Gen-Probe Incorporated

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Gen-Probe Incorporated

10210 Genetic Center Drive
San Diego, California 92121
U.S.A.
Telephone: (858) 410-8000
Toll Free: (800) 523-5001
Fax: (858) 410-8625
Web site: http://www.gen-probe.com

Public Company
Incorporated: 1984
Employees: 866
Sales: $305.9 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: GPRO
NAIC: 541710 Research and Development in the Physical Sciences and Engineering Sciences; 325411 Medicinal and Botanical Manufacturing

Gen-Probe Incorporated is a developer and manufacturer of nucleic acid, probe-based devices that are used for the clinical diagnosis of human diseases and for screening donated blood. To a lesser extent, the company also makes similar devices to detect harmful organisms in the environment and in industrial processes. Gen-Probe's diagnostic devices are sold to clinical laboratories, public health institutions, and hospitals in North America. The company's blood-screening products are marketed and distributed on a global basis through Chiron Corporation. Best known for its devices that detect the sexually transmitted diseases gonorrhea and chlamydia, the company also makes testing equipment for the detection of human immunodeficiency virus (HIV), certain types of cancer, various manifestations of hepatitis, and tuberculosis.

ORIGINS

A winner of the National Medal of Technology, the United States' highest honor for technological innovation, Gen-Probe pioneered the scientific and commercial development of nucleic acid testing (NAT). By relying on nucleic acid probes that specifically bind to nucleic acid sequences known to be unique to target organisms, NAT allowed laboratory technicians to identify microorganisms quickly, a capability that Gen-Probe first offered to the medical community in the mid-1980s. The company was formed in 1983, beginning as a partnership between Howard Birndorf, Thomas Adams, and David Kohne. Birndorf and Adams were successful entrepreneurs in the biotechnology field when they helped launch Gen-Probe, having founded a company named Hybritech, which became one of the most successful biotechnology companies in the San Diego area during the early 1980s. Hybritech was acquired by Eli Lilly Co. in 1986 for nearly $500 million, proof of its regard within the industry, but Birndorf and Adams left the company before the buyout, obtaining much of their start-up capital from the same company that would later buy Hybritech, Eli Lilly, which ranked as Gen-Probe's largest initial investor. Birndorf and Adams, skilled in the strategic and financial aspects of running a biotechnology company, were joined by David E. Kohne, a leading international authority on genetic-probe research. Kohne, who became the company's chief scientist, developed the science underpinning Gen-Probe at its inception, articulating the technical vision that Birndorf and Adams would help bring to market.

Gen-Probe began operating at a time of fevered interest in biotechnology ventures. Venture capitalists were quick to offer their financial support to almost any enterprise promising innovation in the sector, and Gen-Probe was no exception, creating a stir and fueling great expectations when it made its debut. The name of the company was a reflection of its commitment to the genetic probe, a novel diagnostic tool that drew its inspiration from the theory that all biological matter is encoded along the strands of a person's deoxyribonucleic acid (DNA). Kohne's scientific vision, paraphrased simply, was based on the assumption that indicators of various pathologies were present in a person's genes in much the same way that a person's genetic composition determined gender, eye color, and a host of other attributes. By using diagnostic kits incorporating genetic probes, Kohne reasoned, the presence of infectious microorganisms could be revealed, providing more rapid, sensitive, and specific diagnoses than traditional laboratory procedures, such as culture and immunoassays. Based on this belief, Gen-Probe was launched, sparking predictions of greatness in the biotechnology field. After preliminary work conducted under the auspices of the partnership among Birndorf, Adams, and Kohne, Gen-Probe was incorporated in June 1984 and shipped its first diagnostic kit six months later, a test for Legionnaires' disease.

Gen-Probe, as it developed, applied its science to identifying a broad range of diseases caused by bacteria, viruses, or fungi, but initially the company focused on pathologies afflicting the respiratory system. Test probes for pneumonia, Legionnaires' disease, and other similar pathogens took center stage, while the company's scientific staff worked on DNA probes related to tuberculosis (a family of organisms classified as mycobacterium), Acquired Immune Deficiency Syndrome (AIDS), sexually transmitted diseases (STDs), and cancer. The applications of the company's diagnostic kits were numerous, and applying the technology to a host of pathologies would be ongoing, but by the late 1980s kits to diagnose respiratory afflictions were usurped from their preeminent position by tests for STDs, specifically gonorrhea and chlamydia, the two most common STDs. The company became best-known for its work on identifying gonorrhea and chlamydia—"sexually transmitted diseases have been their franchise," a medical doctor and analyst summarized in a March 7, 2005 interview with Investor's Business Daily —but by the end of the 1980s not even the commercial introduction of what would become the company's franchise was enough to stave off financial difficulties. After starting its business life with much promise, Gen-Probe entered the late 1980s exuding far less luster than it had only several years earlier, having failed to live up to the industry's lofty expectations.

Venture capitalists, who had once flocked to the biotechnology sector, were backing away by the end of the decade, no longer convinced the new breed of companies could deliver a spectacular return on their investments. Gen-Probe's diagnostic kits faltered after their introduction, eliciting complaints about the radioactive isotopes around which the probes were designed. "It was not what you'd call inspired planning," Kohne conceded in the February 1990 issue of California Business. "We came along just as the controversy over disposal of hazardous wastes was peaking." The company also fell short of expectations because it was confronted by unexpected competition, as companies such as Gen-Zyme, Mycogen, Biograde, and AmGen joined the fray. The new entrants in the field committed their own miscues, which added to the disenchantment among venture capitalists, but their presence, nonetheless, diluted the market. Gen-Probe, its cash flow stagnating, struggled to obtain capital, and turned to Wall Street for help. In 1987, the company completed its initial public offering (IPO), raising $16.2 million from the offering, but the funds soon were exhausted. By late 1988, the company was forced to slash prices and furlough personnel it needed, leaving it in a precarious position as the decade ended.

COMPANY PERSPECTIVES

Over the past decade, major advances have been made in molecular diagnostic testing for infectious diseases. Many of those advances originated in the research laboratories of Gen-Probe, and have changed the basic methods of operation in microbiology laboratories around the world. Compared to traditional methods, molecular genetic assays offer better performance and shorter testing times. Most of all, clinicians are now able to provide patients and the community with more consistent, affordable, and higher-quality healthcare.

THE END OF INDEPENDENCE IN 1989

Gen-Probe was rescued from its waning financial health by the intervention of another company. In 1988, Gen-Probe signed a $15.5 million, research-and-development deal with a Japanese pharmaceutical giant named Chugai Pharmaceutical Company Ltd. The deal involved eight viral products and two cancer products, all in diagnostics, that Chugai would sell in Japan and Gen-Probe would sell elsewhere, but the relationship soon became far more intimate. In 1989, Gen-Probe announced that it was being acquired by Chugai for $110 million, a union that joined Chugai's expertise in the therapeutic end of the business with Gen-Probe's emphasis on the diagnostic end of the business. Thomas Bologna, who was appointed president of Gen-Probe in 1987, commented on the transaction that would see Gen-Probe become a wholly owned subsidiary of Chugai. In a February 1990 interview with California Business, he referred to the 1988 research-and-development agreement, saying, "The point is, we'd already built up a good working relationship with the people at Chugai. We both really believe in genetic probe technology. The Japanese realize that biotech is a major opportunity. Besides," Bologna added, "the industry is shaking out. We're going to see more consolidations and we'll see them on a global basis."

Chugai acquired Gen-Probe for $110 million, a deal that offered Gen-Probe much needed assistance. When the company became a subsidiary of its Japanese parent, it had yet to record an annual profit, generating $2.7 million in revenue during its last year as an independent company. Chugai, supported by vast financial resources, offered relief to Gen-Probe's financial needs and it sheltered the company from the industry-wide consolidation set to take place during the 1990s.

Gen-Probe began the decade, and its relationship with Chugai, by introducing redesigned, "non-isotopic" probes, which found a much more receptive audience than the company's initial line and cured some of the problems plaguing it during its formative years. As the decade progressed, the NAT pioneer that produced the first Food and Drug Administration (FDA)-approved probe-based assay became a master at its craft. Gen-Probe's groundbreaking work thrust it into the most vital projects undertaken at the commercial level and those that concerned the health of the nation. In 1996, the National Institute of Health's National Heart, Lung and Blood Institute turned to Gen-Probe for the development of devices to screen donated blood, a program aimed at identifying blood infected with HIV, the virus responsible for acquired immune deficiency syndrome (AIDS). The response to the request by the National Institutes of Health (NIH) led to a strategic alliance with Chiron Corporation in 1998 to develop and market NAT-based products for the blood screening and clinical diagnostic market, a collaboration that would account for half of Gen-Probe's revenues a decade later. The NIH would turn to Gen-Probe again, offering development money to solve pressing health problems, but, at a corporate level, another significant event occurred as Gen-Probe's probe-based technology evolved. The company faced its second era as an independent company, a period it entered with far more strength than the floundering company that sorely needed the help of Chugai in 1989.

KEY DATES

1983:: Gen-Probe is formed and is incorporated a year later.
1985:: Gen-Probe ships its first product, the first FDA-approved diagnostic test using DNA probe technology.
1987:: Gen-Probe completes its initial public offering of stock.
1989:: Gen-Probe is acquired by Chugai Pharmaceutical Company Ltd.
1999:: Gen-Probe begins developing devices to test for the West Nile virus.
2002:: Gen-Probe is spun off from Chugai.
2003:: Gen-Probe becomes the first company to market a screening test for the West Nile virus.
2005:: Gen-Probe is awarded the 2004 National Medal of Technology Laureate.

Gen-Probe's fate was decided in late 2001, determined by a joint announcement made in Basel, Switzerland, and Tokyo, Japan. Swiss pharmaceutical giant Roche AG and Chugai revealed plans to merge in a $2 billion deal that forced the divestiture of Gen-Probe. The union of Roche and Chugai, as it related to Gen-Probe, presented potential regulatory problems because of Roche's own diagnostics business, which ranked as the largest in the world. Accordingly, executives decided to spin off Gen-Probe as a separate, independent company and return the San Diego-based company to the public sector, where after a 13-year hiatus investors would be able to share in the success of the company's pioneering science. The spinoff was completed in September 2002, when Gen-Probe began trading on the NASDAQ. At the time of the spinoff, the company had received clearances or approvals from the FDA for more than 40 devices, with its tests for gonorrhea and chlamydia still underpinning its business. Gen-Probe controlled 55 percent of the U.S. market for the two STDs. Revenue in 2001 reached $130 million, exponentially higher than the $2.7 million the company generated before being acquired by Chugai.

PROGRESS IN THE 21ST CENTURY

As Gen-Probe made the transition from a subsidiary to an independent company, its scientists were developing products for a number of markets. In 1999, the West Nile virus, transmitted to people and horses by mosquitoes, first appeared in the United States. The NIH offered grants to several companies to conduct early stage studies on potential vaccines and screening tests, Gen-Probe included, assigning the company one of its major challenges during its first years of independence. In June 2003, the company became the first to market a screening test for the West Nile virus, when the FDA approved the sale of its test as an investigational product. Late in the year, the company also achieved progress on two other fronts. In November, Gen-Probe signed a licensing deal for the rights to a gene marker called PCA3 that showed remarkable accuracy in identifying prostate cancer. Under the terms of the agreement brokered with Canada-based Diagnocure, a urine test was to be developed to detect PCA3, a test to be marketed by Gen-Probe. In December, the company was granted clearance from the FDA for its blood-testing platform, TIGRIS, which conducted tests for gonorrhea and chlamydia. By using TIGRIS, one laboratory technician could load 500 tests, leave for eight hours, and return for the results. Gen-Probe also was working on a testing platform called Ultrio that combined testing for HIV and hepatitis B and C in one product.

Gen-Probe's contributions to the advancement of science earned the company both recognition and an enviable financial record. In November 2005, Gen-Probe was named the 2004 National Medal of Technology Laureate for its tests that screened donated blood for HIV and hepatitis, an honor a company executive, in the November 16, edition of the San Diego Union-Tribune, hailed as "validation to our employees of their great efforts in achieving and applying some breakthrough technology to the service of mankind." Financially, the company was a roaring success as it completed its first 20 years in business, achieving substantial growth in terms of both revenue and net income. Between 2001 and 2005, the company's annual sales swelled from $130 million to $306 million. Its net income shot skyward from $4.6 million to $60 million. In the years ahead, further growth was expected as the company continued to turn its pioneering achievements into market success, providing vital services to hospitals, laboratories, and the nation at large.

PRINCIPAL SUBSIDIARIES

Gen-Probe Sales & Service, Inc.; Gen-Probe International, Inc.; Gen-Probe UK Limited (U.K.); Molecular Light Technology Limited (U.K.); Molecular Light Technology Research Limited (U.K.); Bioanalysis Limited (U.K.).