Hello, participants and welcome to the Gen-Probe Incorporated First Quarter 2007 Earnings Call. At the company's request, today's conference is being recorded. Please note that all lines will be on a listen-only mode until the question-and-answer portion of our program. (Operator Instructions). I'd now like to turn the conference over to Mr. Michael Watts, Senior Director, Investor Relations and Corporate Communications. Sir, you may begin when ready.

Thank you, Marty and good afternoon everyone. On behalf of Hank Nordhoff, Gen-Probe's Chairman, President and CEO and Herm Rosenman, our Vice President of Finance and CFO, as well as the rest of the Gen-Probe's team, I am very pleased to welcome you to this conference call to discuss our first quarter 2007 business results. A press release announcing our results was issued today just after 4 pm Eastern Time and is posted on our website at www.genprobe.com. In our call today, Hank will first provide an overview of our top line performance in the quarter, and discuss progress we've made on future growth drivers. Herm will then review our detailed results and updated guidance; then we'll take your questions. Before we begin, let me first review our Safe Harbor policy. Forward-looking guidance, financial or otherwise, is only provided on conference calls or in our press releases. Any statements in this conference call about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words and phrases such as believe, will, expect, anticipate, estimate, intend, plan, foresee, could and would. For example, statements concerning 2007 financial guidance, financial condition, regulatory approvals and timelines, possible or assumed future results of operations, growth opportunities, industry ranking, and plans and objectives of management are all forward-looking statements. Forward-looking statements are not guarantees of performance. They involve known and unknown risks and uncertainties that may cause the actual results to differ materially from those expressed or implied. Factors that might cause such differences include, but aren't limited to, those discussed in our SEC filings including our report on Form 10-K for the year ended December 31, 2006 and all subsequent periodic reports. Copies are available on our website at www.sec.gov and on request from our Investor Relations' department. Gen-Probe assumes no obligation and expressly disclaims any duty to update any forward-looking statements to reflect events or circumstances after the date of this call or to reflect the occurrence of unanticipated events. With that administrative detail out of the way, I will turn the call over to Hank Nordhoff, Gen-Probe's CEO.

Thanks, Mike, and good afternoon everyone. As described in our press release, Gen-Probe is off to a strong start in 2007. In the first quarter, we set new records for product sales and total revenues which exceeded $100 million for the first time. This solid top line growth combined with prudent expense management helped us increase earnings per share by 48% compared to last year. At the same time, we continue to pursue our medium and long-term growth drivers by gaining FDA approval for our West Nile virus blood screening tests on the TIGRIS system by setting up key hepatitis B yield studies for our Procleix ULTRIO assay and by publishing important data to support our prostate cancer program. And finally, we formed the new collaboration with 3M to develop rapid molecular assays for healthcare associated infections, an emerging growth market. All in all, we believe, we have had a very productive and exciting couple of months, which is what we always expect from ourselves and what we know, you will expect from us. Now let me review our top line results for the first quarter. Product sales were a record $87.2 million representing growth of 11% compared to last year despite a tough comp in blood screening. And if you look at our performance in a different way, on a sequential basis, this is our 17th quarter out of 19 quarters since our spin-off that will set a new record for product sales. The strong underlying products sales growth combined with $10.3 million payment from buyer in partial settlement of our patent infringement lawsuit helped us to exceed $100 million in quarterly revenues for the first time. Total revenues for the quarter were $101.1 million, up 17% compared to last year. On the bottom line, net income grew to…

Thank you, Hank and good afternoon every one. As described in our press release Gen- Probe had a strong first quarter. Product sales grew 11% compared to the same period in 2006 despite a tough comp in blood screening and also increased on a sequentially basis establishing another record. Total revenues grow 17%, helped by the Bayer Patent Infringement payment, and topped $100 million for the first time. On the bottom line, earnings per share increased by 48% to an all time high of $0.40. Hank, already discussed product sales. So, let me turn to Collaborative Research revenues, which were $2.4 million for the first quarter of 2007, down from $6.9 million a year ago. This decline resulted primarily from the reclassification of West Nile virus revenues into product sales. On the other hand, Collaborative Research revenues benefited in the quarter from healthy Chiron funding, and initial revenue from two new sources, the prostate cancer research grant we received from the Department of Defense and reimbursement from 3M for our food testing work. Royalty and license revenues was $11.5 million in the first quarter compared to $800,000 in the prior year period, with the increase obviously due to the $10.3 million payment made by Bayer in partial settlement of our patent infringement lawsuit. Gross margin on product sales was 66.5% in the first quarter of 2007, compared to 66.1% in the prior year period. Despite this slight improvement, the gross margin percentage came in short of our internal expectations for three main reasons. First, scrap expense was more than a million dollars above planned, primarily as a result of the data exploration of certain raw materials. Reducing unforeseen scrap expense will be a point of emphasis for our finance and operation's teams for the rest of the year. Second, unfavorable…

Thanks, Herm. We are happy to take your questions now. For Q&A, we are joined by Carl Hull, Executive Vice President and Chief Operating Officer; Dan Kacian, Executive Vice President and Chief Scientist; Bill Bowen, Vice President and General Counsel; Steve Kondor, Vice President of Sales and Marketing; Lynda Merrill, Vice President of Industrial Relationships; Harry Rittenhouse, Senior Director of Cancer Research and Kevin Hardy, Director of Finance. In order to ensure broad participation in the Q&A session, please be courteous and limit your questions to one plus a follow-up, then jump back into the queue. Operator, we're ready to take the first question.

Thank you. (Operator Instructions). Our first question comes from Quintin Lai, Robert W. Baird.

Congratulations on a very nice quarter.

Thanks, Quinn.

Thanks, Quinn.

Turning to PCA. Could you kind of give us a little update on how it's going in Europe? How is it being used? Is it being used right now? Kind of still in a research-only mode, were people trying to take a look after a negative biopsy?

It's going pretty well in Europe, thanks Quintin. I am not going to give you the sales forecast because Mike is sitting across for me. But it's going to be okay. And as I understand, I'll ask Harry to comment on this. It really is being used for the purpose we intended, not so much in the research, yes, but just to get use to it, in those patients with a negative biopsy, to give the urologist information, deciding whether or not to do a second biopsy. Harry?

Yes. The target population remains, the patients who have had previous negative biopsies. We had a very successful meeting at the European Urology Association in Berlin, only about a month ago. And there were several presentations on PCA3, many of these presentations were from studies that we were involved Gen-Probe and some were actually independent. I think that the reception was very encouraging and one of the key things that came out of that meeting was a recent study which shows that PCA3 is correlated with tumor burden. And this is really important clinical information that physicians will like to have, PSA does not supply that information at the current time.

Yes. Encouraging is the keyword.

Thank you. And then, as a follow-up. Congratulations on signing the agreement with 3M on the HAIs. As we look at the two competitors that are right now going after MRSA, you've got one competitor going after may be the kind of the high volume, high throughput theoretically moving to one of those automated answering machines and then you've another competitor looking at a smaller instrument. It sounds like from the press release that 3M was going to go after the more smaller instrument but, any plans of eventually moving some of those tests over to a TIGRIS like instrument?

Its early days in this and of course 3M will do that the marketing and the sales. It will be a small instrument but it will have a capacity to do a number of tests. We see the instrument placed at the hospitals and we see the results in about an hour a little bit less to really determine where the patient goes. It's going to be very interesting to keep you advised of how we are doing on this. So, we think it’s a very-very exciting program. And we think that probably the market is way understated what it can be.

Thank you, congratulations again.

Thank you.

Thank you and our next question comes from John Wood, Banc of America Securities.

Hi, thanks a lot. Herm, I'm not clear on the guidance. It looks in the press release like you are seeing the 139 to 145 excludes the 8.7 million benefit. But I think if I've understood your prepared remarks correctly, you are including that in the 139 to 145?

Yes John.

Okay. Can you give us an update on capital deployments, the cash balances here rising to about $320 million are we any closer to putting some capital to work.

We put capital to work everyday John. Its capital deployment in terms of CapEx, I can probably, because I am sure that's on lots of minds. Our maintenance capital is round about $25 million a year. We finished, what we call, we refer to as GCD2, our second building on the Mira Mesa, San Diego campus. So, that won't be taking any more cash this year. So, the maintenance capital is now about $25 million a year. Depreciation and amortization is about $33 million a year, its tracking. So, those will give you some pretty good metrics to use in terms of cash flow out in to the future. It's already in the unforeseen.

If you were thinking of other uses for capital, we are constantly looking for technologies and companies. We have a number of people who are looking for us. They just haven't seen anything that has deemed a pretty good fit right now. But we continue to look fastidiously.

Understood. Question on PCA3. The five labs offering the ASR, can comment just on what they are seeing with reimbursement? Are they having problems with reimbursement? How was that, both from Medicare as well as managed care companies, how the toughs have been received?

Steve Kondor will address that question to you.

Hello, John. Thanks for the question. We don't get into the details of our specific customers. However, we have not seen any real problems generally across the board with regard to reimbursement. We have not heard that from our ASR sites. So, so far so good.

Okay. Thanks a lot.

Thank you, John.

John, just to clarify, its Mike. What is excluded from the guidance, the tax rate guidance that we gave of 35% to 36%, think of that as an underlying tax rate, which excludes the one-time benefits of the $8.7 million.

Okay. I understand. Thanks.

Thank you. Our next question comes from David Lewis, Morgan Stanley.

Good afternoon.

Hi, David.

Hank, given kind of recent management changes on the clinical R&D side, you mentioned in the release, more focused initiatives. I wonder if you can talk through, is there a strategic change at the company? Should we expect a strategic change? How is the operating reporting structure working for R&D right now? Or why are you as focused now as you were last quarter?

Let me give you a preamble and then I'll turn over to Carl to address the specifics. No strategic change. I think when we meet with you all separately over dinner or lunch, the big word for me this year is improve, do things better, be more productive, be more efficient and these are all steps in that direction. Carl.

Hi, David. Yeah. I'd elaborate by saying that we are really trying to focus the team on the highest priority projects and put as much of our power behind those projects as we can, so that we drive to completion and that we are able to generate short-term revenues, were appropriate. I think the organization is working fine. I have the entire R&D and program management team reporting directly to me. This is something I am comfortable with. I have managed R&D organizations of this scope and scale previously. And the team is high quality. There is high caliber, both science and development going on. So, we feel real comfortable with our current state of play.

Good question, David. Thanks.

Okay. And then one other follow up here. Obviously we are supportive with the tax benefit, taking some of that implying back into R&D, which is essentially what you are doing. Hank, this clinical trial, is it a change? Is it just more spending than you thought? And may be, if there has been a change, what is the nature of that change?

Yeah. It's more spending than we thought, David. And it's a little bit open ended. We are going to do the studies until we get yield and we don't know when that yield, and we don't know when that yield was going to be.

Okay. Thank you very much.

You're welcome.

Thank you. Our next question comes from Bruce Cranna, Leerink Swann.

Good afternoon, guys.

Hi Bruce.

Hi Bruce.

Can we just talk about HBV for a little bit, to the extent you guys, I guess, give us a little update there on timing? And the oligos that come from Roche this year is that I guess the last batch from Roche before, that you'll need before you start thinking about getting into EU with HBV?

We expect to lock-up the formulation probably in two to three months. I believe that we're only anticipating by one more batch of oligos this year, for the clinical stuff. The clinical study is being formulated in conjunction with the FDA, a discussion very-very soon, trying to tie-up the details, it's coming along. Carl has had good impact on this. We are tightening the timelines internally. And I think we have scope to do even better than we've talked about internally. Carl, do you want to mention anything?

Yes. I would just add that, the team is really focused on nailing the key uncertainties and among those is the structure of the clinical trial for the US market. I'm pleased with the progress that we've made, we've been working both, internally and with external experts on the subject and they feel quite comfortable with the designed approach that we're discussing with the FDA. In addition, I think the program is on-track to generate its revenues in the European Union, as we've communicated previously in '08.

Okay, thank you. And then just, another question on 3M I guess, if I could. Hank, what's your sense in terms of, it says I know in the press release, that 3M is going to largely fund R&D. Does that mean or I guess should we take away from that this deal certainly with respect to hospital-acquired infection, it's not dilutive to your earnings a share, is that not a fair assessment?

I think that's a fair assessment, Bruce.

Is there any leverage with the existing food testing piece or not?

Some of the technology will be very similar. We are looking at different instruments and the instrumentations are going to be critical here. And 3M brings an awful lot of strengths to this collaboration and the instrument is really one of the most exciting ones.

Okay. And last question from me Herm, you mentioned, I guess grant work in prostate cancer. Who, is that NIH you were talking about?

Department of Defense.

DoD in prostate?

In prostates.

And how does that grant work? And what's the timing and how should we thinking about collaborative revenues?

We get reimbursed as we actually perform the work. We are starting billing, we did some billing in the first quarter and that will be throughout 2007 and we haven't been anymore specific on how that rolls out.

Bruce, it's Mike. The only other thing we did say about that in our 10-K was the grant was about $2.5 million and would largely be spread over the middle part of the year.

Thank you. Our next question comes from Bill Quirk, Piper Jaffray.

Yes. Thanks. Good afternoon and congratulations on the quarter.

Thank you, Bill.

Couple of questions for you. First of, APTIMA growth just a housekeeping question, APTIMA growth was that fairly consistent year-over-year with what we have seen for the last couple of quarters?

Yes. It has been, Bill. This is Steve Kondor. We are doing well. A variety of things are driving it. The sensitivity stress audacity performance, as Hank mentioned in his opening comments. TIGRIS adoption certainly is behind it. We have the broadest range of specimen types and recent approvals are received in the first quarter as well. We round out FDA and TV clearance on all specimens, types for all three APTIMA assays on both BTS and TIGRIS. So, a variety of things are driving it.

Thank you. Good to hear. Secondly, Hank, I may have missed the first part of your comments on the ARC ULTRIO study. Is this a validation study for their own use?

You could probably look at it with our view. Validation in a sense that they want to get to know a little bit better. It also is going to help us get yield.

Okay and then --

It could be very large.

Okay. And so I just got two national questions following from that. First is, have the TIGRIS’ been shipped to them already, specifically for ULTRIO outside of the Western Blot collaboration? And then secondly, have they commented all about timing or number of samples they want to run through et cetera?

They have TIGRIS instruments. I don't think its specifically designed for this clinical study. And I am not sure we are all clear on the specifics to the other part of your question, Bill.

Okay. So, stay tuned in other words.

Yes, stay tuned. And we don't have a contract signed. Chiron is negotiating it. I think it will probably happen. And as we said, it will probably happen in the fall.

Okay. Fair enough. And then lastly, question for Herm. I don't want to leave you out here. You mentioned that R&D is expected to rise over the balance of the year. Should we think about the development lot production being fairly evenly spread throughout the year, Herm? Or is there going to be more third and fourth quarter going to commence here with your improvement in gross margin?

This could be more third and fourth quarter, Bill.

Okay. Thank you.

Thanks, Bill.

Thank you. Our next question comes from Tycho Peterson, JP Morgan.

Hey, good afternoon.

Hey, Tycho.

Quick one, first on PCA3. I guess you have done really good job getting traction with the reference labs. I know these are ASR revenues, but can you help us just put some parameters on what that could potentially do in the back half of the year maybe. And then also with regards to the trial, I know you talked about potentially giving an update mid-year. Is there any change in the underlying strategic thinking there? Or how do we think about that, I guess?

Yeah. Tycho, this is Steve Kondor. To answer to your last question, there is no change in the underlying thinking about the trial and the IDT that we will talk about in the next quarter. With regard to more color on revenues for PCA3 and ASR sites, its really still too early to tell. Sorry to say the same thing over again, but it is still too early to tell here in US.

Okay. And then on 3M, we didn't really get any color on development timelines. Is this a similar timeframe in terms of your other existing industrial collaborations? Or how do we think about contributions there?

It's going to be a little bit different. The others are industrial and hospital. So, the FDA will be involved. I would think that we probably have some sales in 3.5 years, say in 2010.

Okay. Great. Thank you very much.

You are welcome.

Thank you. And our next question comes from Sara Michelmore, Cowen and Company.

Good afternoon.

Good afternoon, Sara.

Question on the clinical diagnostics business. If I just look at the guidance that you have communicated for the product revenue. It suggests that the clinical diagnostics growth rate is going to moderate. And I think the last couple of quarter, it seems the momentum in the APTIMA business has accelerated or picked up. And I am just wondering if there is any reason or specific issue in the clinical diagnostics line that you'd would expect that to moderate from, its been a high teens, low 20% growth rate down to something that's closer to 10% next couple of quarters?

Yes Sara, this is Steve Kondor. That’s a great question. We have expected it to not to be as robust as it has been over the last several quarters. But, we continue to see some very nice growth. And as we mentioned on some other call, as best as we can tell, we're outpacing the growth of the market and it's entirely we're probably growing almost twice the market rate. So, I guess the answer to your question is. We just think eventually the Law of Big Numbers are going to catch-up to it. So, we continue to increase our market share approaching probably as 57% at the end of last year as we indicated and this quarter probably another percent more so.

Okay. So, there is nothing specific there?

Not really. No.

Okay, in terms of the way of thinking on ULTRIO adoption. Can you just talk us through what your thoughts would be of an adoption curve, assuming that there is going to be a lag between the time that the ULTRIO is proved and that you get the HPV screening claim. Do you think the lack of a screening claim is going to slow the adoption or you are going to be able to feed the market and advance the receiving of these screening claims and maybe there is the pricing session that make there. Can you just talk us through, the rollout of that product between an ULTRIO approval on TIGRIS and HPV screening claim?

I believe we've had this discussion with our colleagues at Chiron. And we don’t think the screening claim is going to do very much. I think we have to get the detection in order to be able to sell it and that’s going to sometime. So, we are hopeful of hearing that the ULTRIO will be approved on TIGRIS. But without the big claim to screen blood, we don’t think it will make much difference than it was this year.

Okay. And can you remind us in terms of West Nile virus, where you are in terms of TIGRIS as a percentage of customer base versus the semi-automated platform?

Well, this is Herm, Sara. In terms of customer base, I mean, most of the blood screening centers do have TIGRIS instruments that they are able to use in the event of an outbreak. Now you'll remember, when we increased the cost recovery pricing, because TIGRIS had not been approved at that point. So, some of them had TIGRIS and weren't using them, I think virtually 100% of the market have TIGRIS, the ones that are actually using the TIGRIS to screen for West Nile virus, I'm uncertain as to what that percentage is.

Okay.

Was that your question Sara?

Yes, so you guys aren't assuming any dynamic change in terms of the percentage of customers are using TIGRIS for West Nile virus?

Well, TIGRIS is important when there is an outbreak and they have to ratchet very quickly to IDT, and so there are quite a few TIGRISs out there and we'll probably be selling more to it.

Okay. And lastly, could you give us an update on the Panther systems, in terms of timelines and things like that?

Dan, you want to talk about that?

Sure, I would be happy to. Panther is probably a couple of years out yet in Europe. We at the moment in our milestones, we're locking down on what we call are PRD or product requirements document. And so at the end of this quarter we'll revise the timelines based on that, but we're probably couple of years out in Europe with CE launch.

Thank you.

You are welcome.

Thank you. Our next question comes from Peter Larson, Thomas Weisel Partners.

When did you say the products from the 3M hospital-acquired infection was out and is that for a high volume or low volume test market?

We anticipate seeing some commercial revenue in 1010. I am sorry. The roll of big numbers got me, 2010. And we didn't really say too much on that Peter. We think it will be a small instrument, small and relatively inexpensive. So, it can be at the site of a hospital. But we'll have a capability to run a number of tests on an hourly basis. So, it could qualify for both, small, medium and hopefully large and you can have more than one instrument in them.

Okay. Continuing that on large numbers, Herm, I wonder if you could talk through metrics, you look at for M&A and attribute the technology, etcetera.

That would be a long discussion, Peter. But we look at all kinds of things, dilution of course being one. Revenue base, profitability, we certainly don't want to dilute that, our profitability. But most of all, we are looking for companies or products that fit, fit with Gen-Probe, fit with what we do and what our fabric is. So, that gives you for maybe between 5,000 and 10,000 feet. But do have a fairly well laid out set of metrics that we look at when we screen these opportunities.

And is it mostly on the side of technology or particular diseases?

It's mostly on the basis of technology and company fit, after that we start to look at the numbers.

Okay. Thank you so much.

Thank you. And our next question comes from Spencer Nam, Summer Street Research Partners.

Can you hear me?

Sure, Spencer.

Great. Just a couple of quick questions. With the prostate cancer US trial, I know that it's difficult to give any timelines at this point. But what kind of timeframes do we think about the potential US launch of the approved test? Should we think as a more of a 2009 event, overly late, any thoughts on that?

Spencer, this is Steve Kondor. You've characterized it very well right in the very beginning. It's virtually impossible to tell that right now until we land on the determination of which analytes will be in there in the panel. We then need to review that with the FDA and we'll come up with our clinical trials strategy and plan at that time.

So, are you implying that depending on the decision of the analyte that you will pursue, it could be substantially shorter than if you went with another option. Is that fair an assumption?

There is a variety of factors not just the analyte or analytes but it's also the platform. So, there's a variety things that enter into it.

Okay. And then just one quick follow up. What kind of increase in price should we expect on West Nile virus with the commercial pricing in full effect starting second half of this year?

It will be higher.

Can you be more general than that?

We actually, carving the borders of not disclose that and of course we have neither impacted. It's just being buttoned up now for the last of the customers but it will higher.

Okay. I appreciate it. Thank you.

Thank you.

Operator, I think we have time for one more question and then we'll some very brief closing remarks.

Excellent. We have one question in our queue from Zarak Khurshid, Caris & Company.

Good afternoon. Thanks for taking my question, guys.

Welcome Zarak.

Again, congratulations on second agreement with 3M. Hank talked about the market for MRSA being understated. Do you have just a ballpark estimate for the potential size of the MRSA market?

Let’s say, they are about 100,000 desks. There are about 40 million hospital admissions. About 10% or 12% of that would be to the ICU. It's kind of difficult. We had a Scientific Advisory Board yesterday, when you had about three infectious disease experts. And it's difficult to say exactly how large this market is. I think eventually, the hospitals will have their statistics known, in other words, that 5% of the patients at this certain hospital have a hospital-acquired resistant infection. In some cases maybe 60%, there is a big economic cost which is tough to grab a lift. And I think hospitals, with the high infection rates, they are going to have trouble getting patients in there. It's very-very dangerous. So, we think that it will be a huge potential market. I wouldn’t be surprised personally if there isn’t some sort of an exposé about this, at some point in a paper like The New York Times. So, we think its going to be big. We think, it will there when the market is ready to really move quickly. But I think, we will be able to do it with a superior offering.

Great. Then with respect to the instrument itself, just to clarify, is it a fully integrated instrument? And would be positioning it with the moderate complexity approval?

I really feel uncomfortable talking about something for which 3M is responsible.

Okay.

I hope that they will be able to give you some of that information.

Sure. And then, any thoughts on when the trial for MRSA might be initiated?

We've told you, when we expect. I think you can figure a nine months approval from the FDA. So the clinical trial will start before that.

Got it. And then two more follow ups. On the yield study, empirically give a sense for how many samples it might take to find the two cases of yield? And then finally for Herm, any meaningful conversations you had with Novartis about potential acquisition of the Chiron blood screening?

Well I can answer that one. And that the last question is no. Nothing has really changed since our last earnings call. And Carl will handle the first one.

I know, it really is impossible to say simply because it's going to depend on the prevalence of the infection and the population is being screened at the time that they walk in the door. We're enrolling sites in the first phase pre-ARC of several 100,000 donations per year in terms of volume. That gives you a feeling for the number of specimens it will screen. It can be short or it could take several months to see it just depends.

Great. Thank you.

Thank you, Zarak. I think there are no other questions. I would like to thank you for your attention and to wrap-up Gen-Probe is off to a great start in 2007. As Herm said, in the first quarter, we established new records for product sales, total revenues, net income and earnings per share. As a result, we are raising our 2007 guidance for both total revenues and earnings per share. Based followed on a one-time tax benefit, we now anticipate earnings per share growth at the midpoint of our guidance around 27% this year. Last few months, we also took important steps to generate future growth from our PROCLEIX ULTRIO and West Nile virus assays and open-up an entirely new growth opportunity by forming collaboration with 3M to develop fast easy-to-use tests to healthcare-associated infections. Thank you for your time and attention today and please contact us if you have any follow-up questions.