    108.3
    
    
    $
    97.4
    
    
    $
    10.9
    
    
    
    11
    %
    
    $
    323.5
    
    
    $
    278.5
    
    
    $
    45.0
    
    
    
    16
    %As a percent of total revenues
    
    
    89
    %
    
    
    96
    %
    
    
    
    
    
    
    
    
    
    
    89
    %
    
    
    91
    %
     20




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##### Table of Contents



(Dollars in millions)
    
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    

$ Change
    
    

% Change
    
    
    2008
    
    
    2007
    
    

$ Change
    
    

% ChangeCollaborative Research Revenue
    
    $
    11.3
    
    
    $
    3.1
    
    
    $
    8.2
    
    
    
    265
    %
    
    $
    18.5
    
    
    $
    11.2
    
    
    $
    7.3
    
    
    
    65
    %As a percent of total revenues
    
    
    9
    %
    
    
    3
    %
    
    
    
    
    
    
    
    
    
    
    5
    %
    
    
    4
    %
   21




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##### Table of Contents



(Dollars in millions)
    
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    

$ Change
    
    

% Change
    
    
    2008
    
    
    2007
    
    

$ Change
    
    

% ChangeRoyalty and License Revenue
    
    $
    1.6
    
    
    $
    1.2
    
    
    $
    0.4
    
    
    
    33
    %
    
    $
    21.6
    
    
    $
    14.4
    
    
    $
    7.2
    
    
    
    50
    %As a percent of total revenues
    
    
    1
    %
    
    
    1
    %
    
    
    
    
    
    
    
    
    
    
    6
    %
    
    
    5
    %
     22




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##### Table of Contents



(Dollars in millions)
    
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    

$ Change
    
    

% Change
    
    
    2008
    
    
    2007
    
    

$ Change
    
    

% ChangeCost of Product Sales
    
    $
    30.7
    
    
    $
    31.8
    
    
    $
    (1.1
    )
    
    
    (4
    )%
    
    $
    95.8
    
    
    $
    91.2
    
    
    $
    4.6
    
    
    
    5
    %Gross profit margin
as a percent of
product sales
    
    
    72
    %
    
    
    67
    %
    
    
    
    
    
    
    
    
    
    
    70
    %
    
    
    67
    %
          23




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##### Table of Contents



(Dollars in millions)
    
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    

$ Change
    
    

% Change
    
    
    2008
    
    
    2007
    
    

$ Change
    
    

% ChangeResearch and Development
    
    $
    24.5
    
    
    $
    27.6
    
    
    $
    (3.1
    )
    
    
    (11
    )%
    
    $
    77.0
    
    
    $
    72.8
    
    
    $
    4.2
    
    
    
    6
    %As a percent of total revenues
    
    
    20
    %
    
    
    27
    %
    
    
    
    
    
    
    
    
    
    
    21
    %
    
    
    24
    %
    (Dollars in millions)
    
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    

$ Change
    
    

% Change
    
    
    2008
    
    
    2007
    
    

$ Change
    
    

% ChangeMarketing and Sales
    
    $
    10.7
    
    
    $
    9.6
    
    
    $
    1.1
    
    
    
    12
    %
    
    $
    34.1
    
    
    $
    28.6
    
    
    $
    5.5
    
    
    
    19
    %As a percent of total revenues
    
    
    9
    %
    
    
    9
    %
    
    
    
    
    
    
    
    
    
    
    9
    %
    
    
    9
    %
   (Dollars in millions)
    
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    

$ Change
    
    

% Change
    
    
    2008
    
    
    2007
    
    

$ Change
    
    

% ChangeGeneral and Administrative
    
    $
    12.9
    
    
    $
    11.4
    
    
    $
    1.5
    
    
    
    13
    %
    
    $
    38.5
    
    
    $
    34.7
    
    
    $
    3.8
    
    
    
    11
    %As a percent of total revenues
    
    
    11
    %
    
    
    11
    %
    
    
    
    
    
    
    
    
    
    
    11
    %
    
    
    11
    %
  24




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##### Table of Contents



(Dollars in millions)
    
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    

$ Change
    
    

% Change
    
    
    2008
    
    
    2007
    
    

$ Change
    
    

% ChangeInterest income
    
    $
    4.1
    
    
    $
    3.3
    
    
    $
    0.8
    
    
    
    24
    %
    
    $
    12.3
    
    
    $
    8.9
    
    
    $
    3.4
    
    
    
    38
    %Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/M
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/MOther income / (expense)
    
    
    (1.9
    )
    
    
    
    
    
    
    (1.9
    )
    
    
    N/M
    
    
    
    (0.7
    )
    
    
    (0.3
    )
    
    
    (0.4
    )
    
    
    133
    %Total Other Income, net
    
    $
    2.2
    
    
    $
    3.3
    
    
    $
    (1.1
    )
    
    
    (33
    )%
    
    $
    11.6
    
    
    $
    8.6
    
    
    $
    3.0
    
    
    
    35
    %
   (Dollars in millions)
    
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    

$ Change
    
    

% Change
    
    
    2008
    
    
    2007
    
    

$ Change
    
    

% ChangeIncome Tax Expense
    
    $
    15.5
    
    
    $
    7.4
    
    
    $
    8.1
    
    
    
    109
    %
    
    $
    44.0
    
    
    $
    19.7
    
    
    $
    24.3
    
    
    
    123
    %As a percent of
income before tax
    
    
    35
    %
    
    
    30
    %
    
    
    
    
    
    
    
    
    
    
    34
    %
    
    
    23
    %
  Liquidity and capital resources
 September 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Cash, cash equivalents and short-term investments
    
    $
    555,493
    
    
    $
    433,494Working capital
    
    $
    616,265
    
    
    $
    518,408Current ratio
    
    
    12:1
    
    
    
    14:1
   25




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##### Table of Contents



Nine Months EndedSeptember 30,2008
    
    
    2007
    
    

$ Change(In thousands)Cash provided by (used in):Operating activities
    
    $
    159,019
    
    
    $
    74,560
    
    
    $
    84,459Investing activities
    
    
    (169,475
    )
    
    
    (148,572
    )
    
    
    20,903Financing activities
    
    
    9,057
    
    
    
    52,712
    
    
    
    (43,655
    )Purchases of property,
plant and equipment
(included in investing
activities above)
    
    $
    (30,530
    )
    
    $
    (17,674
    )
    
    $
    12,856
        26




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##### Table of Contents



Contractual obligations and commercial commitments
  Less than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsMaterial purchase commitments (1)
    
    $
    23,434
    
    
    $
    6,492
    
    
    $
    16,942
    
    
    $
    
    
    
    $
    Collaborative commitments (2)
    
    
    2,850
    
    
    
    100
    
    
    
    2,125
    
    
    
    250
    
    
    
    375Total (3)
    
    $
    26,284
    
    
    $
    6,592
    
    
    $
    19,067
    
    
    $
    250
    
    
    $
    375
 
 (1)
    
    Amounts represent our minimum purchase commitments from key vendors for the TIGRIS
and Panther instruments, as well as raw materials used in manufacturing. Of the $23.4 million
total, $21.3 million is expected to be used to purchase TIGRIS instruments, of which we
anticipate that approximately $10.4 million of instruments will be sold to Novartis. Not
included in the $23.4 million is $9.6 million expected to be used to purchase validation,
pre-production and production instruments, and associated tooling, pursuant to our development
agreement with Stratec for the Panther instrument and potential minimum purchase commitments
under our supply agreement. Our obligations under the supply agreement are contingent on
successful completion of all activities under the development agreement.(2)
    
    In addition to the minimum payments due under our collaborative agreements, we may
be required to pay up to $12.2 million in milestone payments, plus royalties on net sales of
any products using specified technology. We may also be required to pay up to $7.5 million in
future development costs in the form of milestone payments.(3)
    
    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 blood screening assays to Novartis, and Novartis is obligated to
purchase all of the assay quantities specified on a 90-day demand forecast, due 90 days prior
to the date Novartis intends to take delivery, and certain quantities specified on a rolling
12-month forecast.    Available Information
  27




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Foreign Currency Exchange Risk
   
 Item 4. Controls and Procedures
     28




---



##### 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.
  29




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##### Table of Contents



Our financial performance may be adversely affected by current global economic conditions.*
  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.*
      30




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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.*
    Our future success will depend in part upon our ability to enhance existing products and to
develop and introduce new products.
   31




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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.*
      We have collaboration agreements to develop NAT products for industrial testing applications. We
have limited experience operating in these markets and may not successfully develop commercially
viable products.
  32




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##### Table of Contents



Pseudomonas
aeruginosa.
 Failure to manufacture our products in accordance with product specifications could result in
increased costs, lost revenues, customer dissatisfaction or voluntary product recalls, any of
which could harm our profitability and commercial reputation.
  Disruptions in the supply of raw materials and consumable goods or issues associated with the
quality thereof from our single source suppliers, including Roche Molecular Biochemicals, which is
an affiliate of one of our primary competitors, could result in a significant disruption in sales
and profitability.
   We have only one third-party manufacturer for each of our instrument product lines, which exposes
us to increased risks associated with production delays, delivery schedules, manufacturing
capability, quality control, quality assurance and costs.
  33




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##### Table of Contents



We and our customers are subject to various governmental regulations, and we may incur significant
expenses to comply with, and experience delays in our product commercialization as a result of,
these regulations.*
   Trichomonas vaginalis.
   34




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##### Table of Contents



Our products are subject to recalls even after receiving FDA approval or clearance.
  Our gross profit margin percentage on the sale of blood screening assays will decrease upon the
implementation of smaller pool size testing.*
   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.*
  35




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##### Table of Contents



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.*
  36




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##### Table of Contents



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.*
  37




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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.
  38




---



##### Table of Contents



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.
     Our sales to international markets are subject to additional risks.*
  39




---



##### Table of Contents




    
    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 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.*
  40




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##### Table of Contents



If we fail to attract, hire and retain qualified personnel, we may not be able to design, develop,
market or sell our products or successfully manage our business.
   We may acquire other businesses or form collaborations, strategic alliances and joint ventures
that could decrease our profitability, result in dilution to stockholders or cause us to incur
debt or significant expense.*
   
    
    the inability to retain or replace key employees of any acquired businesses or hire
enough qualified personnel to staff any new or expanded operations;
    
    the impairment of relationships with key customers of acquired businesses due to
changes in management and ownership of the acquired businesses;
    
    the exposure to federal, state, local and foreign tax liabilities in connection with
any acquisition or the integration of any acquired businesses;
    
    the exposure to unknown liabilities;
    
    higher than expected acquisition and integration costs that could cause our quarterly
and annual operating results to fluctuate;
    
    increased amortization expenses if an acquisition includes significant intangible
assets;
    
    combining the operations and personnel of acquired businesses with our own, which could
be difficult and costly; and
    
    integrating or completing the development and application of any acquired technologies,
which could disrupt our business and divert our managements time and attention.
 41




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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, 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.
  42




---



##### Table of Contents



If we do not effectively manage our growth, it could affect our ability to pursue opportunities
and expand our business.
  Information technology systems implementation issues could disrupt our internal operations and
adversely affect our financial results.
  Our forecasts and other forward looking statements are based upon various assumptions that are
subject to significant uncertainties that may result in our failure to achieve our forecasted
results.
  Compliance with changing corporate governance and public disclosure regulations may result in
additional expenses.
  43




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##### Table of Contents



Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 Total Numberof SharesPurchased
    
    
    Approximateas Part of
    
    
    Dollar Value ofPublicly
    
    
    Shares that MayTotal Number
        
    Average
        
    Announced
        
    Yet Be Purchasedof Shares    
    
    Price Paid
        
    Plans or
        
    Under the Plans orPurchased
        
    Per Share
        
    Programs
        
    ProgramsJuly 1-31, 2008 Repurchase program (1)
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $

    July 1-31, 2008 Employee transactions (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    August 1-31, 2008 Repurchase program (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000,000August 1-31, 2008 Employee transactions (2)
    
    
    13,742
    
    
    
    60.27
    
    
    
    
    
    
    September 1-30, 2008 Repurchase program (1)
    
    
    180,100
    
    
    
    55.48
    
    
    
    180,100
    
    
    
    240,000,000September 1-30, 2008 Employee transactions (2)
    
    
    67
    
    
    
    56.35
    
    
    
    
    
    
    Total Repurchase program (1)
    
    
    180,100
    
    
    
    55.48
    
    
    
    180,100
    
    
    Total Employee transactions (2)
    
    
    13,809
    
    
    $
    60.26
    
    
    
    
    
    
    $
    
 
 (1)
    
    In August 2008, our Board of Directors authorized the repurchase of up to $250.0
million of our common stock over the two years following adoption of the program, through
negotiated or open market transactions. There is no minimum or maximum number of shares to be
repurchased under the program.(2)
    
    During the third quarter of 2008, we repurchased and retired 13,809 shares of our
common stock, at an average per share price of $60.26, withheld by us to satisfy employee tax
obligations upon vesting of restricted stock granted under our 2003 Incentive Award Plan. We
may make similar repurchases in the future to satisfy employee tax obligations upon vesting of
restricted stock and deferred issuance restricted stock. As of September 30, 2008, we had an
aggregate of 271,073 shares of restricted stock and 80,000 shares of deferred issuance
restricted stock awards outstanding. 44




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##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    Description3.1(1)
    
    Form of
Amended and Restated Certificate of Incorporation of Gen-Probe
Incorporated.3.2(2)
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation of
Gen-Probe Incorporated.3.3(3)
    
    Amended and Restated Bylaws of Gen-Probe Incorporated.3.4(4)
    
    Certificate of Elimination of Series A Junior Participating Preferred Stock of
Gen-Probe Incorporated.4.1(1)
    
    Specimen common stock certificate.10.107
    
    Form of Employment Agreement  Executive Team (as approved in September 2008)10.108
    
    Form of Employment Agreement  Vice Presidents (as approved in September 2008)31.1
    
    Certification dated October 31, 2008, of Principal Executive Officer required
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification dated October 31, 2008, of Principal Financial Officer required
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification dated October 31, 2008, of Principal Executive Officer required
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification dated October 31, 2008, of Principal Financial Officer required
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
 
 
    
    Filed herewith.(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. 
 45




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##### Table of Contents



SIGNATURES
  GEN-PROBE INCORPORATEDDATE: October 31, 2008
    By:
    /s/ Henry L. NordhoffHenry L. NordhoffChairman and Chief Executive Officer
(Principal Executive Officer)DATE: October 31, 2008
    By:
    /s/ Herm RosenmanHerm RosenmanSenior Vice President  Finance and Chief
Financial Officer (Principal Financial Officer and
Principal Accounting Officer) 46