Gen-Probe Remains Neutral - Analyst Blog
May 25 2012 - 8:15AM
Zacks
We reiterate our Neutral rating on
Gen-Probe Inc. (GPRO). Its first-quarter 2012
adjusted earnings of 55 cents per share beat the Zacks Consensus
Estimate of 51 cents. Revenues of $153.4 million were ahead of the
Zacks Consensus Estimate of $151 million.
Product sales increased 9% as
healthy sales across Blood Screening and Clinical Diagnostics
franchises were partially offset by lower revenues from the
Research Products and Services and Collaborative Research
businesses.
Revenues from Clinical Diagnostics
segment grew 7% (up 8% in constant currency) year over year, led by
strong sales of APTIMA Combo 2, APTIMA HPV and APTIMA Trichomonas
assays. Blood Screening sales rose 12% (up 13% in constant
currency) in the quarter, driven by higher shipping of TIGRIS
devices to the company’s partner Novartis (NVS).
Gen-Probe, in May 2012, received
the U.S. Food and Drug Administration’s (FDA) approval to launch
its fully-automated molecular testing platform, PANTHER. The system
has been given the initial approval to be used with its
market-leading chlamydia and gonorrhea test APTIMA COMBO 2. The
PANTHER system is expected to significantly contribute to the
company’s revenue growth in the coming years as it broadens the
testing menu for the instrument.
Gen-Probe recently announced that
women’s healthcare major, Hologic Inc. (HOLX) will buy it for $3.7
billion (or $82.75 a share). The transaction is expected to be
completed by second half of 2012, subject to certain clearances and
approval of Gen-Probe’s shareholders. Gen-Probe believes that the
merger will leverage the women’s Diagnostic product range of both
the companies and thereby, increase the focus on the molecular
diagnostics market. Further, the acquisition will benefit the
shareholders as it will offer additional cash value to their
shares.
However, the merger agreement with
Hologic can also have a negative impact on Gen-Probe’s operations,
in case customers plan to postpone their orders and purchases or
employees decide to resign in the face of acquisition-related
uncertainties. In addition, management’s focus on merger-related
issues might divert their attention away from potential business
plans resulting in failure of quarterly operating outcomes, which
could lead to fall in share prices.
Also, if the merger is not
completed due to some unforeseen circumstances, the company might
run the risk of legal proceedings along with payment of a
termination fee of $128 million to Hologic or reimburse Hologic for
its transaction-related expenses of $20 million.
Gen-Probe’s clinical diagnostics
products are susceptible to considerable reimbursement risks.
Third-party payers are increasingly seeking to curb health care
costs by limiting both coverage and the level of reimbursement for
medical products and services. Any unfavorable change in the
reimbursement policies (or levels) by third-party payers may
materially affect the demand and price levels of Gen-Probe’s
products and its revenues. In the most recent quarter,
collaborative research sales plunged 61% on account of less
reimbursement received from Novartis owing to the development of
the PANTHER instrument.
Gen-Probe is a dominant player in
the rapidly expanding nucleic acid testing (“NAT”) market, the
fastest growing segment in the clinical diagnostic market. It is a
market leader in domestic gonorrhea and chlamydia testing with its
PACE and APTIMA assay product lines. Gen-Probe competes with more
established firms in the molecular diagnostic industry such as
Roche (RHHBY), Becton, Dickinson
(BDX) and Abbott Labs (ABT).
Our recommendation on Gen-Probe is
in tandem with a short-term Zacks #3 Rank (Hold).
ABBOTT LABS (ABT): Free Stock Analysis Report
BECTON DICKINSO (BDX): Free Stock Analysis Report
GEN-PROBE INC (GPRO): Free Stock Analysis Report
HOLOGIC INC (HOLX): Free Stock Analysis Report
NOVARTIS AG-ADR (NVS): Free Stock Analysis Report
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