GoPro, Inc. (GPRO) Q1 2008 Earnings Report, Transcript and Summary

Welcome, and thank you all for standing by for today's conference. At this time, your lines have been placed in listen-only mode. [Operator Instructions]. Today's conference is being recorded. If you have any objections, you may disconnect at this time. And I'd like to turn the conference over to Mr. Mike Watts. Sir, you may begin.

Thank you, Sara, and good afternoon, everyone. On behalf of our management team, I'm pleased to welcome you to this conference call to discuss our first quarter 2008 business results. The press release announcing our results was issued today just after 4 PM Eastern Time and is posted on our website at www.gen-probe.com. In our call today, Hank will first provide an overview of our top line performance in the quarter, Herm will then review our detailed results and revised 2008 guidance and then we will take your questions. As usual, the call will last about an hour. 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, should and would, for example, statements concerning 2008 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 actual results to differ materially from those expressed or implied. Factors that might cause such differences include but are not limited to those discussed in our SEC Filings including our report on Form 10-K for the year ended December 31, 2007, and all subsequent periodic reports. Copies are available on our website, at www.sec.gov and on request from our IR 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'll turn the call over to Hank Nordhoff, Gen-Probe's CEO.

Thank you, Mike, and good afternoon, everyone. As described in our press release, Gen-Probe is off to a strong start in 2008. In the first quarter, the re-acceleration of our blood screening business combined with double-digit growth in clinical diagnostics helped us set a new record for quarterly product sales which exceeded $100 million for the first time. In addition, we established new all-time highs in total revenues and earnings per share, both of which were boosted by the third and the final payment from Bayer, now Siemens, in settlement of a patent infringement lawsuit. We also made important progress in our R&D pipeline during the quarter. We filed with the FDA a supplemental BLA for our PROCLEIX ULTRIO blood screening assay. We initiated our HPV clinical trial in United States and two peer review journal articles were published on our PCA3 test which we believe should help increase awareness among urologists and ultimately sales. All in all, we believe our accomplishments in the first quarter once again demonstrated Gen-Probe’s ability to execute in the short term and innovate for the long-term. I have used this metaphor before, but how do we operationalize it, by combining tight financial controls with respect for innovation and the entrepreneurial spirit, by investing heavily in R&D, but with an eye toward maintaining our historically healthy profit margins, and by working hard to keep our commitments to stockholders, both in terms of near-term EPS and longer term project targets [ph]. Said another way, we continue to believe that for Gen-Probe to be successful and for us to create lasting shareholder value, we must maintain an appropriate balance between short-term execution and long-term innovation. That's been our game plan for the last five-and-a-half years and that’s what continues to drive our strategy, resource allocation and our financial decisions today. With that preface, let me review our high level results for the first quarter. Product sales were a record $101.5 million, representing growth of 16% compared to last year. Sales a in both our blood screening business and our clinical diagnostics business established new quarterly records. The strong underlying product sales growth combined with $16.4 million payment from Bayer helped total revenues for the quarter increase to $122.6 million, up 21% compared to last year and an excellent start to the year. On the bottom line, net income grew to $31.9 million in the first quarter, up 48% compared to the last year. This translated in earnings per diluted share of $0.58, up 45%. I should remind everyone that these numbers plus all the expense figures that Herm will discuss are on a GAAP basis that incorporate stock compensation expense. Turning to the components of product sales, revenue from our clinical diagnostics products grew by 10% in the first quarter, a solid performance, and established a new record of $52.5 million. Our APTIMA franchise continues to show good growth based on superior sensitivity and specificity and the ability to test from a wide range of non-invasive sample types. In addition, customers continue to upgrade to APTIMA from our older PACE products, sales of which were down 18% compared to last year as expected. Customers continue to switch to APTIMA from our competitors test as well. Our TIGRIS system which remains the only fully automated integrated high throughput testing platform for molecular diagnostics, continues to drive competitive wins for Gen-Probe in mid-to-high volume labs. Nearly 60% of APTIMA sales in the quarter were on the TIGRIS system, so while our competitors continue to talk about future automation, we are generating sales and providing value to customers today. We believe the great success we are enjoying with TIGRIS today reflects our past R&D investment and our ongoing software and hardware enhancements. Now, let us turn to blood screening, which generated most of the upside in product sales in the quarter. Blood screening sales growth re-accelerated to 24% in the quarter and totaled $49 million. Sales were strong across our product portfolio. Our PROCLEIX and ULTRIO assays continued to gain market share overseas and even in the United States. Compared to the prior-year, sales of our West Nile virus benefited from full commercial pricing on the TIGRIS system, and in contrast to the fourth quarter when you might recall the timing of shipments worked against us, Chiron’s ordering patterns were more favorable in the first quarter. This was true for the ULTRIO assay were we shipped additional tests for the ongoing US post marketing studies for our West Nile test where we believe Chiron stocked up in preparation for increased levels of individual donor testing this summer and even for TIGRIS instruments. We do expect these favorable trends to moderate a bit in the second quarter as Herm will discuss. Sales of TIGRIS instruments and ancillaries to Chiron also remained healthy, which we think reflects the value our unique system provides to blood bank customers. TIGRIS sales to Chiron were $4.4 million this quarter compared to $2.9 million in the prior-year period. I should mention that under our contract with Chiron, we are now sharing in some of the profit that our partner generates by selling TIGRIS instruments to US blood bank customers. While this gross margin percentage represents a fraction of our corporate average, and it applies only the instruments sold in the United States going forward, it's still an improvement over our prior arrangement under which we sold all systems to Chiron at cost. This added less than $1 million of blood screening sales in the quarter. Looking ahead, we believe an important driver of future growth in our blood screening business will be the PROCLEIX ULTRIO assay in the United States. As a reminder, the ULTRIO assay is approved in the US to screen donated blood for HIV-1 and hepatitis C virus but not for hepatitis B virus. In order to gain our donor screening plan for hepatitis B, the FDA asked us to conduct a post-marketing study to detect HPV yield, meaning hepatitis B infected donations that were missed by serology testing. As most of you know, the study has been underway for about a year and we believe it has been quite successful. More than 700,000 donations have been tested in pools of eight with the ULTRIO assay thus far, many of them on the TIGRIS system, and both the assay and the system have performed well. Most importantly, we believe we have identified two cases of HPV yield, and as a result, we submitted in February, a little ahead of schedule, a supplement to our improved biologics license applications seeking approval of a donor screening claim for hepatitis B. Interaction with the FDA has been routine thus far, and based on this, we remain optimistic that we will gain approval in the third quarter. Recognize however that this potential product approval like all interaction with regulatory agencies is inherently uncertain. We’ve also a separate ULTRIO post-marketing study underway with the American Red Cross, our largest blood bank customer. The ARC is testing both pools of 16 and individual blood donations on the TIGRIS and feedback thus far has been good. Given the huge volume of blood processed by the ARC, they've already tested more than 1 million donations with ULTRIO since the study began in January. We expect they will publish results of their study in a future scientific forum, but for now, we understand that both our product performance and the yield rates for hepatitis B have been consistent with the other data we have collected. As we mentioned in our last call, these Post-Marketing studies for the PROCLEIX ULTRIO assay are an integral element of our R&D strategy and a significant component of our R&D spend. We believe this investment will pay off over the next six to 24 months with full regulatory approval of the ULTRIO assay and customer adoption in the United States. Another key R&D investment is our program to develop a molecular test for the human papillomavirus or HPV, which causes cervical cancer. HPV is by far our single largest R&D project in terms of both people and dollars. As most of you know, our assay detects expression of two messenger RNAs by 14 high-risk HPV types that are associated with progressions of cervical cancer. We believe that this technical approach combined with the automation of the TIGRIS instrument will provide a compelling value proposition to customers. We are pleased that the early studies conducted to date by our researchers and by our collaborators have provided promising data and support our scientific hypothesis. We achieved an important milestones in our HPV program in the first quarter by beginning to our pivotal clinical study at the United States. As we said in our press release, we expect to enroll approximately 7,000 women in the trial, with the final number dependent on the disease prevalence we've observed. We anticipate that the study will take about two years to complete followed by our DMA [ph] filing. Although it will be a few years before we generate HPV revenue in the United States, we remain on track to introduce our APTIMA HPV assay as a CE-marked product in Europe, the launch forecast for the third quarter of this year. The European HPV market is small today, so we don't expect substantial revenue in the near-term, but we believe testing in some countries could expand rapidly based on new-screening guidelines that are being developed. As we said in our last call, HPV opinion leaders in key European markets are now evaluating our tests in clinical research studies and we are encouraged by the positive feedback we have received thus far. Now allow me to highlight progress we've made during the quarter in our prostate cancer program. We are pleased in back-to-back months, two articles that we believe illustrate the clinical value of our PCA3 assay were published in the leading peer reviewed Journal of Urology. The first article published in the April issue, researchers from the Urological Sciences Research Foundation, Johns Hopkins, the University of Washington, DiagnoCure and Gen-Probe concluded that PCA3 provides clinical insight that can be used synergistically with other data to improve the accuracy of prostate cancer diagnosis. In a 570 men study, the researchers found that PCA3 scores correlate with a probability of positive prostate biopsies and that PCA3 scores are independent of prostate volume, serum PSA level and the number of prior biopsies. This article was a thorough review of the data collected on PCA3 to-date, some of which had been previously presented at various medical meetings. The second article however opened up a whole new area of potential utility for PCA3, and this 142 men study, our researchers and scientists from the MD Anderson Cancer Center at the University of Texas concluded that PCA3 scores correlate with both tumor volumes and Gleason scores which are measures of prostate cancer aggressiveness. As a result, they suggested PCA3 may have clinical utility in identifying men who have low volume or low-grade prostate cancer. If this finding is validated by other studies, it would be a significant advance for prostate cancer diagnosis, since most prostate cancers are slow growing tumors that men die with rather than from. With this in mind, urologists have long sought a test that will help differentiate patients who need aggressive treatment from those who can be managed more conservatively. As a result of these papers and other scientific marketing efforts, we think awareness of PCA3 among urologists is growing nicely both in the United States and overseas. For example, at the recent European Association of Urology meeting in Milan, interest in our CE mark PROGENSA PCA3 assay was high. And notably we are seeing physician questions shift from what's PCA3 to how can I order a PCA3 test. We view this increase in knowledge as an encouraging, necessary precursor to additional sales growth. Before I turned the call over to Herm, let me recap some of our product development successes over the last year or so to show that we take seriously our obligation to maximize the return on our R&D investment. I think we have began to do that in the last several quarters. First, and most importantly, we have generated tens of millions of dollars of APTIMA, ULTRIO and West Nile revenue on our TIGRIS instrument, revenue that simply would not have been possible were it not for the substantial ongoing R&D investment that underpins the platform. Keep in mind that no one other than Gen-Probe has successfully developed a high-throughput, fully automated, integrated instrument for molecular diagnostics. Second, in response to request from the FDA, we designed and initiated the ULTRIO post marketing studies, including a complex parallel study with the American Red Cross. And most importantly, we submitted the ULTRIO supplemental BLA on time, maybe even a little bit early. Third, we started the HPV clinical study in the United States on time, and are on track to launch our CE mark APTIMA HPV assay in Europe in the third quarter. Fourth, we are in technical feasibility milestones for our MRSA collaboration with 3M in the fourth quarter and launched our first Millipore product to identify Pseudomonas contamination in biopharmaceutical production processes earlier this year. Although we are pleased with these successes, we understand that we have to get better, or that and we believe we have significantly upgraded our talent base in several senior R&D roles, including project management, regulatory and instrumentation development. We've also boosted our strategic marketing capabilities and begun to bring marketing insight into our development process much earlier. We are streamlining internal processes wherever possible, outsourcing more when we think that will get us to the finish line quicker and generally raising the performance bar. We believe our R&D accomplishments combined with our financial results from the first quarter illustrate how Gen-Probe strives to combine long-term innovation with short-term execution. That’s how we increased net income 6.5 fold in the five years from 2002 to 2007. That's how we generated $67.5 million in cash from operations in this quarter, and that's how we intend to manage the business going forward. Now, I'll turn the call over to Herm.

Thank you, Hank, and good afternoon, everyone. As described in our press release, Gen-Probe had a very strong first quarter. Product sales grew 16% compared to the same period in 2007 driven by new records in both our clinical diagnostics and blood screening businesses and exceeded $100 million for the first time. Total revenues rose 21%, helped by the third and final payment from Bayer under our patent infringement settlement. And on the bottom line, earnings per share increased by 45% to an all-time high of $0.58. Hank discussed the dynamics of product sales, so let me begin by covering collaborative research revenues, which were $2.5 million in the first quarter of 2008, up slightly from $2.4 million a year ago. This increase resulted primarily from reimbursement from Novartis of R&D expenses incurred in our blood screening collaboration and from reimbursement from 3M associated with our collaboration to develop rapid molecular tests for healthcare-associated infections. Compared to the prior-year period, these increases were largely offset by the completion of work under our prostate cancer grant from the Department of Defense and from our since cancelled food testing collaboration with 3M. Royalty and license revenues were $18.6 million in the first quarter compared to $11.5 million in the prior-year period. Royalty and license revenue in the first quarter of 2008 benefited from a one-time true-up of royalties from Chiron associated with the use of our intellectual property in the plasma screening market, where significantly our first quarter results included $16.4 million from Bayer which represents the third and final payment due in connection with the settlement of our patent infringement lawsuit. For reference, last year's first quarter results included $10.3 million from Bayer. Since the Bayer payments are now complete, we currently forecast that royalty and license revenue were normalized to a little more than $1 million a quarter for the foreseeable future, including into 2009. Gross margin on product sales were 67.8% in the first quarter of 2008 compared to 66.5% in the prior year period. This improvement was due primarily to increased sales of our APTIMA Combo 2 and PROCLEIX West Nile virus assays. On the other hand, the gross margin percentage was negatively affected by higher than expected instrument sales to Chiron, despite the fact that we now share in a portion of these profits. We believe this reflects strong ongoing demand for the TIGRIS platform, which foreshadows increased assay revenue in the future. In addition, and as we've said before, the continued international expansion of the PROCLEIX ULTRIO assay tempers our gross margin percentage slightly as sales increased in developing markets where pricing is not as robust and pool sizes are generally smaller. I will add my customary footnote however that these sales still provide incremental margin dollars, even when the margin percentage is lower than what we might see in the United States or elsewhere. Research and development expenses for the first quarter of 2008 were 23.1 million, up 14% compared to last year. This increase resulted mainly from costs associated with our ULTRIO post-marketing studies and from our HPV and PANTHER programs. R&D expenses were lower than expected in the first quarter, based on the timing of certain external expenses, but are expected to increase substantially in the balance of the year as our HPV clinical trial ramps up and as we continue our ULTRIO post marketing study at the American Red Cross, among other project costs. Marketing and sales expenses for the first quarter of 2008 were $11.9 million, an increase of 25% compared to the prior year. As we discussed in our last call, this increase resulted primarily from European market development costs associated with our HPV and PCA3 assays. General and administrative costs were also $11.9 million in the first quarter of 2008, up just 5% compared to last year, with the increase due mainly to outside legal costs. Other income in the first quarter of 2008 was $5.7 million, more than double last year's level, due to interest income on a rising cash balance, and the one-time $1.6 million gain associated with the sale of our minority stake in the Molecular Profiling Institute which was acquired by Caris Diagnostics. You might recall we discussed this gain as a subsequent event in our 10-K filed in February. As an aside, several investors have asked us recently whether we are invested in any auction rate or mortgage-backed securities, and the answer is no. The vast majority of our cash is held in highly conservative investments, such as tax-free municipal bonds, which have held up quite well in the current environment. Getting back to our first quarter results, we reported record net income and first quarter earnings per share of $0.58, up 45% per share compared to the prior year period. We are obviously very pleased with this level of bottom line growth. Looking beyond net income, I should point out that cash generation was exceptionally strong in the first quarter. We booked nearly $67.5 million in cash from operations in the first quarter, which obviously was boosted by the $16.4 million we've received from Bayer. But even excluding this, we think more than $50 million in quarterly operating cash is an excellent performance, not to mention a new record for the company. As a result, we now have about $488 million of cash on the balance sheet, representing almost $9 a share in value. And this is after the first quarter purchase of our blood screening manufacturing facility, which cost $15.7 million [ph]. Now let me turn to our updated 2008 guidance. Based on our strong performance in the first quarter, we are raising our top and bottom line forecasts for the year. We now expect total revenues of $450 to $455 million in 2008, up about $5 million at the midpoint compared to our previous guidance. For the year, we still expect low double-digit product sales growth, but our forecast is certainly higher in that range than we were when we gave our initial guidance in February. I should mention that based on our strong blood screening performance in the first quarter, especially related to TIGRIS instrument sales, we expect Chiron's ordering to moderate somewhat in the second quarter leading to overall product sales that are more or less flat sequentially, or if all goes well up very slightly. Collaborative research revenues are likely to spike in the third quarter based on the $10 million milestone from Novartis that we expect to earn based on the full approval of the PROCLEIX ULTRIO assay on the TIGRIS instrument in the United States. Based on this milestone payment and the Bayer payment in the first quarter, we expect each of collaborative research revenues and royalty and license revenues to total slightly more than $20 million for the year. Now let's turn to guidance for the expense lines. We continue to expect gross margin on product sales of between 68% and 70%. Clearly this implies that the gross margin percentage will improve from first quarter levels, likely averaging nearly 70% for the balance of the year. We still expect R&D expenses to range from 23% to 24% of total revenues, although based on the increased top line guidance, the full-year percentage will likely settle in the lower part of that range, and be down slightly on a percentage basis compared to 2007. As I said earlier, based largely on our HPV clinical trial, we expect quarterly R&D expenses to increase significantly over the balance of the year, probably averaging more than $27 million a quarter for the rest of the year. Moving down the income statement, we continue to anticipate that marketing and sales expenses in 2008 will be between 9% and 10% of total revenues although leaning toward the high end of the that range based on market development efforts in Europe. And we still expect G&A expenses of about 11% of total revenues down slightly on a percentage basis compared to 2007 reflecting tight cost controls across administrative functions. All this leads to our new 2008 earnings per share guidance of between a $1.72 and a $1.76 on a fully diluted GAAP basis. This guidance, which is up $0.06 per share at the midpoint from our initial forecast is based on $55 million to $56 million shares outstanding for the year and a tax-rate of between 34% and 35%. This tax-rate guidance includes no benefit from the potential reinstatement of the Federal Research and Development tax credit or other potential one-time tax related items. For the second quarter specifically without benefit of the Bayer payment or the MPI gain and with the significant sequential increase in R&D expenses based largely on our HPV and ULTRIO programs, we anticipate earnings per share somewhere in the mid 30s, meaning $0.34 to $0.36. So to summarize the financial section of our conference call, our first quarter results set new records for product sales, total revenues and earnings per share, and cash from operations was double net income. Based on this good start to 2008, we are raising our revenue and earnings per share guidance for the year. It’s still early, but we believe 2008 is shaping up as another year of solid financial performance for the company. Now, I would like to turn the call back over to Mike.

Thanks, Herm. We are happy to take your questions now. For the Q&A, we are joined by Carl Hull, President and COO, Bill Bowen, Senior Vice President and General Counsel, Dan Kacian, Executive Vice President and Chief Scientist, Stephen Kondor, Senior Vice President, Sales and Marketing, and Kevin Herde, our Corporate Controller. 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 please jump back into the queue. Sara, I think we are ready to take the first question. Question and Answer

Operator: Thank you. Our first question from Tycho Peterson. Your line is open and please state your company name.

Good morning, from JPMorgan. Maybe just starting up with some of the market development strategy as you know you are presuming in Europe, if you can give us a sense as to where you are spending the incremental dollars, both geographically and… you gave us... I appreciate the color around some of the clinical publications that have come out, but specifically what are some of the efforts to build physician awareness in Europe? And then you talked a little bit about distribution channels, if you can give some additional color there, that would be helpful, and this is obviously both?

We’ll ask Steve to address that.

Hello, Tycho. I am going to answer to your question assuming it’s based both on PCA3 market development efforts as well as HPA market development efforts. So, as we talked about them on previous calls, we’ve added a number of sales and marketing technical support people over in Europe to get ready for the HPV launch, I already spoke for similarly supporting PCA3 as well. So, with that going on, more resources, we are also spending money on clinical trials, clinical research trials for PCA3. Hank talked in his opening event that a couple of the paper that are out there in the last couple of months, and several of these tests also are taking place over in Europe to show if you know that the European prostrate is similar to the American prostrate. So, these studies are going on, and we are adding to that with a volume of data that I think is going to be fairly significant and we are going to use that to continue to educate the urologist over in Europe. Similarly on HPV side, we have several performance valuations studies going on. Some of these studies have already been shown in abstract part again at the end of last year. They will demonstrate the significant differentiation between messenger RNA and our competitors’ assays. Add that to the benefits and advantages that our automation platforms bring in both of these areas, we think we are doing an adequate job.

Okay, thanks. That's helpful. And then maybe just finally on, when we think about ULTRIO here in the US, you’ve been pretty clear about the timing and your expectations, when revenues will start to contribute, but can you give us a sense as to how much pent-up demand you think there might be, how we should be think about the market converting post approval, maybe as we think about it next year?

Yes, Tycho, it's Carl. I think that we see some favorable trends there. I think Hank mentioned various comments, the reaction of the America Red Cross to the current trail, post marketing trails that’s under way. So, we are continuing to see excellent performance, which we think sets the stage for a good commercial acceptance. As you know without a mandate employed, somebody doesn’t have to adopt testing right away, but it's a matter of the commercialization and the plans of each of our major blood center customers as to what they want to offer and when they want to offer it. We do think there is real advantage to adding multiple TIGRISes up and running now in blood centers, including the ARC, and we think those will give us a leg up for the ultimate adoption decision when it’s made. But key things are... is the assay, are the customers seeing good detection and good specifics [ph], and we are pleased based on their feedback of how that's going.

Okay. Thank you very much.

Thank you, Tycho.

Bill Quirk with Piper Jaffray, your line is open.

Thanks. Good afternoon. Just a question on Tycho's TIGRIS theme here, can you guys tell me whether or not the majority of TIGRIS’ blood screening are going to US based customers or OUS based customers?

The ones in the first quarter, Bill?

Yes. That's correct.

Hang on just a second while we look to see if we’ve got that number here. I am looking around the table and I am not seeing [inaudible], give us one second. Yes, primarily ex-US.

Primarily ex-US, okay. Would it be safe to say, I guess, Hank, based on your comments as well as Herm’s and Carl’s moments ago that we should probably see that tide shift towards more US placements into the back half and obviously post approval?

That's a tough one, Bill, because it depends on adoption.

I don't think we know enough to give you a cogent answer to that one without being misleading.

Okay, understood. And then –

If you ask it again next quarter, we will have information for you.

Okay. I’ll --

[inaudible].

Fair enough. And then if I can just sneak in one kind of unrelated follow-up, and that was, was there Millipore contribution in the quarter? And if so where should we see [inaudible]?

Your question, Bill, was there a Millipore contribution?

Right. I assume it was quite small, Herm, but we should... I assume we should show that that gives a counter forum to clinical diagnostics or is that going to be kind of below that one [inaudible].

That would be to the extent there was a contribution, I'm not sure whether you are talking about ongoing revenue, or you're talking about a milestone payment.

I was referring to product revenue.

Product revenue, it would be in clinical diagnostics, and we haven't disclosed separately the amount of the Millipore revenue. Similar to PCA3, when we started talking about that one, it reaches a couple of million dollars, it will be probably be worth talking about.

Understood, thanks.

Thank you, Bill.

Imron Zafar, Deutsche Bank, your line is open.

Thank you and good afternoon. Question for you, Herm, does guidance still exclude any contribution from ULTRIO in the US?

That's true.

It does.

Okay. And then on your HPV launch strategy, now that you are about a quarter away from that in Europe, can you just give us a sense of what your strategy is with pricing relative to the Digene assay and what your inventory situation looks like?

Yeah, Imron. This is Steve. No, we are not going to talk about pricing strategies on a call, but the second part of your question was?

Inventory, how does your inventory look ahead of that launch?

Our inventory is perfectly fine in anticipation of our launching.

Okay. And then one last question for you Hank, can you just gives us an update on the timelines for Panther and Tudo [ph]. Thanks.

I don't think there’s been any change in either one, Imron.

Thanks.

Our next question from Bruce Cranna, Leerink Swann. Your line is open.

Thanks. Good afternoon, everyone.

Hi, Bruce.

Just I guess first of all on blood screening, I’m sorry, I kind of spaced out I think, Hank, on your commentary on the TIGRIS portion, the equipment piece, was it 4.4?

Yes, that's right.

Million in the quarter.

That's right.

And I know if we go back and forth on this one, it seems sometimes it's going to be slowing and then in it sort of rears its head again. Just from a modeling perspective, how should we be thinking about this on a dollar basis and then can you go through actually the gross margin impact there and how that's changing with the sharing mechanism?

Hi, Bruce, it's Herm. Modeling is tough on that because it does flip flop. But as you know in fact one of the upsides to the first quarter of 2008 was just that ordering by Novartis, Chiron pf TIGRIS instrument. So it is tough. We have got the number for the first quarter right, you know the number for the first quarter of last year, so it was roughly a couple million, I think $1.9 million or something like that higher. So, it is tough to model, and there are quarters when it's very low. So, sorry I can't help you all that much there. In terms of the effect on gross margin, up to until very recently, we sold all of those instruments, and we are only talking about the ones to Novartis, Chiron now in the US and outside the US at cost. So only recently we have been sharing in a portion of the profit of only those instruments sold in the US. So that's helped gross margin a little bit and as we've said in the prepared comments it was less than a $1 million.

I am sorry, the US portion or the margin impact.

The margin impact and the sharing in the US portion.

Okay. Thank you for that. And then –

Just to add to what Herm said, I would just remind you, I think in our last call we did say that we expected overall instrument sales to be a bit less this year than they were last year and we would continue to be with that way.

Okay. And I think someone brought it up, but I forget who it was, it might have been Hank, it might have been Herm, but you talked about gaining some share on the screening side of EU, can you quantify where you think you are in terms of share now and what you picked up in the quarter year-over-year?

Well, I think we are higher, Bruce, but I don’t think we are in a position to quantitate any further than that.

Okay, all right. Thanks guys.

Thanks.

Peter Lawson with Thomas Weisel Partners, your line is open.

Herm, I wonder if you could give us a spread of the blood screening revenues US versus internationally and how they have changed since 1Q '07?

We usually don't of course equate that way. We give our total ex-US revenues and they have gone up from about 15% to about 20%. You also know that roughly half of our revenue is blood screening, so you can probably deduce from that that most of that ex-US is blood screening.

Okay, that's helpful. And then the revenue upside in blood screening, wonder if you could give us some kind of contribution or rank them for commercial West Nile Virus, timing of the shipments, instruments and international over the drivers there for the blood screening?

I am sorry, can you just repeat that?

Is there any way of quantifying the revenue upside on the blood screening business, where it came from as regards to West Nile Virus, the timing and the shipments, the instruments, international growth?

Well, the way I look at it, we had of course the increase in instruments, and by now you know how much that is, right. From quarter one to quarter to one, it was roughly $2 million. I think –

And most of that was overseas.

Correct. We also told you on the last call there was about $1 million also overseas of shipment of ULTRIO that couldn't be made in the fourth quarter, which was made in the first and, of course, it was about a million. West Nile Virus, I don't know when we just closed the quarter a little while ago, I don’t know that we quite cut that precise, but I am thinking there’s probably to stock up, or some of it’s stock up, and some of it's going to be recurring, but that's probably worth about other $1 million something like that.

Okay. What was the size of the… the total size of the stock-up in Chiron, do you think ?

That we don't know, because we don't have visibility into, what portion of their order is a stock up and what portion is likely to be the recurring monthly order, but we are recurring quarterly orders.

Okay thank you so much, thanks for taking my question.

Welcome.

We probably should say that the blood screening revenue recognition has been a bit lumpy in the past and we don't see that really changing in the future. I think that was one of the problems with the fourth quarter, some of the fourth quarter went into third quarter and some fell over into the first quarter this year.

Our next question from Zarak Khurshid, Caris and Company, your line is open.

Hi guys, thanks for taking my question. Could you perhaps provide, a little more color on the R&D expense specifically, maybe quantify the per quarter steady state cost of the HPV trail, may be even tell us the two year total cost, and then because of the heavy HPV expense, are you then forced to perhaps slowdown any other R&D programs, in which programs may suffer as a results?

Zarak, it's Carl. I don’t think we are going to give in some details of the total spin that we expect on the HPV trail or as calenderization. We would consider that reasonably proprietary. But instead you could understand that it is the largest clinical trail that we currently have underway. It consumes a lot of resources, and I think Herm have the guidance for what you should expect to see in the total R&D line for the next three quarters as compared to first and a lot of that really does reflect the ramp up and the sustaining efforts that we are going to put towards that HPV trail. So I think without giving you a direct answer the best I can say is it’s a significant investment, and once we get up to steady state, which would be in the end of the second quarter, end of the third quarter, it will be reasonably predictable.

Fair enough. And then just curious about the MRSA product, where do we stand with that, with the 3M collaboration and then what is the timing of the trail and has the core IP been filed? Thank you.

On the 3M collaboration for MRSA and related hospital acquired infections we are very pleased with the progress that’s being made. We hit on both milestone that we discussed in the latter quarter of last year, with respect to our ended program we are working now in what we term the feasibility phase of the project integrating our assays, on to the 3M proprietary instrument and disposable system that work is going well, we will stay in feasibility and so if we got the assays fully integrated and at that point we typically didn't come out with our program schedules in anticipated time to market.

Our next question comes from Quintin Lai with Robert. W. Baird, your line is open.

Hi, good afternoon. Looking at your clinical diagnostics business, have you seen any changes in the selling cycle especially in respect to your customers, sources of funding and so either uptake of Type new TIGRIS instruments or decisions to switch from pace to APTIMA Combo 2?

I will shift that over to Steve Quintin.

So no changes in selling cycle. TIGRIS is certainly an important part of our continued growth in market share increase with the APTIMA product. We have targeted TIGRIS, you know at the high-volume customer labs and the mid-point customer labs. So, we are doing very well with it, we are very pleased with that growth, but not change in customer selling cycles.

And then, could you revisit the uses of cash since the last quarterly report. Your stock price has come down a little bit, any decision on stock repurchase versus M&A and any more color that you can provide Hank.

Well we prefer given a choice between the two the M&A rather than the stock repurchase. We are still involved in identifying and evaluating opportunities there. I can't report any progress since last conversation we have had like this. But we think the probability is good and it would appear to be a more prudent use of funds to do that than to buy back shares. And we would not want to initiate a buyback now, particularly in light of the probability of doing something else.

Thank you, very much.

Thank you.

Spencer Nam with Summer Street Research. Your line is open.

Thanks for taking my questions. Just a couple of quick questions. In terms of ULTRIO, the screening approval, is there some sort of a guidance like PMA, 180 days cycle as to how quickly FDA responds back to the application... the supplement application.

Yes. that's right, it's Mike. I think our guidance there hasn't changed much. We've said that we would expect approval probably in the four to six month timeframe after we filed... I think we filed in February, so the realistic expectation for third quarter on that guaranteed I think still stands.

I see. And I guess if I could just follow up on that, what makes... what could make it four months versus… I know I'm just splitting here a little bit, but what could make it four months versus six months on these kind of things?

Good question. I don’t know anybody knows the answer to that.

Certainly questions, Spencer, from the FDA could make it... take it from four months to six months or perhaps even longer.

Actually lack of [ph] questions.

Thank you. And then on this blood screening business side with the Chiron joint-venture, would the five-year agreement be extended once you get this screening approval for HPV.

The agreement will run five years after the last approval.

So, this would be… whenever the approval comes there would be another five years.

That's correct.

Now if my understanding is correct, some of the IP actually expires before that, is that correct?

I think some of the IP expires outside the U.S. on hepatitis C before that., and sometimes after that in the U.S. on hepatitis C.

And at this point do you have any plans to address the situation after it expires in the international arena.

No.

Okay. And then final question is, any updates in the industrial testing business and kind of where things are right now with different opportunities, any potential opportunities in the pipeline that you may not have discussed in the call but something that we should be aware of?

I think we're pretty well up-to-date. We talked a little bit last time about food and the new approach that the FDA is taking and the possibility that we may have a role to play on that, but nothing really has transpired since that conversation.

Right. Thanks very.

You're welcome, sir.

Sara Michelmore with Cowen. Your line is open.

Yes. Thank you. Good afternoon.

Hi, Sara.

Back to the comments on the American Red Cross trials for ULTRIO. Can you... you talk a little bit, Hank, about how many tests they've done to date. What is their rough timeline for completion of that trial? And if you could remind us what the likely process there is in terms of them committing to a contract. I know there is nothing at this point that you did allude to the fact they at least were getting some consistent results of what you would expect. If you could just kind of talk us the way of thinking there?

We expect the trial to finish in the third quarter of this year, as again as Carl was saying, they appear very pleased, they being the American Red Cross with the performance with the instruments and the assay as well. So we are optimistic about adoption rate.

Okay. And there is no time line that you would put on in evaluation process in terms of after the trial is complete?

Why don't you give that a shot?

Yes. I think in practice Sara, what's happening now does represent one of the most comprehensive evaluations you could ever structure. So I think the Red Cross will have sufficient data in front of them to engage in their decision-making process as the assay gets approved and as the deal progresses.

Great. And—

We will see an avalanche effect. And as adoption starts we would expect it to increase and expect it to be very widespread.

Okay. And I guess Hank or Herm or Carl took the follow up on the earlier question in R&D. I was wondering if you could just talk kind of directionally or qualitatively even about where that line goes in 2009. I know that the HPV clinical trial cost will push this into next year, but there are other things that roll off, and I'm just wondering if directionally for looking at something flat, something up even possibly down as we head into next year? Maybe if you could just talk around what the mechanics are at least?

Yes, I guess we are talking about growth I suppose... as opposed to looking at as a percentage of revenue. So Herm why don't you address on that line?

Yes. Well, we're just updating for the first time 2008 guidance. So a little early Sara, but we've got a lot of major programs including this huge HPV clinical trial. I would expect directionally the dollars will increase. As it relates to percentage of revenue, we've set for many years we would like to see that decrease and it is decreasing a little this year. I would like to personally see that continue, but jury is still out, it's early.

Great. Thank you.

Thanks Sara.

Bruce Jackson with RBC Capital Markets. Your line is open.

Hi. I apologize if I missed this, but did you say what the West Nile virus revenue was in the quarter?

No, we didn't mention.

You didn't miss a thing.

We thought you were going to say something like nice quarter guys.

Would you be able to provide us with the West Nile virus revenue number for the quarter?

We don't parse it quite that definitively. We do give it.. of course it’s on the press release. Blood screening as compared to diagnostics but we don't give it by assay.

Okay. And then with the HPV guidelines in Europe. Can you give us a little bit more color on which countries are looking at these guidelines and are they evaluating the test as a primary screen or as a reflex test or the pap test?

Hi, Bruce. This is Steve. I'll answer your question. Yes, several countries are in the process of adopting share of guidelines for the utilization of an HPV molecular test hasn't screened or hasn't edged on surpass. Right now, it will be... France, Spain and several other countries were in that process. The Netherlands is probably closer although it’s a small market. Germany is in the process as well.

All right. Thank you.

Thank you.

Jon Wood with Banc of America Securities, your line is open.

Thanks. This is Brandon Couillard in for Jon. Would you have any problem securing favorable financing in this environment?

Well. I don’t know if we lead any, given our stock of cash and the fact that we had no debt. I don't think we would have given our stock of cash and the fact we have no debt. I am... I don't think we would. Do you... is there a reason you asked the question?

I'll just in regards to your... I guess your capital deployment philosophies, it’s kind of some of your M&A efforts along those lines.

Okay.

Secondly, your main competitor in blood screening recently was talking about more competitive landscape in that market. Could you add some context and maybe explain that data point.

Yes, I think you are referring to some comments from Roche, is that correct?

Yes.

Okay. I guess there is always two sides to every coin and when guys have used something as being highly competitive and probably difficulty in this... another side of that coin. It can be good, strong top line growth and profitability. We think we are on that side of the coin at this juncture. Having said that, it is competitive marketplace. I think that when you are faced with declining market share as of the players might be they tend to do some things that they probably wouldn’t otherwise do. Wee will deal with those pressures as time goes on and we feel very comfortable with the performance and we're seeing both domestically with account pick-ups from a very strong base and then internationally with what we see as a pretty light up and 1field with how we're doing.

Okay. Thanks.

You bet.

Thank you, sir.

Ed Antoian with Chartwell, your line is open.

Hi, I'm also not going to say good quarter, but how about just the clarification on when the rights expire. Do they not expire five years post the entry of any market with HPV and would that not be before U.S. approval?

I would be the U.S. market Ed.

Okay. Good quarter, guys.

Thank you much. I appreciate it.

Dan Leonard with First Analysis. Your line is open.

Hi. Just a quick question. On the American Red Cross trial, how many more TIGRIS instruments do you think that the American Red Cross can absorb post an HPV approval? What's the incremental opportunity there on the hardware placement side?

I'll get it a shot.

I really can't answer that question. I don't have a number for you. We've got three of the national testing lines up and running right now with ULTRIO. It really depends on a lot of things including what might be happening with West Nile virus in the system and the number of sites that they move up and how fast they move. So we don't have a model for that and couldn't give you a revenue estimate for the back half of the year at this point.

Okay. Thank you

Thank you.

Operator, I think we might have time for one more question.

Thank you, sir. Victor Gizzementron [ph] with Morgan Stanley. Your line is open.

Hi Victor.

Just a follow up on Sara's question on ARC. What are the implications of ARC performance on of the study, IDT. You would express probably there is a little bit more robust and in your previous studies where you did pools and also is this kind of mix that we should be expecting once PRC implements ULTRIO, some of its IDT and some other food and what would be the implications for the price?

Hi Victor, it’s Carl. I think that as we run these large-scale trials of the assay, we and our investigative customers are looking at a range of different strategies with different pooling sizes as we evaluate the performance of the assay. As you know there is no one absolute performance levels, it’s going to depend on how may other units you put into a pool and the overall sensitivity. The customers weight that as part of their decision-making factors. I think the best thing we could say to you is it’s a very hard for any national blood system to go from a pooling strategy to IDT overnight. That doesn't happen. It takes up a lot of planning, a lot of thought in order to do it and there has to be a pretty compelling public health reason why you would want to go down that path. Work flow consideration has been able to process all the units of blood and then in the ultimate safety margin that you give from are I think the major factors that someone like the Red Cross or any other major blood center would use. So with that in mind, we wouldn't have us to get us on how that decision-making process works. We would just tell you that it's probably easier to adopt something in a pooling strategy than it is in IDT from scratch.

That's fair enough. And I think I may have missed it. Did you guys talked about optimal growth in the quarter and I think in the past you have given us sort of a ratio of PACE versus optimum in terms of volume and in terms of dollars?

Victor, our market share for APTIMA grew to about 63% according to reports that we purchased that to the United States. In terms of revenues, as well as in terms of test, we're about at the same revenue figure. In term of split between non-amplified pace and APTIMA amplified assay, we are about at 80% to 85% revenue split with APTIMA and obviously 15% test on the raising terms of split between non-amplified [inaudible] and the APTIMA, amplified assay would about 85% revenue as with APTIMA and obviously 15% on test side we're about 30% still in the taste utilization.

Maybe the last question. You talked about some changes in the R&D program. Would you appreciate the color on that. What is being done specifically within the industrial, at the industrial programs to push them along even a little bit faster?

We think they're moving along pretty quickly. We haven’t really made any great investments and additional personnel in there. We will try to give you a little more information on how they are moving in the next call.

And the very last question. Has there been any resolution as far as I think you missed the time. The deadline with DiagnoCure for submission for DMA has there been any resolution as far as that or --?

No resolution. Yet we continue to talk with a great deal of respect that each party has for the other and we expect it to reach a resolution soon. R. William Bowen - Senior Vice President, General Counsel and Secretary Hi. This is Bill Bowen. I think we should have a predicate for that. I think your question referred to first missing the deadline and we don’t deliberately miss any deadline.

There are press releases to the contrary.

Okay. I guess maybe we can discuss that offline, but thanks a lot guys.

Thank you.

Thank you.

Here now I would like to turn the conference back to Mr. Henry Nordhoff. Sir.

Thank you Sierra and thanks for all your questions. To wrap up, Gen-Probe is off to an excellent start in 2008. In the first quarter we established new records across the board and product sales on both sides of our business, in total revenues and net income and an earnings per share. As a result, we are raising our 2008 guidance for both total revenues and earnings per share. As assessed in the quarter was not limited to our financial results. In the last few months, we believe we also took important steps to generate future growth from our PROCLEIX ULTRIO, HPV and PCA3 assays and we remain very optimistic on their future potential. Thank you for your time and attention today and please contact us if you have follow-up questions.

This does conclude today's conference. You may disconnect at this time. Again, this does conclude today's conference. You may disconnect at this time.