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By Lauren Adams, CFA | 11-05-2010 11:29 PM

Personalized Medicine is the Future

Gen-Probe's CFO Herm Rosenman says the firm has plenty of catalysts that should drive growth for the next several years.

Lauren Migliore: Hi, my name is Lauren Migliore. I'm a health-care analyst here at Morningstar. Gen-Probe is a leading provider of molecular diagnostic products used to diagnose human diseases and screen donated blood. We're pleased to welcome the firm's CFO, Herm Rosenman to speak to us today about the competitive landscape in the diagnostic industry. Thanks for joining us, Herm.

Herm Rosenman: It's my pleasure, Lauren. Thanks for having us.

Migliore: Gen-Probe pioneered the development of nucleic acid testing. What are some of the advantages of this form of testing over traditional laboratory methods?

Rosenman: Well, the major advantage of nucleic acid testing, or as some call it, molecular testing is the closure of what we call the window period. That's the time between infection and detection. Using old tests--and I'll use an example in blood screening, which represents about 40% of our business. So, we screen whole blood in the United States and throughout the world for diseases like hepatitis C, hepatitis B, West Nile virus, and importantly HIV. To try to make the blood supply a lot safer so that when it's transfused into individuals, they don't contract these diseases.

The old window period using the test prior to molecular testing, for example, hepatitis C was about 60 days, which meant that you could have infected blood in the system for transfusion during a 60-day period, because the old antibody test couldn't pick it up.

Our test, which goes for the genome itself rather than the antibodies, which build up later on, closes that window period down to 28 days or less. So, by doing that there is less infected blood in the system.

Migliore: So, quicker and more sensitive is really the advantage?

Rosenman: Quicker, more sensitive, more specific.

Migliore: Gen-Probe maintains a dominant share in both the STD and blood screening markets. Can you talk about some other barriers to entry involved in your core businesses and what are the key growth drivers for your existing product lines?

Rosenman: Well, if we take those two as the existing product lines, although we do have others. The growth will come from blood screening outside the United States, because in the United States we have a very dominant market share, considerably over 80%. Outside the United States it depends on which country we're talking about. In some cases, we have 100% of those donations, in some cases our only competitor worldwide in this duopoly, Roche, would have a 100%, and in some countries we split it with them.

There is also some home-brew done in certain countries, and that could provide growth in the future, as well as the BRIC countries, which currently have not adopted molecular testing for screening whole blood. So that could be some pretty good growth.

Additionally, there are some provisions in the contract with our distribution partner worldwide, Novartis, which ratchet up our share of the revenues over time; that will provide a little bit of growth too.

In STDs, it's going to continue to be for a little while APTIMA Combo 2 on the TIGRIS instrument, which is our fully automated high-throughput instrument, primarily in Europe. There will be more growth in Europe, because again in the United States we have such dominant market share, over 60%.

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