##### 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 March 31, 2009
  o
    
    Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
  GEN-PROBE INCORPORATED
  Delaware
    
    33-0044608(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)10210 Genetic Center DriveSan Diego, CA
    
    92121(Address of Principal Executive 
Offices)
    
    (Zip Code)
 (858) 410-8000
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-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 I  FINANCIAL INFORMATIONItem 1. Consolidated Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Income
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    32PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    33Item 1A. Risk Factors
    
    
    33Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    50Item 6. Exhibits
    
    
    51SIGNATURES
    
    
    53EX-10.96EX-10.98EX-31.1EX-31.2EX-32.1EX-32.2
 2




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##### Table of Contents



GEN-PROBE INCORPORATED
 
 CONSOLIDATED BALANCE SHEETS
  March 31,
    
    
    December 31,2009
    
    
    2008(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    286,195
    
    
    $
    60,122Marketable securities  current
    
    
    366,395
    
    
    
    371,276Trade accounts receivable, net of allowance for doubtful accounts of $600 and
$700 at March 31, 2009 and December 31, 2008, respectively
    
    
    35,206
    
    
    
    33,397Accounts receivable  other
    
    
    1,886
    
    
    
    2,900Inventories
    
    
    52,175
    
    
    
    54,406Deferred income tax  short term
    
    
    5,965
    
    
    
    7,269Prepaid income tax
    
    
    
    
    
    
    2,306Prepaid expenses
    
    
    14,144
    
    
    
    15,094Other current assets
    
    
    5,699
    
    
    
    6,135Total current assets
    
    
    767,665
    
    
    
    552,905Marketable securities  non-current
    
    
    32,677
    
    
    
    73,780Property, plant and equipment, net
    
    
    142,799
    
    
    
    141,922Capitalized software, net
    
    
    12,780
    
    
    
    13,409Goodwill
    
    
    18,621
    
    
    
    18,621Deferred income tax  long term
    
    
    12,286
    
    
    
    12,286Licenses, manufacturing access fees and other assets, net
    
    
    56,483
    
    
    
    56,608Total assets
    
    $
    1,043,311
    
    
    $
    869,531LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    15,788
    
    
    $
    16,050Accrued salaries and employee benefits
    
    
    19,434
    
    
    
    25,093Other accrued expenses
    
    
    6,239
    
    
    
    4,027Income tax payable
    
    
    8,491
    
    
    
    Short-term borrowings
    
    
    170,000
    
    
    
    Deferred revenue  short term
    
    
    1,592
    
    
    
    1,278Total current liabilities
    
    
    221,544
    
    
    
    46,448Non-current income tax payable
    
    
    4,671
    
    
    
    4,773Deferred income tax  long term
    
    
    54
    
    
    
    55Deferred revenue  long term
    
    
    2,167
    
    
    
    2,333Deferred compensation plan liabilities
    
    
    2,244
    
    
    
    2,162Commitments 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,
52,068,633 and 52,920,971 shares issued and outstanding at March 31, 2009
and December 31, 2008, respectively
    
    
    5
    
    
    
    5Additional paid-in capital
    
    
    353,304
    
    
    
    382,544Accumulated other comprehensive income
    
    
    5,419
    
    
    
    3,055Retained earnings
    
    
    453,903
    
    
    
    428,156Total stockholders equity
    
    
    812,631
    
    
    
    813,760Total liabilities and stockholders equity
    
    $
    1,043,311
    
    
    $
    869,531
  3




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GEN-PROBE INCORPORATED
 
 CONSOLIDATED STATEMENTS OF INCOME
 
 Three Months EndedMarch 31,2009
    
    
    2008Revenues:Product sales
    
    $
    112,522
    
    
    $
    101,507Collaborative research revenue
    
    
    1,675
    
    
    
    2,459Royalty and license revenue
    
    
    1,986
    
    
    
    18,597Total revenues
    
    
    116,183
    
    
    
    122,563Operating expenses:Cost of product sales
    
    
    33,314
    
    
    
    32,636Research and development
    
    
    24,998
    
    
    
    23,066Marketing and sales
    
    
    11,055
    
    
    
    11,908General and administrative
    
    
    13,846
    
    
    
    11,937Total operating expenses
    
    
    83,213
    
    
    
    79,547Income from operations
    
    
    32,970
    
    
    
    43,016Other income/(expense):Interest income
    
    
    4,882
    
    
    
    4,207Interest expense
    
    
    (151
    )
    
    
    Other income/(expense)
    
    
    (142
    )
    
    
    1,473Total other income, net
    
    
    4,589
    
    
    
    5,680Income before income tax
    
    
    37,559
    
    
    
    48,696Income tax expense
    
    
    11,812
    
    
    
    16,751Net income
    
    $
    25,747
    
    
    $
    31,945Net income per share:Basic
    
    $
    0.49
    
    
    $
    0.59Diluted
    
    $
    0.48
    
    
    $
    0.58Weighted average shares outstanding:Basic
    
    
    52,407
    
    
    
    53,796Diluted
    
    
    53,126
    
    
    
    55,023
  4




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GEN-PROBE INCORPORATED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Three Months EndedMarch 31,2009
    
    
    2008Operating activitiesNet income
    
    $
    25,747
    
    
    $
    31,945Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    8,748
    
    
    
    8,608Amortization of premiums on investments, net of accretion of discounts
    
    
    1,523
    
    
    
    1,735Stock-based compensation charges
    
    
    5,758
    
    
    
    5,192Stock-based compensation income tax benefits
    
    
    126
    
    
    
    369Excess tax benefit from stock-based compensation
    
    
    (127
    )
    
    
    (145
    )Gain on sale of investment in MPI
    
    
    
    
    
    
    (1,600
    )Changes in assets and liabilities:Trade and other accounts receivable
    
    
    (784
    )
    
    
    3,842Inventories
    
    
    2,223
    
    
    
    (1,796
    )Prepaid expenses
    
    
    945
    
    
    
    3,447Other current assets
    
    
    436
    
    
    
    (1,161
    )Other long term assets
    
    
    (1,161
    )
    
    
    (743
    )Accounts payable
    
    
    (219
    )
    
    
    3,181Accrued salaries and employee benefits
    
    
    (5,657
    )
    
    
    (3,069
    )Other accrued expenses
    
    
    2,217
    
    
    
    965Income tax payable
    
    
    10,709
    
    
    
    15,663Deferred revenue
    
    
    147
    
    
    
    (45
    )Deferred income tax
    
    
    1,305
    
    
    
    688Deferred rent
    
    
    
    
    
    
    (10
    )Deferred compensation plan liabilities
    
    
    82
    
    
    
    454Net cash provided by operating activities
    
    
    52,018
    
    
    
    67,520Investing activitiesProceeds from sales and maturities of marketable securities
    
    
    84,008
    
    
    
    97,290Purchases of marketable securities
    
    
    (37,124
    )
    
    
    (181,546
    )Purchases of property, plant and equipment
    
    
    (7,525
    )
    
    
    (20,033
    )Purchase of intangible assets, including licenses and manufacturing access fees
    
    
    (205
    )
    
    
    (194
    )Proceeds from sale of investment in MPI
    
    
    
    
    
    
    4,100Other assets
    
    
    (13
    )
    
    
    75Net cash provided by (used in) investing activities
    
    
    39,141
    
    
    
    (100,308
    )Financing activitiesExcess tax benefit from stock-based compensation
    
    
    127
    
    
    
    145Repurchase and retirement of restricted stock for payment of taxes
    
    
    (34
    )
    
    
    (41
    )Repurchases of common stock
    
    
    (35,627
    )
    
    
    Proceeds from issuance of common stock
    
    
    534
    
    
    
    3,027Borrowings under credit facility
    
    
    170,000
    
    
    
    Net cash provided by financing activities
    
    
    135,000
    
    
    
    3,131Effect of exchange rate changes on cash and cash equivalents
    
    
    (86
    )
    
    
    (7
    )Net increase (decrease) in cash and cash equivalents
    
    
    226,073
    
    
    
    (29,664
    )Cash and cash equivalents at the beginning of period
    
    
    60,122
    
    
    
    75,963Cash and cash equivalents at the end of period
    
    $
    286,195
    
    
    $
    46,299
  5




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Notes to the Consolidated Financial Statements (unaudited)
 Note 1  Summary of significant accounting policies
 Basis of presentation
    Principles of consolidation
  Use of estimates
  Foreign currencies
  Marketable securities
    6




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Revenue recognition
       7




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Adoption of recent accounting pronouncements
 EITF Issue No. 07-1
  SFAS No. 141(R)
  8




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SFAS No. 160
  SFAS No. 161
  Note 2  Stock-based compensation
  Three Months EndedMarch 31,2009
    
    
    2008Cost of product sales
    
    $
    798
    
    
    $
    595Research and development
    
    
    1,702
    
    
    
    1,435Marketing and sales
    
    
    759
    
    
    
    695General and administrative
    
    
    2,499
    
    
    
    2,467Total
    
    $
    5,758
    
    
    $
    5,192
  Stock Option Plans
    
    
    ESPP2009
    
    
    2008
    
    
    2009
    
    
    2008Risk-free interest rate
    
    
    1.6
    %
    
    
    2.8
    %
    
    
    1.3
    %
    
    
    3.3
    %Volatility
    
    
    37
    %
    
    
    35
    %
    
    
    47
    %
    
    
    34
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected term (years)
    
    
    4.2
    
    
    
    4.2
    
    
    
    0.5
    
    
    
    0.5Resulting average fair value
    
    $
    12.96
    
    
    $
    17.55
    
    
    $
    12.20
    
    
    $
    14.82
 9




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Weighted Average
    
    
    UnrecognizedRemaining Expense
    
    
    Expense as ofAwards
    
    Life (Years)
    
    
    March 31, 2009Options
    
    
    1.3
    
    
    $
    34,194ESPP
    
    
    0.2
    
    
    
    287Restricted Stock
    
    
    1.8
    
    
    
    11,503Deferred Issuance Restricted Stock
    
    
    1.4
    
    
    
    2,086$
    48,070
 Note 3  Net income per share
   Three Months EndedMarch 31,2009
    
    
    2008Net income
    
    $
    25,747
    
    
    $
    31,945Weighted average shares outstanding  Basic
    
    
    52,407
    
    
    
    53,796Effect of dilutive common stock options outstanding
    
    
    719
    
    
    
    1,227Weighted average shares outstanding  Diluted
    
    
    53,126
    
    
    
    55,023Net income per share:Basic
    
    $
    0.49
    
    
    $
    0.59Diluted
    
    $
    0.48
    
    
    $
    0.58
  Note 4  Fair value measurements
 SFAS No. 157
  10




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##### Table of Contents




    
    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:
   Fair Value Measurements at March 31, 2009Quoted prices in
    
    
    
    
    
    
    Significant
    
    
    Total carryingactive markets for
    
    
    Significant other
    
    
    unobservable
    
    
    value in theidentical assets
    
    
    observable inputs
    
    
    inputs
    
    
    consolidated(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    balance sheetAssets:Cash equivalents
    
    $
    6,381
    
    
    $
    229,174
    
    
    $
    
    
    
    $
    235,555Marketable securities
    
    
    
    
    
    
    399,072
    
    
    
    
    
    
    
    399,072Derivatives
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    9Other investments (1)
    
    
    
    
    
    
    4,108
    
    
    
    
    
    
    
    4,108Total assets at fair value
    
    
    6,381
    
    
    
    632,363
    
    
    
    
    
    
    
    638,744Liabilities:Derivatives
    
    $
    
    
    
    $
    272
    
    
    $
    
    
    
    $
    272Other investments (1)
    
    
    
    
    
    
    4,266
    
    
    
    
    
    
    
    4,266Total liabilities at fair value
    
    $
    
    
    
    $
    4,538
    
    
    $
    
    
    
    $
    4,538
 
 (1)
    
    Includes the Companys deferred compensation plan liability and related assets
which are invested in corporate owned life insurance policies. Assets and liabilities measured at fair value on a non-recurring basis:
  11




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Equity investment in private company
   SFAS No. 159
   Note 5  Balance sheet information
  Inventories
 March 31,
    
    
    December 31,2009
    
    
    2008Raw materials and supplies
    
    $
    7,830
    
    
    $
    8,529Work in process
    
    
    21,336
    
    
    
    24,945Finished goods
    
    
    23,009
    
    
    
    20,932$
    52,175
    
    
    $
    54,406
 12




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##### Table of Contents



Property, plant and equipment, net
 March 31,
    
    
    December 31,2009
    
    
    2008Land
    
    $
    18,804
    
    
    $
    18,804Building
    
    
    80,379
    
    
    
    80,426Machinery and equipment
    
    
    158,298
    
    
    
    153,211Building improvements
    
    
    34,836
    
    
    
    34,592Furniture and fixtures
    
    
    16,566
    
    
    
    16,270Construction in-progress
    
    
    171
    
    
    
    19Property, plant and equipment, at cost
    
    
    309,054
    
    
    
    303,322Less accumulated depreciation and amortization
    
    
    (166,255
    )
    
    
    (161,400
    )Property, plant and equipment, net
    
    $
    142,799
    
    
    $
    141,922
 Licenses, manufacturing access fees and other assets, net
 March 31,
    
    
    December 31,2009
    
    
    2008Patents
    
    $
    18,298
    
    
    $
    18,093Purchased intangible assets
    
    
    33,636
    
    
    
    33,636Licenses and manufacturing access fees
    
    
    58,707
    
    
    
    64,507Investment in Qualigen, Inc.
    
    
    5,404
    
    
    
    5,404Other assets
    
    
    4,772
    
    
    
    3,611Licenses and manufacturing access fees and other assets, at cost
    
    
    120,817
    
    
    
    125,251Less accumulated amortization
    
    
    (64,334
    )
    
    
    (68,643
    )Licenses and manufacturing access fees and other assets, net
    
    $
    56,483
    
    
    $
    56,608
 Other accrued expenses
 March 31,
    
    
    December 31,2009
    
    
    2008Royalties
    
    $
    1,109
    
    
    $
    985Professional fees
    
    
    3,272
    
    
    
    1,494Warranty
    
    
    630
    
    
    
    923Other
    
    
    1,228
    
    
    
    625Other accrued expenses
    
    $
    6,239
    
    
    $
    4,027
 Note 6  Marketable securities
  13




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Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueMunicipal securities
    
    $
    390,357
    
    
    $
    9,158
    
    
    $
    (443
    )
    
    $
    399,072
  Less than 12 Months
    
    
    More than 12 MonthsEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesMunicipal securities
    
    $
    15,306
    
    
    $
    (71
    )
    
    $
    19,376
    
    
    $
    (372
    )
   March 31,
    
    
    December 31,2009
    
    
    2008Current
    
    $
    366,395
    
    
    $
    371,276Non-current
    
    
    32,677
    
    
    
    73,780Total municipal securities
    
    $
    399,072
    
    
    $
    445,056
  Note 7  Short-term borrowings
  14




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Note 8  Income tax
   15




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Note 9  Stockholders equity
  Balance at December 31, 2008
    
    $
    813,760Net income
    
    
    25,747Other comprehensive income, net
    
    
    2,364Proceeds from the issuance of common stock
    
    
    534Purchases of common stock by board members
    
    
    45Repurchase and retirement of common stock
    
    
    (35,627
    )Repurchase and retirement of restricted stock for payment of taxes
    
    
    (34
    )Stock-based compensation
    
    
    5,715Stock-based compensation income tax benefits
    
    
    127Balance at March 31, 2009
    
    $
    812,631
 Comprehensive income
   Three Months EndedMarch 31,2009
    
    
    2008Net income
    
    $
    25,747
    
    
    $
    31,945Change in net unrealized gain on available-for-sale-securities
    
    
    2,424
    
    
    
    1,278Foreign currency translation adjustment
    
    
    (60
    )
    
    
    92Other comprehensive income, net
    
    
    2,364
    
    
    
    1,370Comprehensive income
    
    $
    28,111
    
    
    $
    33,315
 Stock options
  WeightedAverageRemaining
    
    
    AggregateNumber of
    
    
    Weighted Average
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Life (Years)
    
    
    ValueOutstanding at December 31, 2008
    
    
    5,657
    
    
    $
    44.12Granted
    
    
    97
    
    
    
    40.35Exercised
    
    
    (22
    )
    
    
    23.96Cancelled
    
    
    (22
    )
    
    
    56.81Outstanding at March 31, 2009
    
    
    5,710
    
    
    $
    44.09
    
    
    
    5.2
    
    
    $
    39,671Exercisable at March 31, 2009
    
    
    3,727
    
    
    $
    37.88
    
    
    
    4.8
    
    
    $
    38,623
 16




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Restricted Stock
  WeightedAverageNumber
    
    
    Grant-Dateof Shares
    
    
    Fair ValueUnvested at December 31, 2008
    
    
    294
    
    
    $
    57.51Granted
    
    
    1
    
    
    
    43.23Vested and exercised
    
    
    (7
    )
    
    
    49.32Forfeited
    
    
    
    
    
    
    Unvested at March 31, 2009
    
    
    288
    
    
    $
    57.67
 Stock Repurchase Program
  Note 10  Contingencies
  Digene Corporation
   17




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Note 11  Derivative financial instruments
    Derivatives not designated as hedging instruments under SFAS No. 133:
    
    Balance sheet location
    
    March 31,
2009Foreign currency forward contracts
    
    Other current assets
    
    $
    9Other accrued expenses
    
    
    (272
    )$
    (263
    )
 Note 12  Subsequent events
 Acquisition of Tepnel Life Sciences plc
    Amended Collaboration Agreement with DiagnoCure Inc.
    18




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Overview
   19




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Recent Events
 Financial Results
  Acquisition of Tepnel Life Sciences plc
  Stock Repurchase Program
  Corporate Collaboration with Novartis
     20




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Credit Agreement
    Critical accounting policies and estimates
   Marketable securities
    21




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##### Table of Contents



Adoption of recent accounting pronouncements
 EITF Issue No. 07-1
  SFAS No. 141(R)
  SFAS No. 160
  SFAS No. 161
  22




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Results of Operations
 (Dollars in millions)
    
    Three Months Ended March 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeProduct Sales
    
    $
    112.5
    
    
    $
    101.5
    
    
    $
    11.0
    
    
    
    11
    %As a percent of total revenues
    
    
    97
    %
    
    
    83
    %
    
    
    an increase of $7.4 million due to higher APTIMA assay sales, and
    
    an increase of $7.1 million due to higher blood screening assay sales, partially
offset by
    
    a decrease of $2.8 million in instrumentation sales, and
    
    a decrease of $1.5 million in PACE product sales.
   23




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##### Table of Contents



(Dollars in millions)
    
    Three Months Ended March 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeCollaborative Research Revenue
    
    $
    1.7
    
    
    $
    2.5
    
    
    $
    (0.8
    )
    
    
    (32
    )%As a percent of total revenues
    
    
    1
    %
    
    
    2
    %
    
    
    a decrease of $0.8 million in reimbursement from 3M Corporation, or 3M, related to
our healthcare-associated infection collaboration which was discontinued in June 2008, and
    
    a net decrease of $0.2 million in reimbursement from Novartis for shared development
expenses, comprised of $1.1 million in lower billings related to the development of the
Procleix Ultrio assay, partially offset by the recognition of $0.5 million in
previously deferred revenue for Novartis projects and $0.3 million in increased
billings related to new projects for Dengue, the Panther instrument and software
development, partially offset by
    
    an increase of $0.3 million of funded development for products associated with our
collaboration with Millipore.
  (Dollars in millions)
    
    Three Months Ended March 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeRoyalty and License Revenue
    
    $
    2.0
    
    
    $
    18.6
    
    
    $
    (16.6
    )
    
    
    (89
    )%As a percent of total revenues
    
    
    2
    %
    
    
    15
    %
   24




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##### Table of Contents



(Dollars in millions)
    
    Three Months Ended March 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeCost of Product Sales
    
    $
    33.3
    
    
    $
    32.6
    
    
    $
    0.7
    
    
    
    2
    %Gross profit margin as a percent of product sales
    
    
    70
    %
    
    
    68
    %
     
    
    an increase of $1.8 million attributed to unfavorable manufacturing variances,
primarily related to changes in production volumes,
    
    an increase of
$1.0 million related to increased APTIMA sales volume, and
    
    an increase of $0.8 million related to net increases in inventory valuation
allowances, partially offset by
    
    a decrease of $2.8 million attributed to lower instrument sales and instrument
related costs.
  
    
    an increase in revenue received from Novartis as a result of the amended
collaboration agreement, and
    
    an increase in APTIMA sales, partially offset by
    
    an increase in cost of sales from unfavorable changes in production volumes, and
    
    a decrease in instrument sales and instrument-related costs, which have lower
margins.
   25




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##### Table of Contents



(Dollars in millions)
    
    Three Months Ended March 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeResearch and Development
    
    $
    25.0
    
    
    $
    23.1
    
    
    $
    1.9
    
    
    
    8
    %As a percent of total revenues
    
    
    22
    %
    
    
    19
    %
   
    
    an increase of $2.8 million for clinical evaluations and outside services associated
with our HPV clinical trials, partially offset by
    
    a decrease of
$0.6 million in development lot activity, primarily related to
the timing
of our HPV diagnostic product development activities, and
    
    a decrease of $0.6 million in depreciation and amortization in R&D. Beginning in
June 2008, the remaining unamortized balance related to our manufacturing access fees
paid to Roche is being amortized to cost of product sales.
 (Dollars in millions)
    
    Three Months Ended March 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeMarketing and Sales
    
    $
    11.1
    
    
    $
    11.9
    
    
    $
    (0.8
    )
    
    
    (7
    )%As a percent of total revenues
    
    
    10
    %
    
    
    10
    %
  26




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##### Table of Contents



(Dollars in millions)
    
    Three Months Ended March 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeGeneral and Administrative
    
    $
    13.8
    
    
    $
    11.9
    
    
    $
    1.9
    
    
    
    16
    %As a percent of total revenues
    
    
    12
    %
    
    
    10
    %
   
    
    an increase of $1.6 million in expenses related to the acquisition of Tepnel,
    
    an increase of $0.2 million for relocation and recruitment fees,
    
    an increase of
$0.3 million in salaries and wages expense, and
    
    an increase of $0.1 million in bad debt expense, partially offset by
    
    a decrease of $0.4 million in non-Tepnel related business development costs in the
prior year period.
 (Dollars in millions)
    
    Three Months Ended March 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeInterest income
    
    $
    4.9
    
    
    $
    4.2
    
    
    $
    0.7
    
    
    
    17
    %Interest expense
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.2
    )
    
    
    N/MOther income / (expense)
    
    
    (0.1
    )
    
    
    1.5
    
    
    
    (1.6
    )
    
    
    (107
    )%Total other income, net
    
    $
    4.6
    
    
    $
    5.7
    
    
    $
    (1.1
    )
    
    
    (19
    )%
  (Dollars in millions)
    
    Three Months Ended March 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeIncome Tax Expense
    
    $
    11.8
    
    
    $
    16.8
    
    
    $
    (5.0
    )
    
    
    (30
    )%As a percent of income before tax
    
    
    31
    %
    
    
    34
    %
  
    
    a decrease of $11.1 million in earnings before income taxes,
    
    the expiration of a federal
research tax credit in the first quarter of 2008, and
    
    the adjustment to our 2007 and 2008 manufacturers deduction in the first quarter of
2009 as a result of recently issued IRS guidance, partially offset by
    
    the overall increase of our research spending particularly in clinical evaluations
and outside services during the first quarter of 2009.
  27




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##### Table of Contents



Liquidity and capital resources
 March 31,
    
    
    December 31,2009
    
    
    2008(In thousands)Cash, cash equivalents and current marketable securities
    
    $
    652,590
    
    
    $
    431,398Working capital
    
    
    546,121
    
    
    
    506,457Current ratio
    
    
    3:1
    
    
    
    12:1
    Three Months Ended 
March 31,2009
    
    
    2008
    
    
    $ Change(In thousands)Cash provided by (used in):Operating activities
    
    $
    52,018
    
    
    $
    67,520
    
    
    $
    (15,502
    )Investing activities
    
    
    39,141
    
    
    
    (100,308
    )
    
    
    139,449Financing activities
    
    
    135,000
    
    
    
    3,131
    
    
    
    131,869Purchases of property, plant and equipment
(included in investing activities above)
    
    
    (7,525
    )
    
    
    (20,033
    )
    
    
    (12,508
    )
  Operating Activities
  
    
    a decrease of $6.2 million in net income, primarily attributed to a $16.4 million
settlement payment received from Bayer in the first quarter of 2008,
    
    a decrease of
$5.0 million in income tax payable largely due to lower pre-tax
income, and
    
    a decrease of $4.0 million in inventories, and a $3.4 million decrease in accounts
payable primarily due to decreased inventory levels and timing of payments, partially
offset by
    
    an increase of $4.6 million in accounts receivable due to an increase in sales and
the timing of collections.
 28




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##### Table of Contents



Investing Activities
  
    
    an increase of $131.1 million in the sale (net of purchases) of marketable
securities, and
    
    a decrease of $12.5 million in the purchase of property, plant, and equipment,
partially offset by
    
    a decrease of $4.1 million due to one-time proceeds received in the first quarter of
2008 for our equity interest in Molecular Profiling Institute, Inc. as a result of its
acquisition by Caris Diagnostics.
 Financing Activities
  
    
    an increase of $170.0 million in borrowings under our credit facility, partially
offset by
    
    a decrease of $35.6 million for cash used to repurchase and retire 874,800 shares of
our common stock under our stock repurchase program, and
    
    a $2.5 million decrease in proceeds from the issuance of common stock.
    Contractual obligations and commercial commitments
  Less than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsMaterial purchase commitments(1)
    
    $
    40,978
    
    
    $
    26,489
    
    
    $
    14,489
    
    
    $
    
    
    
    $
    Collaborative commitments(2)
    
    
    4,763
    
    
    
    1,307
    
    
    
    1,899
    
    
    
    250
    
    
    
    1,307Minimum royalty commitments(3)
    
    
    1,400
    
    
    
    175
    
    
    
    525
    
    
    
    350
    
    
    
    350Deferred employee compensation(4)
    
    
    2,882
    
    
    
    910
    
    
    
    973
    
    
    
    658
    
    
    
    341Total(5)
    
    $
    50,023
    
    
    $
    28,881
    
    
    $
    17,886
    
    
    $
    1,258
    
    
    $
    1,998
 
 (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 $41.0 million
total, $35.6 million is expected to be used to purchase TIGRIS instruments, of which we
anticipate that approximately $18.4 million of instruments will be sold to Novartis. Not
included in the $41.0 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 Biomedical Systems AG, or Stratec, for the Panther instrument, as well
as potential minimum purchase commitments under our supply agreement with Stratec. Our
obligations under the supply agreement are contingent on successful completion of all
activities under the development agreement with Stratec. 29




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(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 $5.2 million in
future development costs in the form of milestone payments.(3)
    
    Amounts represent our minimum royalties due on the net sales of products
incorporating licensed technology and subject to a minimum annual royalty payment. During the
first quarter of 2009, we recorded $1.6 million in royalty costs related to our various
license agreements.(4)
    
    We have liabilities for deferred employee compensation which totaled $4.3 million at
March 31, 2009. These liabilities are typically dependent upon when certain key employees
retire or otherwise leave the Company. Of the total $4.3 million liability, $1.4 million was
not included in the table above as we cannot reasonably predict when these events may occur.
Total liabilities for deferred employee compensation are partially offset by deferred
compensation assets, which totaled $4.1 million at March 31, 2009.(5)
    
    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
  30




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Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Interest Rate Risk
  Foreign Currency Exchange Risk
    British pounds
    
    $
    841Canadian dollars
    
    
    855Danish Krone
    
    
    364Euro
    
    
    1,013Swiss Franc
    
    
    16U.S. dollars
    
    
    32,717Total gross trade accounts receivable
    
    $
    35,806
  31




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Weighted
    
    
    Notional ValueAverage
    
    
    of Forward
    
    
    MarketForward contracts to sell foreign currencies for U.S. Dollar:
    
    Contract Rate
    
    
    Contract
    
    
    ValueAustralian Dollar
    
    
    1.44
    
    
    $
    399
    
    
    $
    1Canadian Dollar
    
    
    0.79
    
    
    
    767
    
    
    
    (6
    )Euro
    
    
    0.75
    
    
    
    3,499
    
    
    
    11British Pound
    
    
    0.70
    
    
    
    1,098
    
    
    
    3
 
 Item 4. Controls and Procedures
     32




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Our quarterly revenue and operating results may vary significantly in future periods and our stock
price may decline.
  Our financial performance may be adversely affected by current global economic conditions.
  33




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##### Table of Contents



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.
      34




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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.
    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, and acquired companies or technologies could be difficult to
integrate and could disrupt our business.*
   35




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
    
    the anticipated financial performance and estimated cost savings and other synergies as a
result of an acquisition;
    
    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;
    
    the risk of entering new markets; and
    
    integrating, or completing the development and application of, any acquired technologies
and personnel with diverse business and cultural backgrounds, which could disrupt our
business and divert our managements time and attention.
  Our future success will depend in part upon our ability to enhance existing products and to
develop, introduce and commercialize new products.*
    36




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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.
      37




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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.*
  38




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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.
   39




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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.
  40




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##### Table of Contents



Our products are subject to recalls even after receiving FDA approval or clearance.
 Mycobacterium
tuberculosis
  Our gross profit margin percentage on the sale of blood screening assays will decrease upon the
implementation of smaller pool size testing.
   41




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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.
     42




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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.*
    Our indebtedness could adversely affect our financial health .
  43




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##### Table of Contents




    
    increase our vulnerability to general adverse economic and industry conditions;
    
    have a material adverse effect on our business and financial condition if we are unable to
service our indebtedness or refinance such indebtedness;
    
    limit our flexibility in planning for, or reacting to, changes in our business and the
industry in which we operate;
    
    place us at a disadvantage compared to our competitors that have less indebtedness; and
    
    expose us to higher interest expense in the event of increases in interest rates because
indebtedness under our credit facility bears interest at a variable rate.
  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.
   44




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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.
  Our marketable securities are subject to market and investment risks which may result in a loss of
value.
  45




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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.
     46




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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.
    47




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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.
   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.
  48




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##### Table of Contents



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.
  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.
  49




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##### Table of Contents



Our forecasts and other forward looking statements are based upon various assumptions that are
subject to significant uncertainties that may result in our failure to achieve our forecasted
results.
  Compliance with changing corporate governance and public disclosure regulations may result in
additional expenses.
  
 Item 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
    
    
    ProgramsJanuary 1-31, 2009
    
    
    603,200
    
    
    $
    41.41
    
    
    
    603,200
    
    
    $
    150,000,000February 1-28, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,000,000March 1-31, 2009
    
    
    272,486
    
    
    
    39.20
    
    
    
    271,600
    
    
    
    139,000,000Total(1) (2)
    
    
    875,686
    
    
    
    40.72
    
    
    
    874,800
    
    
    
    
 
 (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 first quarter of 2009, we repurchased and retired 886
shares of our common stock, at an average price of $39.00, 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. As of March 31, 2009, we had an aggregate
of 249,040 shares of restricted stock and 80,000 shares of deferred
issuance restricted stock awards outstanding. 50




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##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    Description2.1(1)
    
    Recommended Cash Offer for Tepnel Life Sciences plc.2.2(2)
    
    Implementation Agreement dated as of January 30, 2009 by and between Gen-Probe
Incorporated and Tepnel Life Sciences plc.3.1(3)
    
    Form of Amended and Restated Certificate of Incorporation of Gen-Probe Incorporated.3.2(4)
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation of
Gen-Probe Incorporated.3.3(5)
    
    Amended and Restated Bylaws of Gen-Probe Incorporated.3.4(6)
    
    Certificate of Elimination of Series A Junior Participating Preferred Stock of
Gen-Probe Incorporated.4.1(3)
    
    Specimen common stock certificate.10.96
    
    Amendment No. 11 effective January 1, 2009 to the Agreement dated June 11, 1998
between Gen-Probe Incorporated and Chiron Corporation (now Novartis Vaccines and
Diagnostics, Inc.).**10.97(7)
    
    Employment Offer Letter effective January 30, 2009 between Gen-Probe Incorporated
and Eric Lai, Ph.D.10.98
    
    2009 Gen-Probe Employee Bonus Plan.10.99(8)
    
    Credit Agreement dated as of February 27, 2009 by and between Gen-Probe
Incorporated, as Borrower, and Bank of America, N.A., as Lender.10.100(8)
    
    Security Agreement (Securities) dated as of February 27, 2009 by Gen-Probe
Incorporated in favor of Bank of America, N.A.10.101(9)
    
    Amendment to Credit Agreement dated as of March 23, 2009 by and between Gen-Probe
Incorporated, as Borrower, and Bank of America, N.A., as Lender.31.1
    
    Certification dated May 6, 2009, 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 May 6, 2009, 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 May 6, 2009, 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 May 6, 2009, 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.
    
    Indicates management contract or compensatory plan, contract or arrangement.**
    
    Gen-Probe has requested confidential treatment with respect to certain portions of this
exhibit. 51




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##### Table of Contents



(1)
    
    Incorporated by reference to Gen-Probes Current Report on Form 8-K filed with the SEC on
January 30, 2009.(2)
    
    Incorporated by reference to Gen-Probes Current Report on Form 8-K filed with the SEC on
February 5, 2009.(3)
    
    Incorporated by reference to Gen-Probes Amendment No. 2 to Registration Statement on Form 10
filed with the SEC on August 14, 2002.(4)
    
    Incorporated by reference to Gen-Probes Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2004 filed with the SEC on August 9, 2004.(5)
    
    Incorporated by reference to Gen-Probes Current Report on Form 8-K filed with the SEC on
February 18, 2009.(6)
    
    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.(7)
    
    Incorporated by reference to Gen-Probes Current Report on Form 8-K filed with the SEC on
February 4, 2009.(8)
    
    Incorporated by reference to Gen-Probes Current Report on Form 8-K filed with the SEC on
March 4, 2009.(9)
    
    Incorporated by reference to Gen-Probes Current Report on Form 8-K filed with the SEC on
March 25, 2009. 
 52




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##### Table of Contents



SIGNATURES
  GEN-PROBE INCORPORATEDDATE: May 6, 2009
    By:
    /s/ Henry L. NordhoffHenry L. NordhoffChairman and Chief Executive Officer

(Principal Executive Officer) DATE: May 6, 2009
    By:
    /s/ Herm RosenmanHerm RosenmanSenior Vice President  Finance and Chief
Financial Officer (Principal Financial Officer and
Principal Accounting Officer) 53