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WIKI ANALYSIS
Gen-Probe, Inc. (NASDAQ: GPRO) makes genetic tests for screening blood and diagnosing infectious diseases. The company's products include tests for sexually transmitted diseases (STDs), tuberculosis, strep throat, pneumonia and fungal infections in patients and in donated blood. Gen-Probe's collaborates with Novartis to make PROCLEIX, a genetic test for screening blood, and together the two companies represent around 90% of sales in this market[1]. PROCLEIX had sales of $171 million in a blood screening market valued at $1 billion.[2].[3] Gen-Probe also makes tests for infectious diseases, and had sales of $200 million out of the total $2-3 billion estimated value of the molecular diagnostics market.[4].
Gen-Probe's product pipeline consists of screening tests for HPV and prostate cancer that are currently undergoing clinical studies to prepare for FDA marketing approval in the United States. In addition, Gen-Probe is involved in collaborations with General Electric Company (GE) and Millipore (MIL) to develop molecular tests for detection of bacteria contamination in water and biological processing batches, respectively[5].
While Gen-Probe was an original entrant in the nucleic acid testing markets, it now competes with much larger corporations that have since entered into these markets. Gen-Probes competitors include Roche Pharmaceuticals (RHHBY), Abbott Laboratories (ABT), Becton, Dickinson and Company (BDX), Siemens AG (SI), JOHNSON & JOHNSON (JNJ) and BIOMERIEUX (BIM-FR).
Corporate Overview
History
Gen-Probe was founded in 1983 as a partnership between Dr. David E. Kohne, Dr. Thomas H. Adams, and Howard C. Birndorf. In 1985, they received the first ever FDA clearance for a diagnostic test using a nucleic acid, DNA, as a probe. The company went public in 1987, but lost its independence in 1989, when it was purchased by Japanese giant Chugai Pharmaceuticals for $110 million. In the 90's, Gen-Probe further developed its nucleic acid probes, and worked with Chiron Corporation (now owned by Novartis) to develop screening tests infectious diseases such as tuberculosis, AIDS, hepatitis, and chlamydia[6].
In 2001, after a merger of Chugai with Roche Pharmaceuticals (RHHBY), Gen-Probe was spun-off and, in September of 2002, began trading in the public market[7]. Following its re-emergence as an individual company, Gen-Probe released a screening test for the West Nile Virus and, in 2005, received the National Medal of Technology in recognition of its screening tests for West Nile Virus, HIV, and Hepatitis C[8]. Since 2005, Gen-Probe has been working on expanding its infectious disease screening capabilities as well as developing screening tests in other maladies such as prostate cancer[9].
Business Financials
Gen-Probe's revenue and net income have grown steadily from 2005 to 2007 at annual rates of 15.8 and 21.6%, respectively[12]. In 2006, the drop in net income was primary due to an increase in stock-based compensation of almost $10 million and legal fees from a settlement with Bayer AG (BAYRY) over patents relating to Gen-Probe's TIGRIS screening test[13].
Product sales account for 92% of Gen-Probe's revenue, while revenue from collaborative research and royalties from licensing each account for 4% of total revenue. Gen-Probe's product sales come from two major segments, clinical diagnostics, and blood screening tests, which make up 54% and 46% of sales, respectively[14].
In addition, Gen-Probe currently has very little debt relative to its assets (15.5 assets to liabilities ratio)[15]. This lowers Gen-Probe's overall risk and gives them flexibility to invest in new areas or make acquisitions.
Major Product Segments
Gen-Probe's two major product segments are clinical diagnostics and screening tests for donated blood. Gen-Probe's major system, the TIGRIS, is a workstation that automates all phases from diagnostics and blood screening from the preparation of the sample to the reporting of results. The TIGRIS can be used with any of Gen-Probe's tests within the clinical diagnostics or blood screening segments[16].
Clinical Diagnostics (54% of sales)
Gen-Probe offers diagnostic systems for STDs, virals, bacterial infections, strep, and other bacterial and fungal pathogens.
- The APTIMA system is Gen-Probe's core nucleic acid testing system used for detection of STDs in blood samples. The APTIMA HIV-1 and HCV systems detect HIV-1 and HCV in human plasma, while the APITIMA COMBO is a 2nd generation nucleic acid amplification system that detects RNA from chlamydia and gonorrhea simultaneously in blood samples.
- The Amplified MTD Test directly tests tuberculosis RNA in blood samples.
- The GASDirect system detects RNA from Group A Streptococcus (GAS), the most common cause of strep throat.
- AccuProbe is used for the identification of mycobacterial, fungal and bacterial pathogens. The entire range of AccuProbe assays follow a standard format and use common reagents, and allow for the detection of target organisms from cell culture samples.
Blood Screening Tests (46% of sales)
Gen-Probe has collaborated with Chiron, a subsidiary of Novartis AG (NVS), to offer the PROCLEIX assays for screening donated blood to be used for transfusions. In the United States, blood bank customers use PROCLEIX products to safeguard more than 80% of the blood units donated annually. When combined with the TIGRIS system, these assays can process 1,000 blood samples in about 14 hours[17].
- The PROCLEIX ULTRIO assay simultaneously detects HIV-1, HCV, and Hepatitis B in donated blood.
- The PROCLEIX WNV assay detects West Nile Virus in donated blood.
Pipeline
Gen-Probe is currently developing new nucleic acid tests to expand their diagnostics segment to prostate cancer, human papillomavirus (HPV). In addition, Gen-Probe is developing its next generation automation system, the Panther, and is working with General Electric Company (GE) and Millipore (MIL) to develop quality control systems[18].
Trends and Forces
The Success of Gen-Probe's HPV Test Entering into the Market
Gen-Probe is currently developing a nucleic acid-based test to detect high risk strains of HPV that cause cervical cancer. The test is based on the same APTIMA technology as it current nucleic aid diagnostic tests, and should serve a large market, given that the Center for Disease Control estimates that around 50% of sexually active males and females have the virus[19]. This test is currently in a very large clinical study of 7,000 women designed to evaluate its effectiveness in detecting HPV compared with a traditional Pap smear test[20].
While Gen-Probe has historically been very successful with its APTIMA-based tests, obtaining marketing approval from the FDA is a very long and complex process that will take years to complete. The progress and interim results of this study is likely to impact Gen-Probe's valuation. In addition, if Gen-Probe's HPV test is approved for marketing, it will need to compete with the Pap smear test, which is firmly established as the standard of care in clinics[21]. The results of this clinical study will need to be strong enough to convince clinicians to use Gen-Probe's test in addition to, or in lieu of, traditional Pap smears.
The Success of Gen-Probe's Prostate Cancer Test Entering into the Market
Gen-Probe has developed a screening test based on the PCA3 gene, which is shown to be correlated with prostate cancer when overexpressed in urine. Gen-Probe has obtained European marketing approval for this test, but has yet to receive approval in the United States[22]. As stated in the trend section for Gen-Probe's HPV test, obtaining FDA approval can be a very long process with no certainties of ultimate approval.
The Success of Gen-Probe's Collaborations with GE and Millipore
Gen-Probe is working with Millipore for bio-pharma manufacturing quality control testing and GE for various water-testing applications
Gen-Probe's relationship with Millipore centers around the development of MilliPROBE, which is designed to test for bacterial contamination within hours, drastically cutting down on the time to perform such quality control in typical bacterial culture testing. Gen-Probe does not believe that this product will generate substantial revenues, but rather will act as a "proof of concept" of the ability to use such molecular technologies to detect bacterial contamination in bio-pharma production processes[23]. Whether this initial product performs well will affect Gen-Probe's future prospects in this market as well as their valuation.
Gen-Probe's relationship with GE centers around developing assays for detecting bacteria in industrial water applications such as the cooling towers that are used to heat and cool buildings and factories. This collaboration is similarly at the "proof of concept" stage, and its success will serve as a proxy for Gen-Probe's future involvement in this market[24].
While these collaborations are both positive developments for Gen-Probe, it is important to keep into perspective that these collaborators are relatively large in scale compared to the projects that Gen-Probe is working with them on. Therefore, the projects are higher priorities for Gen-Probe than they are for GE or Millipore.
Gen-Probe Competes in a Market Filled with Larger Players
While Gen-Probe is a leader in nucleic acid testing, its major competitors are mostly larger corporations with substantially greater revenues than Gen-Probe. While this allows Gen-Probe a focus in these markets that its competitors lack, it puts them at a disadvantage in competing for acquisitions or investing heavily in new opportunities. In June 2008, Gen-Probe made a bid of $334 million to acquire Innogenetics[25], a Belgium based diagnostics company. However, Gen-Probe was outbid by Solvay S.A. (SVYSY). How Gen-Probe moves forward in its plan for growth will affect its valuation.
Competition
Clinical Diagnostics
Competitors
Gen-Probe competes with several companies in the molecular diagnostics market, including Roche Pharmaceuticals (RHHBY), Abbott Laboratories (ABT), Becton, Dickinson and Company (BDX), Siemens AG (SI), JOHNSON & JOHNSON (JNJ) and BIOMERIEUX (BIM-FR).
| Income Data, in millions USD | Gen-Probe | Abbott Laboratories (ABT) | Roche Diagnostics | JOHNSON & JOHNSON (JNJ) | Becton, Dickinson and Company (BDX) | BIOMERIEUX (BIM-FR) | ||||||
| 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |
| Net revenue | $403.0 | $354.8 | $25,914 | $22,476 | $9,350 | $8,747 | $61,095 | $53,324 | $6,360 | $5,738 | $1,062 | $1,037 |
| Net income | $86.1 | $59.5 | $3,606 | $1,716 | $1,648 | $1,422 | $10,576 | $11,053 | $890.0 | $752.3 | $98.1 | $105.4 |
| R&D as % of sales | 24.1% | 23.7% | 9.7% | 10% | 8.4% | 8.0% | 12.6% | 13.4% | 5.7% | 5.3% | 12.4% | 12.5% |
| Return on Assets | 11.7% | 10.4% | 9.1% | 4.7% | N/A | N/A | 13.1% | 15.7% | 12.1% | 11.0% | 9.8% | 11.2% |
| Return on Equity | 11.7% | 10.4% | 20.3% | 12.2% | N/A | N/A | 24.4% | 28.1% | 20.4% | 19.6% | 16.3% | 18.9% |
Market Share for Gen-Probe
The clinical diagnostics market is estimated to be around $3.2 billion, including $2.2 billion for infectious disease testing alone[26]. At $199.2 million Gen-Probe's revenues currently represent 9.1% of the infectious disease diagnostics market and 6.2% of the entire molecular diagnostics market.
Blood Screening
Competitors
Novartis controls most of the nucleic acid blood screening market, and is also Gen-Probe's major collaborator in blood screening tests. Other competitors include Roche, which sells the COBAS screening test for HIV and HCV, Abbott, and National Genetics Insitute (NGI). Roche is the only established player in this market, however, as Abbott's system is only marketed for screening of HTLV[27], and NGI is a relatively small private company.
Market Share for Gen-Probe
The nucleic acid blood testing market is valued at $953 million with 11.5% annual growth[3]. Gen-Probe partners with Novartis' subsidiary, Chiron, whose projected sales of $700 million represent around three-fourths of this market[28]. Since Gen-Probe's revenue is adjusted by its 50% revenue sharing agreement with Novartis, the PROCLEIX franchise actually represents up to 36% of the entire nucleic acid blood screening market[29].
From the same source, immunoassay screening techniques, which use antibodies to detect harmful pathogens in the blood, make up a $610 million market with 2% annual growth. Include these assays as well as nucleic acid tests, and Gen-Probe revenues represent 11% (22% when combined with Novartis' half of the collaboration) of the entire blood screening market.
References
- ↑ Blood Markets. Kalorama Information, November 2008.
- ↑ Gen-Probe (GPRO) Form 10-K, Fiscal year 2007, p. 2-3
- ↑ 3.0 3.1 3.2 Blood Markets. Kalorama Information, November 2008.
- ↑ Biomarket Trends: Molecular Diagnostics on the Move, Jan 2008.
- ↑ http://www.gen-probe.com/pipeline/ Gen-Probe, Product Pipeline.
- ↑ Gen-Probe, Corporate History
- ↑ Answers.com, Hoovers Company Profile: Gen-Probe.
- ↑ Gen-Probe, Corporate History
- ↑ Gen-Probe (GPRO) Form 10-K, Fiscal year 2007, p. 4
- ↑ Gen-Probe (GPRO) Form 10-K, Fiscal year 2007, p. 57
- ↑ Gen-Probe (GPRO) Form 10-K, Fiscal year 2007, p. 2-3
- ↑ Gen-Probe (GPRO) Form 10-K, Fiscal year 2007, p. 57
- ↑ Gen-Probe (GPRO) Form 10-K, Fiscal year 2006, p. 26
- ↑ Gen-Probe (GPRO) Form 10-K, Fiscal year 2007, p. 2-3
- ↑ Gen-Probe (GPRO) Form 10-K, Fiscal year 2007, p. F-3
- ↑ TIGRIS DTS Overview, Gen-Probe.
- ↑ http://phx.corporate-ir.net/phoenix.zhtml?c=135117&p=irol-newsArticle&ID=1006875&highlight= FDA Approves Gen-Probe's Automated PROCLEIX(R) TIGRIS(R) System to Test Donated Blood With the PROCLEIX ULTRIO(R) Assay
- ↑ http://www.gen-probe.com/pipeline/ Gen-Probe, Product Pipeline.
- ↑ http://www.gen-probe.com/news/PressReleaseText.asp?compid=135117&releaseID=675315 Gen-Probe, Product Pipeline.
- ↑ http://www.webwire.com/ViewPressRel.asp?aId=78052 Emory Researchers Study Test to Better Detect High-Risk HPVs and Cervical Cancer, Webwire.
- ↑ http://en.wikipedia.org/wiki/Pap_smear Pap smear, Wikipedia
- ↑ http://www.gen-probe.com/pipeline/ Gen-Probe, Product Pipeline.
- ↑ Gen-Probe (GPRO) Form 10-K, Fiscal year 2007, p. 5-6
- ↑ Gen-Probe (GPRO) Form 10-K, Fiscal year 2007, p. 6
- ↑ http://www.gen-probe.com/news/PressReleaseText.asp?compid=135117&releaseID=1161654 Gen-Probe Press Release, 2008.
- ↑ Biomarket Trends: Molecular Diagnostics on the Move, Jan 2008.
- ↑ http://www.fda.gov/Cber/products/prismhtlvI-II.htm FDA Approval of Abbott's PRISM HTLV, 2008.
- ↑ http://seekingalpha.com/article/6467-chiron-q4-2005-earnings-conference-call-transcript-chir?page=4 Chiron 2005 Conference Call Transcript.
- ↑ Gen-Probe (GPRO) Form 10-K, Fiscal year 2007, p. 61
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