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By Lauren Adams, CFA | 11-10-2011 12:00 AM

Gen-Probe: New Tests Key to Increasing Revenue

Gen-Probe's Michael Watts sees five potential new product launches as delivering top-line growth next year.

Lauren Migliore: My name is Lauren Migliore; I am 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 vice president of investor relations, Michael Watts, to speak with us today about the competitive dynamics within the molecular diagnostic field. Thanks for joining us, Mike.

Michael Watts: Thanks very much for having me.

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

Watts: Well, you are right. We were the first company actually to have a Food and Drug Administration-approved molecular diagnostics test, all the way back in 1985, I believe. And today we're the largest stand-alone molecular diagnostics company in the world. So we have been a pioneer in the field.

The power of nucleic acid testing, or molecular diagnostics, we use the terms synonymously, is really to detect disease directly, by looking for a genetic marker. That could be RNA or DNA of a virus or bacteria. It could be a particular gene that's overexpressed in the presence of a certain disease, such as cancer. And the beauty of this is by going directly for the cause, the source of disease, we're able to identify diseases either earlier, faster or more accurately, or sometimes all three, than current tests, such as culture or immunoassay.

A good example of this is in the field of blood screening. We have molecular tests that screen donated blood for Hepatitis C, which causes liver disease. By looking for the virus directly, rather than waiting for the body's immune response to develop, we have helped reduced the risk of getting HIV or Hepatitis C from a blood transfusion down to about one in 2 million. So not only have we built a good business around this, but it's nice to be doing a good public health service at the same time, safeguarding the blood supply.

Migliore: Gen-Probe maintains a dominant share in the STD-screening market and the firm is growing its clinical diagnostic business at double-digit rates each quarter. What's behind the strong performance?

Watts: Well, truly two things. One is the performance of our assays, or our tests, and secondly is the unique advantage that we have in automation. So on the assay side, there have been a number of head-to-head studies that compare us to some of our competing tests, that show that our tests are really the gold standard in their fields. And by that, I mean they have higher sensitivity and specificity than competing tests, meaning they generate fewer false negative results and fewer false positive results. So we really are the gold standard in terms of test performance.

In addition, we have a fully automated system that's quite unique, called the TIGRIS, and TIGRIS is a high throughput, fully integrated system, primarily for large labs, whether they are reference labs, hospital labs, or public health labs. With TIGRIS, our lab customers can essentially do more tests more rapidly, than with any other system and with a minimal amount of hands-on time. So that means minimal need for hands-on intervention, minimal opportunity for manual error, and the ability to be more productive for their lab as a whole. So when you combine the test performance that we have in terms of the better sensitivity and specificity, with the automation of TIGRIS, that has really been a winning combination, and that's enabled us to take market share in the United States, as well as in Europe, where we're building out our commercial base.

Migliore: Well then turning to blood screening, the company's other main segment, Gen-Probe has an established partnership with Novartis, and the firm's products are used to screen over 80% of the donated blood supply in the U.S. But the financial performance over the last few quarters has been pretty volatile. So what's the outlook for blood screening going forward?

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