##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 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. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27PART IIItem 1. Legal Proceedings
    
    
    29Item 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 4. Submission of Matters to a Vote of Security Holders
    
    
    44Item 6. Exhibits
    
    
    45SIGNATURES
    
    
    46EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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##### Table of Contents



GEN-PROBE INCORPORATED
 CONSOLIDATED BALANCE SHEETS
  June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    33,462
    
    
    $
    75,963Short-term investments
    
    
    465,778
    
    
    
    357,531Trade accounts receivable, net of allowance for
doubtful accounts of $700 and $719 at June 30, 2008
and December 31, 2007, respectively
    
    
    36,781
    
    
    
    32,678Accounts receivable  other
    
    
    3,648
    
    
    
    11,044Inventories
    
    
    51,454
    
    
    
    48,540Deferred income tax  short term
    
    
    9,646
    
    
    
    8,825Prepaid income tax
    
    
    358
    
    
    
    2,390Prepaid expenses
    
    
    12,174
    
    
    
    17,505Other current assets
    
    
    6,208
    
    
    
    4,402Total current assets
    
    
    619,509
    
    
    
    558,878Property, plant and equipment, net
    
    
    141,721
    
    
    
    129,493Capitalized software, net
    
    
    14,666
    
    
    
    15,923Goodwill
    
    
    18,621
    
    
    
    18,621Deferred income tax  long term
    
    
    7,942
    
    
    
    7,942License, manufacturing access fees and other assets, net
    
    
    60,240
    
    
    
    58,196Total assets
    
    $
    862,699
    
    
    $
    789,053LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    15,756
    
    
    $
    11,777Accrued salaries and employee benefits
    
    
    19,265
    
    
    
    20,997Other accrued expenses
    
    
    4,005
    
    
    
    4,014Income tax payable
    
    
    
    
    
    
    846Deferred revenue  short term
    
    
    1,611
    
    
    
    2,836Total current liabilities
    
    
    40,637
    
    
    
    40,470Non-current income tax payable
    
    
    3,376
    
    
    
    3,958Deferred income tax  long term
    
    
    75
    
    
    
    75Deferred revenue  long term
    
    
    2,667
    
    
    
    4,607Deferred rent
    
    
    
    
    
    
    10Deferred compensation plan liabilities
    
    
    2,507
    
    
    
    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, 54,186,979 and
53,916,298 shares issued and outstanding at June 30,
2008 and December 31, 2007, respectively
    
    
    5
    
    
    
    5Additional paid-in capital
    
    
    435,331
    
    
    
    415,229Accumulated other comprehensive income
    
    
    163
    
    
    
    1,604Retained earnings
    
    
    377,938
    
    
    
    321,202Total stockholders equity
    
    
    813,437
    
    
    
    738,040Total liabilities and stockholders equity
    
    $
    862,699
    
    
    $
    789,053
  3




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##### Table of Contents



GEN-PROBE INCORPORATED
 CONSOLIDATED STATEMENTS OF INCOME
 
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Product sales
    
    $
    113,701
    
    
    $
    93,897
    
    
    $
    215,208
    
    
    $
    181,049Collaborative research revenue
    
    
    4,651
    
    
    
    5,769
    
    
    
    7,110
    
    
    
    8,121Royalty and license revenue
    
    
    1,462
    
    
    
    1,615
    
    
    
    20,059
    
    
    
    13,162Total revenues
    
    
    119,814
    
    
    
    101,281
    
    
    
    242,377
    
    
    
    202,332Operating expenses:Cost of product sales
    
    
    32,510
    
    
    
    30,178
    
    
    
    65,146
    
    
    
    59,338Research and development
    
    
    29,368
    
    
    
    24,973
    
    
    
    52,434
    
    
    
    45,231Marketing and sales
    
    
    11,453
    
    
    
    9,393
    
    
    
    23,361
    
    
    
    18,929General and administrative
    
    
    13,671
    
    
    
    12,081
    
    
    
    25,608
    
    
    
    23,362Total operating expenses
    
    
    87,002
    
    
    
    76,625
    
    
    
    166,549
    
    
    
    146,860Income from operations
    
    
    32,812
    
    
    
    24,656
    
    
    
    75,828
    
    
    
    55,472Interest income
    
    
    3,900
    
    
    
    2,933
    
    
    
    8,107
    
    
    
    5,608Interest expense
    
    
    (2
    )
    
    
    30
    
    
    
    (2
    )
    
    
    30Other income/(expense)
    
    
    (191
    )
    
    
    (231
    )
    
    
    1,282
    
    
    
    (361
    )Total other income, net
    
    
    3,707
    
    
    
    2,732
    
    
    
    9,387
    
    
    
    5,277Income before income tax
    
    
    36,519
    
    
    
    27,388
    
    
    
    85,215
    
    
    
    60,749Income tax expense
    
    
    11,728
    
    
    
    386
    
    
    
    28,479
    
    
    
    12,272Net income
    
    $
    24,791
    
    
    $
    27,002
    
    
    $
    56,736
    
    
    $
    48,477Net income per share:Basic
    
    $
    0.46
    
    
    $
    0.51
    
    
    $
    1.05
    
    
    $
    0.93Diluted
    
    $
    0.45
    
    
    $
    0.50
    
    
    $
    1.03
    
    
    $
    0.90Weighted average shares outstanding:Basic
    
    
    53,907
    
    
    
    52,504
    
    
    
    53,859
    
    
    
    52,347Diluted
    
    
    55,147
    
    
    
    54,051
    
    
    
    55,093
    
    
    
    53,852
  4




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##### Table of Contents



GEN-PROBE INCORPORATED
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Six Months EndedJune 30,2008
    
    
    2007Operating activitiesNet income
    
    $
    56,736
    
    
    $
    48,477Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    17,233
    
    
    
    16,802Amortization of premiums on investments, net of accretion of discounts
    
    
    3,504
    
    
    
    2,271Stock-based compensation charges
    
    
    9,228
    
    
    
    9,187Stock-based compensation income tax benefits
    
    
    1,294
    
    
    
    841Excess tax benefit from stock-based compensation
    
    
    (614
    )
    
    
    (5,272
    )Gain on sale of stock holdings of Molecular Profiling Institute, Inc.
    
    
    (1,600
    )
    
    
    Impairment of intangible assets
    
    
    3,496
    
    
    
    (Gain)/loss on disposal of property and equipment
    
    
    (1
    )
    
    
    224Changes in assets and liabilities:Accounts receivable
    
    
    3,290
    
    
    
    (10,754
    )Inventories
    
    
    (2,749
    )
    
    
    1,338Prepaid expenses
    
    
    5,333
    
    
    
    (1,807
    )Other current assets
    
    
    (1,322
    )
    
    
    (2,051
    )Other long term assets
    
    
    (909
    )
    
    
    (821
    )Accounts payable
    
    
    3,992
    
    
    
    (288
    )Accrued salaries and employee benefits
    
    
    (1,732
    )
    
    
    1,208Other accrued expenses
    
    
    (9
    )
    
    
    427Income tax payable
    
    
    (72
    )
    
    
    (13,214
    )Deferred revenue
    
    
    (3,165
    )
    
    
    (239
    )Deferred income tax
    
    
    (821
    )
    
    
    (302
    )Deferred rent
    
    
    (10
    )
    
    
    (58
    )Deferred compensation plan liabilities
    
    
    613
    
    
    
    419Net cash provided by operating activities
    
    
    91,715
    
    
    
    46,388Investing activitiesProceeds from sales and maturities of short-term investments
    
    
    205,283
    
    
    
    25,885Purchases of short-term investments
    
    
    (318,558
    )
    
    
    (130,132
    )Purchases of property, plant and equipment
    
    
    (25,717
    )
    
    
    (14,223
    )Capitalization of intangible assets, including license and manufacturing access fees
    
    
    (315
    )
    
    
    (1,924
    )Sale of stock holdings of Molecular Profiling Institute, Inc.
    
    
    4,100
    
    
    
    Cash paid for Roche manufacturing access fees
    
    
    (10,000
    )
    
    
    Other items, net
    
    
    114
    
    
    
    (263
    )Net cash used in investing activities
    
    
    (145,093
    )
    
    
    (120,657
    )Financing activitiesRepurchase and retirement of restricted stock for payment of taxes
    
    
    (479
    )
    
    
    Excess tax benefit from stock-based compensation
    
    
    614
    
    
    
    5,272Proceeds from issuance of common stock
    
    
    10,814
    
    
    
    20,383Net cash provided by financing activities
    
    
    10,949
    
    
    
    25,655Effect of exchange rate changes on cash and cash equivalents
    
    
    (72
    )
    
    
    138Net decrease in cash and cash equivalents
    
    
    (42,501
    )
    
    
    (48,476
    )Cash and cash equivalents at the beginning of period
    
    
    75,963
    
    
    
    87,905Cash and cash equivalents at the end of period
    
    $
    33,462
    
    
    $
    39,429
  5




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##### Table of Contents



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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Cost of product sales
    
    $
    592
    
    
    $
    781
    
    
    $
    1,187
    
    
    $
    1,780Research and development
    
    
    1,266
    
    
    
    659
    
    
    
    2,701
    
    
    
    2,149Marketing and sales
    
    
    607
    
    
    
    503
    
    
    
    1,302
    
    
    
    1,051General and administrative
    
    
    1,571
    
    
    
    2,139
    
    
    
    4,038
    
    
    
    4,207Total
    
    $
    4,036
    
    
    $
    4,082
    
    
    $
    9,228
    
    
    $
    9,187
  Stock Option Plans
    
    
    ESPPThree Months Ended
    
    
    Six Months Ended
    
    
    Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Risk-free interest rate
    
    
    2.6
    %
    
    
    4.4
    %
    
    
    2.7
    %
    
    
    4.5
    %
    
    
    3.3
    %
    
    
    5.1
    %
    
    
    3.3
    %
    
    
    5.1
    %Volatility
    
    
    34
    %
    
    
    34
    %
    
    
    34
    %
    
    
    35
    %
    
    
    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
    
    $
    17.37
    
    
    $
    17.84
    
    
    $
    17.41
    
    
    $
    17.76
    
    
    $
    14.82
    
    
    $
    12.03
    
    
    $
    14.82
    
    
    $
    12.03
  Weighted Average
    
    
    UnrecognizedRemaining Expense
    
    
    Expense as ofAwards
    
    Life (Years)
    
    
    June 30, 2008Options
    
    
    1.4
    
    
    $
    32,226ESPP
    
    
    0.2
    
    
    
    85Restricted stock
    
    
    1.4
    
    
    
    7,019Deferred issuance restricted stock
    
    
    1.3
    
    
    
    1,642$
    40,972
    9




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    24,791
    
    
    $
    27,002
    
    
    $
    56,736
    
    
    $
    48,477Weighted average shares outstanding  Basic
    
    
    53,907
    
    
    
    52,504
    
    
    
    53,859
    
    
    
    52,347Effect of dilutive common stock options
outstanding
    
    
    1,240
    
    
    
    1,547
    
    
    
    1,234
    
    
    
    1,505Weighted average shares outstanding  Diluted
    
    
    55,147
    
    
    
    54,051
    
    
    
    55,093
    
    
    
    53,852Net income per share:Basic
    
    $
    0.46
    
    
    $
    0.51
    
    
    $
    1.05
    
    
    $
    0.93Diluted
    
    $
    0.45
    
    
    $
    0.50
    
    
    $
    1.03
    
    
    $
    0.90
    
    
    Level 1  Quoted prices for identical instruments in active markets.
    
    Level 2  Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model-derived
valuations in which all significant inputs and significant value drivers are observable in
active markets.
    
    Level 3  Valuations derived from valuation techniques in which one or more
significant inputs or significant value drivers are unobservable.
  Determination of fair value
   Assets and liabilities measured at fair value on a recurring basis:
 Short-term investments
  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 sheetShort-term investments
    
    $
    465,778
    
    
    $
    
    
    
    $
    
    
    
    $
    465,778Total assets at fair value
    
    $
    465,778
    
    
    $
    
    
    
    $
    
    
    
    $
    465,778
 Assets and liabilities measured at fair value on a non-recurring basis:
  Equity investment in private company
    Inventories
 June 30,
    
    
    December 31,2008
    
    
    2007Raw materials and supplies
    
    $
    7,518
    
    
    $
    7,774Work in process
    
    
    23,874
    
    
    
    23,829Finished goods
    
    
    20,062
    
    
    
    16,937$
    51,454
    
    
    $
    48,540
 Property, plant and equipment, net
 June 30,
    
    
    December 31,2008
    
    
    2007Land
    
    $
    18,804
    
    
    $
    13,862Building
    
    
    80,718
    
    
    
    69,946Machinery and equipment
    
    
    146,280
    
    
    
    139,871Building improvements
    
    
    33,526
    
    
    
    32,614Furniture and fixtures
    
    
    16,550
    
    
    
    16,146Construction in-progress
    
    
    417
    
    
    
    181Property, plant and equipment, at cost
    
    
    296,295
    
    
    
    272,620Less accumulated depreciation and amortization
    
    
    (154,574
    )
    
    
    (143,127
    )Property, plant and equipment, net
    
    $
    141,721
    
    
    $
    129,493
 License, manufacturing access fees and other assets, net
 June 30,
    
    
    December 31,2008
    
    
    2007Patents
    
    $
    17,618
    
    
    $
    17,304Purchased intangible assets
    
    
    33,636
    
    
    
    33,636License and manufacturing access fees
    
    
    63,326
    
    
    
    53,326Investment in Molecular Profiling Institute, Inc.
    
    
    
    
    
    
    2,500Investment in Qualigen, Inc.
    
    
    6,993
    
    
    
    6,993Other assets
    
    
    4,336
    
    
    
    3,911License, manufacturing access fees and other assets, at cost
    
    
    125,909
    
    
    
    117,670Less accumulated amortization
    
    
    (65,669
    )
    
    
    (59,474
    )License, manufacturing access fees and other assets, net
    
    $
    60,240
    
    
    $
    58,196
 11




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Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueMunicipal securities
    
    $
    465,808
    
    
    $
    2,543
    
    
    $
    (2,573
    )
    
    $
    465,778
 12




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Less than 12 Months
    
    
    More than 12 MonthsEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesMunicipal securities
    
    $
    161,314
    
    
    $
    (2,431
    )
    
    $
    10,196
    
    
    $
    (142
    )
       Balance at December 31, 2007
    
    $
    738,040Net income
    
    
    56,736Other comprehensive income, net
    
    
    (1,441
    )Proceeds from the issuance of common stock
    
    
    9,025Purchase of common stock by board members
    
    
    60Purchase of common stock through ESPP
    
    
    1,789Cancellation of restricted stock awards
    
    
    (283
    )Repurchase and retirement of restricted stock for payment of taxes
    
    
    (479
    )Stock-based compensation charges
    
    
    9,376Excess tax benefit from stock-based compensation
    
    
    614Balance at June 30, 2008
    
    $
    813,437
 Comprehensive income
  13




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    24,791
    
    
    $
    27,002
    
    
    $
    56,736
    
    
    $
    48,477Change in net unrealized gain on investments
    
    
    (2,802
    )
    
    
    (641
    )
    
    
    (1,525
    )
    
    
    (451
    )Foreign currency translation adjustment
    
    
    9
    
    
    
    118
    
    
    
    84
    
    
    
    11Other comprehensive income, net
    
    
    (2,793
    )
    
    
    (523
    )
    
    
    (1,441
    )
    
    
    (440
    )Comprehensive income
    
    $
    21,998
    
    
    $
    26,479
    
    
    $
    55,295
    
    
    $
    48,037
 Stock options
  WeightedAverageRemaining
    
    
    AggregateNumber of
    
    
    Weighted Average
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Life (Years)
    
    
    ValueOutstanding at December 31, 2007
    
    
    5,518
    
    
    $
    40.86Granted
    
    
    155
    
    
    
    56.37Exercised
    
    
    (238
    )
    
    
    37.89Cancelled
    
    
    (174
    )
    
    
    51.43Outstanding at June 30, 2008
    
    
    5,261
    
    
    
    41.17
    
    
    
    5.6
    
    
    $
    50,285Exercisable at June 30, 2008
    
    
    1,963
    
    
    $
    54.28
    
    
    
    5.4
    
    
    $
    48,790
    Digene Corporation
   14




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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
   15




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##### Table of Contents



Voluntary Counterbid to Acquire Innogenetics
 
 Corporate Collaborations
  Pseudomonas aeruginosa Pseudomonas
aeruginosa
 Product Development
    16




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##### 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.
 17




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##### Table of Contents



Determination of fair value
   Short-term investments
  Equity investment in private company
  SFAS No. 159
  EITF Issue No. 07-3
  18




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##### Table of Contents



Results of Operations
 (Dollars in millions)
    
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change
    
    
    2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeProduct Sales
    
    $
    113.7
    
    
    $
    93.9
    
    
    $
    19.8
    
    
    
    21
    %
    
    $
    215.2
    
    
    $
    181.0
    
    
    $
    34.2
    
    
    
    19
    %As a percent of total revenues
    
    
    95
    %
    
    
    93
    %
    
    
    
    
    
    
    
    
    
    
    89
    %
    
    
    89
    %
       19




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##### Table of Contents



(Dollars in millions)
    
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change
    
    
    2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeCollaborative Research
Revenue
    
    $
    4.6
    
    
    $
    5.8
    
    
    $
    (1.2
    )
    
    
    (21
    )%
    
    $
    7.1
    
    
    $
    8.1
    
    
    $
    (1.0
    )
    
    
    (12
    )%As a
percent of total revenues
    
    
    4
    %
    
    
    6
    %
    
    
    
    
    
    
    
    
    
    
    3
    %
    
    
    4
    %
     20




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##### Table of Contents



(Dollars in millions)
    
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change
    
    
    2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeRoyalty and License Revenue
    
    $
    1.5
    
    
    $
    1.6
    
    
    $
    (0.1
    )
    
    
    (6
    )%
    
    $
    20.1
    
    
    $
    13.2
    
    
    $
    6.9
    
    
    
    52
    %As a percent of total revenues
    
    
    1
    %
    
    
    2
    %
    
    
    
    
    
    
    
    
    
    
    8
    %
    
    
    7
    %
     (Dollars in millions)
    
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change
    
    
    2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeCost of Product Sales
    
    $
    32.5
    
    
    $
    30.2
    
    
    $
    2.3
    
    
    
    8
    %
    
    $
    65.1
    
    
    $
    59.3
    
    
    $
    5.8
    
    
    
    10
    %Gross profit margin
as a percent of
product sales
    
    
    71
    %
    
    
    68
    %
    
    
    
    
    
    
    
    
    
    
    70
    %
    
    
    67
    %
   21




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##### Table of Contents



(Dollars in millions)
    
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change
    
    
    2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeResearch and Development
    
    $
    29.4
    
    
    $
    24.9
    
    
    $
    4.5
    
    
    
    18
    %
    
    $
    52.4
    
    
    $
    45.2
    
    
    $
    7.2
    
    
    
    16
    %As a percent of total revenues
    
    
    25
    %
    
    
    25
    %
    
    
    
    
    
    
    
    
    
    
    22
    %
    
    
    22
    %
  22




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##### Table of Contents



(Dollars in millions)
    
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change
    
    
    2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeMarketing and Sales
    
    $
    11.4
    
    
    $
    9.4
    
    
    $
    2.0
    
    
    
    21
    %
    
    $
    23.4
    
    
    $
    18.9
    
    
    $
    4.5
    
    
    
    24
    %As a percent of total revenues
    
    
    10
    %
    
    
    9
    %
    
    
    
    
    
    
    
    
    
    
    10
    %
    
    
    9
    %
   (Dollars in millions)
    
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change
    
    
    2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeGeneral and Administrative
    
    $
    13.7
    
    
    $
    12.1
    
    
    $
    1.6
    
    
    
    13
    %
    
    $
    25.6
    
    
    $
    23.4
    
    
    $
    2.2
    
    
    
    9
    %As a percent of total revenues
    
    
    11
    %
    
    
    12
    %
    
    
    
    
    
    
    
    
    
    
    11
    %
    
    
    12
    %
  23




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##### Table of Contents



(Dollars in millions)
    
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change
    
    
    2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeInterest income
    
    $
    3.9
    
    
    $
    2.9
    
    
    $
    1.0
    
    
    
    34
    %
    
    $
    8.1
    
    
    $
    5.6
    
    
    $
    2.5
    
    
    
    45
    %Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/M
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/MOther income / (expense)
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    
    
    
    
    N/M
    
    
    
    1.3
    
    
    
    (0.3
    )
    
    
    1.6
    
    
    
    N/MTotal Other Income, net
    
    $
    3.7
    
    
    $
    2.7
    
    
    $
    1.0
    
    
    
    37
    %
    
    $
    9.4
    
    
    $
    5.3
    
    
    $
    4.1
    
    
    
    77
    %
   (Dollars in millions)
    
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change
    
    
    2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeIncome Tax Expense
    
    $
    11.7
    
    
    $
    0.4
    
    
    $
    11.3
    
    
    
    N/M
    
    
    $
    28.5
    
    
    $
    12.3
    
    
    $
    16.2
    
    
    
    132
    %As a percent of
income before tax
    
    
    32
    %
    
    
    1
    %
    
    
    
    
    
    
    
    
    
    
    33
    %
    
    
    20
    %
  Liquidity and capital resources
 June 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Cash, cash equivalents and short-term investments
    
    $
    499,240
    
    
    $
    433,494Working capital
    
    $
    578,872
    
    
    $
    518,408Current ratio
    
    
    15:1
    
    
    
    14:1
   24




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##### Table of Contents



Six Months EndedJune 30,2008
    
    
    2007
    
    
    $ Change(In thousands)Cash provided by (used in):Operating activities
    
    $
    91,715
    
    
    $
    46,388
    
    
    $
    45,327Investing activities
    
    
    (145,093
    )
    
    
    (120,657
    )
    
    
    24,436Financing activities
    
    
    10,949
    
    
    
    25,655
    
    
    
    (14,706
    )Purchases of property, plant and
equipment (included in investing
activities above)
    
    $
    (25,717
    )
    
    $
    (14,223
    )
    
    $
    11,494
        25




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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)
    
    $
    10,323
    
    
    $
    8,073
    
    
    $
    2,250
    
    
    $
    
    
    
    $
    Collaborative commitments(2)
    
    
    10,755
    
    
    
    2,805
    
    
    
    7,000
    
    
    
    450
    
    
    
    500Total (3)(4)
    
    $
    21,078
    
    
    $
    10,878
    
    
    $
    9,250
    
    
    $
    450
    
    
    $
    500
 
 (1)
    
    Amounts represent our minimum purchase commitments from key vendors for the TIGRIS
and Panther instruments, as well as raw materials used in manufacturing. Of the $10.3 million
total, $9.4 million is expected to be used to purchase TIGRIS instruments, of which we
anticipate that approximately $6.8 million of instruments will be sold to Novartis. Not
included in the $10.3 million is $11.6 million expected to be used to purchase prototype,
validation, pre-production and production instruments, and associated tooling, pursuant to our
development agreement with Stratec for the Panther instrument and potential minimum purchase
commitments under our supply agreement. Our obligations under the supply agreement are
contingent on successful completion of all activities under the development agreement.(2)
    
    In addition to the minimum payments due under our collaborative agreements, we may
be required to pay up to $12.2 million in milestone payments, plus royalties on net sales of
any products using specified technology.(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 of 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.(4)
    
    Under the terms of one of our license and supply agreements, we, as licensee, may
be required to make future payments of between $0.3 million and $4.0 million based upon, among
other things, the performance of certain criteria by the licensor. This obligation may take
the form of additional license fees, or participation in a future equity or convertible debt
financing at our election and/or that of the licensor. These amounts are not included in the
table above.    Available Information
  26




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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
     27




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28




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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.*
   29




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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.*
    30




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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 face intense competition, and our failure to compete effectively could decrease our revenues
and harm our profitability and results of operations.*
     31




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##### Table of Contents



We have collaboration agreements to develop NAT products for industrial testing applications. We
have limited experience operating in these markets and may not successfully develop commercially
viable products.
  Pseudomonas
aeruginosa.
 Failure to manufacture our products in accordance with product specifications could result in
increased costs, lost revenues, customer dissatisfaction or voluntary product recalls, any of
which could harm our profitability and commercial reputation.
  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.
  32




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##### Table of Contents



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.
   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.*
   33




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##### Table of Contents



Trichomonas vaginalis.
     Our products are subject to recalls even after receiving FDA approval or clearance.
  Our gross profit margin percentage on the sale of blood screening assays will decrease upon the
implementation of smaller pool size testing and individual donor testing.
  34




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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.
     35




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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.
  36




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##### Table of Contents



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.*
    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.
  37




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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.
   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.
     38




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##### Table of Contents



Our sales to international markets are subject to additional risks.*
   
    
    the imposition of government controls,
    
    export license requirements,
    
    economic and political instability,
    
    price controls,
    
    trade restrictions and tariffs,
    
    differing local product preferences and product requirements, and
    
    changes in foreign medical reimbursement and coverage policies and programs.
  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.
    39




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##### Table of Contents



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.*
    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.*
  40




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##### Table of Contents




    
    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.
  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,
 41




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##### Table of Contents




    
    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.
  If we do not effectively manage our growth, it could affect our ability to pursue opportunities
and expand our business.
  Information technology systems implementation issues could disrupt our internal operations and
adversely affect our financial results.
  Our forecasts and other forward looking statements are based upon various assumptions that are
subject to significant uncertainties that may result in our failure to achieve our forecasted
results.
  Compliance with changing corporate governance and public disclosure regulations may result in
additional expenses.
  42




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##### 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
    
    
    ProgramsApril 1-30, 2008
    
    
    78
    
    
    $
    53.20
    
    
    
    
    
    
    $
    May 1-31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    June 1-30, 2008
    
    
    7,618
    
    
    
    56.94
    
    
    
    
    
    
    
    Total
    
    
    7,696
    (1)
    
    $
    56.90
    
    
    
    
    
    
    $
    
 
 (1)
    
    During the second quarter of 2008, we repurchased and retired 7,696 shares of our
common stock, at an average per share price of $56.90, 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 June 30, 2008, we had an
aggregate of 193,344 shares of restricted stock and 60,000 shares of deferred issuance
restricted stock awards outstanding. 43




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  (1)
    
    To elect three (3) directors to hold office until the 2011 Annual Meeting of
Stockholders.
 
 
 
 (2)
    
    To ratify the selection by the Audit Committee of our Board of Directors of Ernst &
Young LLP as our independent auditors for the fiscal year ending December 31, 2008. The
voting results were as follows:
 
 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.31.1
    
    Certification dated August 1, 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 August 1, 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 August 1, 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 August 1, 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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SIGNATURES
  GEN-PROBE INCORPORATEDDATE: August 1, 2008
    By:
    /s/ Henry L. NordhoffHenry L. NordhoffChairman and Chief Executive Officer(Principal Executive Officer)DATE: August 1, 2008
    By:
    /s/ Herm RosenmanHerm RosenmanSenior Vice President  Finance and Chief
Financial Officer (Principal Financial Officer and
Principal Accounting Officer) 46