~~Table~~UNITED ~~of Contents~~STATES

~~UNITED~~SECURITIES ~~STATES~~AND EXCHANGE COMMISSION

~~SECURITIES~~Washington, ~~AND~~D.C. ~~EXCHANGE COMMISSION~~ 20549

~~Washington, D.C. 20549~~ ____________________________________

FORM 10-Q

~~(Mark One)~~ ____________________________________

~~x Quarterly Report Pursuant to Section 13 or 15~~(d)Mark ~~of the Securities Exchange Act of 1934~~One)

~~For~~x ~~the~~Quarterly ~~quarterly~~Report ~~period~~Pursuant ~~ended~~to ~~September~~Section ~~30,~~13 ~~2011~~or 15(d) of the Securities Exchange Act of 1934

ORFor the quarterly period ended March 31, 2012

~~¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~OR

~~For~~ o ~~the~~Transition ~~transition~~Report ~~period~~Pursuant ~~from~~ to Section 13 or 15(d) of the Securities Exchange Act of 1934

~~Commission~~For ~~File~~the ~~Number: 000-49834~~transition period from _________to ________

~~GEN-PROBE~~Commission ~~INCORPORATED~~File Number: 000-49834

~~(Exact Name of Registrant as Specified in Its Charter)~~ ____________________________________

Delaware		33-0044608
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)
10210 Genetic Center Drive, San Diego, CA		92121-4362
(Address of Principal Executive Office)		(Zip Code)

GEN-PROBE INCORPORATED

(~~858)~~Exact ~~410-8000~~Name of Registrant as Specified in Its Charter)

~~(Registrant’s telephone number, including area code)~~ ____________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes x No ¨



Delaware		33-0044608
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

10210 Genetic Center Drive, San Diego, CA		92121-4362
(Address of Principal Executive Office)		(Zip Code)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (~~or for such shorter period that the registrant was required to submit and post such files~~858)~~. Yes x No ¨~~ 410-8000

~~Indicate~~(Registrant’s bytelephone ~~check mark whether the registrant is a large accelerated filer~~number, anincluding ~~accelerated~~area filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check onecode):

~~Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller Reporting Company ¨~~____________________________________

Indicate by check mark whether the registrant is(1) has afiled ~~shell~~all ~~company~~reports ~~(as~~required ~~defined~~to inbe ~~Rule~~filed ~~12b-2~~by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes ¨ x No x ¨

AsIndicate ofby ~~October 31,~~check ~~2011~~mark whether the registrant has submitted electronically and posted on its corporate Web site, 46if any,~~514,305~~ ~~shares~~every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the ~~registrant’s~~preceding ~~common~~12 ~~stock,~~months ~~$0.0001~~(or ~~par~~for ~~value~~such ~~per~~shorter ~~share,~~period ~~were~~that ~~outstanding~~the registrant was required to submit and post such files). Yes x No ¨

~~Table~~Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of ~~Contents~~“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

~~GEN~~Large accelerated filer x Accelerated filer ¨ Non-~~PROBE~~accelerated ~~INCORPORATED~~filer ¨ (Do not check if a smaller reporting company) Smaller Reporting Company ¨

~~TABLE~~Indicate OFby ~~CONTENTS~~check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

~~FORM~~As ~~10-Q~~of April 25, 2012, 45,386,659 shares of the registrant’s common stock, $0.0001 par value per share, were outstanding.

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets		1
Consolidated Statements of Income		2
Consolidated Statements of Cash Flows		3
Notes to Consolidated Financial Statements		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3. Quantitative and Qualitative Disclosures about Market Risk		33
Item 4. Controls and Procedures		34
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		35
Item 1A. Risk Factors		35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		52
Item 6. Exhibits		52
SIGNATURES		53
EXHIBIT INDEX		54

GEN-PROBE INCORPORATED

iTABLE OF CONTENTS

~~Table~~FORM ~~of Contents~~10-Q

GEN-PROBE INCORPORATED



	Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements
Consolidated Balance Sheets	1
Consolidated Statements of Income	2
Consolidated Statements of Comprehensive Income	3
Consolidated Statements of Cash Flows	4
Notes to Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3. Quantitative and Qualitative Disclosures about Market Risk	30
Item 4. Controls and Procedures	31

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	32
Item 1A. Risk Factors	32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 4. Mine Safety Disclosures	48
Item 6. Exhibits	48
SIGNATURES	49
EXHIBIT INDEX	50

~~CONSOLIDATED BALANCE SHEETS~~ i

~~(In~~GEN-PROBE ~~thousands, except share and per share data)~~ INCORPORATED

	September 30,2011		December 31,2010
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	142,079	$	59,690
Marketable securities		160,305		170,648
Trade accounts receivable, net of allowance for doubtful accounts of $352 and $355 at September 30, 2011 and December 31, 2010, respectively		55,956		54,739
Accounts receivable—other		2,243		5,493
Inventories		76,529		66,416
Deferred income tax		12,109		13,634
Prepaid income tax		375		2,993
Prepaid expenses		16,745		11,672
Other current assets		3,250		5,148
Total current assets		469,591		390,433
Marketable securities, net of current portion		123,946		259,317
Property, plant and equipment, net		170,306		160,863
Capitalized software, net		16,740		13,981
Patents, net		11,968		12,450
Goodwill		149,189		150,308
Purchased intangibles, net		113,110		120,270
License, manufacturing access fees and other assets, net		62,717		60,175
Total assets	$	1,117,567	$	1,167,797
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,034	$	14,614
Accrued salaries and employee benefits		24,668		26,825
Other accrued expenses		13,092		13,935
Income tax payable		4,486		634
Short-term borrowings		248,000		240,000
Deferred revenue		935		1,166
Total current liabilities		303,215		297,174
Non-current income tax payable		9,571		8,315
Deferred income tax		26,408		29,775
Deferred revenue, net of current portion		2,610		2,500
Other long-term liabilities		6,937		6,654
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value per share; 20,000,000 shares authorized, none issued and outstanding		—		—
Common stock, $0.0001 par value per share; 200,000,000 shares authorized, 46,507,028 and 47,966,156 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively		5		5
Additional paid-in capital		111,106		195,820
Accumulated other comprehensive income		574		678
Retained earnings		657,141		626,876
Total stockholders’ equity		768,826		823,379
Total liabilities and stockholders’ equity	$	1,117,567	$	1,167,797

CONSOLIDATED BALANCE SHEETS

~~See~~(In ~~accompanying~~thousands, ~~notes~~except toshare ~~consolidated~~and ~~financial~~per ~~statements~~share data)



	March 31, 2012		December 31, 2011
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	138,774	$	87,021
Marketable securities	174,409		218,789
Trade accounts receivable, net of allowance for doubtful accounts of $293 and $320 as of March 31, 2012 and December 31, 2011, respectively	67,199		57,767
Accounts receivable—other	2,317		3,446
Inventories	81,331		77,886
Deferred income tax	8,707		8,188
Prepaid expenses	15,792		11,555
Other current assets	3,732		4,967
Total current assets	492,261		469,619
Marketable securities, net of current portion	88,101		62,237
Property, plant and equipment, net	180,270		176,081
Capitalized software, net	17,961		16,992
Patents, net	11,486		11,758
Goodwill	140,385		140,404
Purchased intangibles, net	104,553		106,619
License, manufacturing access fees and other assets, net	61,246		61,738
Total assets	$	1,096,263	$	1,045,448
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	14,260	$	12,000
Accrued salaries and employee benefits	21,533		28,795
Other accrued expenses	17,584		12,846
Income tax payable	6,428		1,857
Short-term borrowings	248,000		248,000
Deferred revenue	1,413		1,238
Total current liabilities	309,218		304,736
Non-current income tax payable	10,044		10,019
Deferred income tax	19,283		19,283
Deferred revenue, net of current portion	3,644		3,237
Other long-term liabilities	7,910		7,831
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.0001 par value per share; 20,000,000 shares authorized, none issued and outstanding	—		—
Common stock, $0.0001 par value per share; 200,000,000 shares authorized, 45,342,898 and 45,008,879 shares issued and outstanding as of March 31, 2012 and December 31, 2011, respectively	5		5
Additional paid-in capital	43,954		23,650
Accumulated other comprehensive income (loss)	2,745		(313		)
Retained earnings	699,460		677,000
Total stockholders’ equity	746,164		700,342
Total liabilities and stockholders’ equity	$	1,096,263	$	1,045,448

~~Table~~See ofaccompanying ~~Contents~~notes to consolidated financial statements

~~GEN-PROBE INCORPORATED~~ 1

~~CONSOLIDATED~~GEN-PROBE ~~STATEMENTS OF INCOME~~ INCORPORATED

~~(In~~CONSOLIDATED ~~thousands,~~STATEMENTS ~~except~~OF ~~per share data)~~ INCOME

(~~Unaudited)~~In thousands, except per share data)

	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	2011			2010			2011			2010
Revenues:
Product sales	$	136,393		$	128,313		$	407,426		$	391,616
Collaborative research revenue		1,128			3,405			6,313			10,810
Royalty and license revenue		1,602			847			4,320			4,207
Total revenues		139,123			132,565			418,059			406,633
Operating expenses:
Cost of product sales (excluding acquisition-related intangible amortization)		40,529			42,146			121,903			129,118
Acquisition-related intangible amortization		2,767			2,201			8,301			6,616
Research and development		27,864			27,433			84,540			84,218
Marketing and sales		17,308			13,872			51,340			44,476
General and administrative		18,298			11,510			55,154			41,208
Total operating expenses		106,766			97,162			321,238			305,636
Income from operations		32,357			35,403			96,821			100,997
Other income (expense):
Investment and interest income		3,706			3,197			7,378			10,364
Interest expense		(524	)		(586	)		(1,524	)		(1,681	)
Gain on contingent consideration		—			1,513			—			7,595
Other-than-temporary impairment loss on equity investment		(39,482	)		—			(39,482	)		—
Other income (expense), net		(1,364	)		267			128			(82	)
Total other income (expense), net		(37,664	)		4,391			(33,500	)		16,196
Income (loss) before income tax		(5,307	)		39,794			63,321			117,193
Income tax expense		10,049			12,398			33,056			37,494
Net income (loss)	$	(15,356	)	$	27,396		$	30,265		$	79,699
Net income (loss) per share:
Basic	$	(0.33	)	$	0.57		$	0.63		$	1.63
Diluted	$	(0.33	)	$	0.56		$	0.62		$	1.61
Weighted average shares outstanding:
Basic		47,092			48,254			47,613			48,796
Diluted		47,092			48,679			48,813			49,257

(Unaudited)

See accompanying notes to consolidated financial statements



	Three Months Ended March 31,
	2012			2011
Revenues
Product sales	$	150,117		$	138,112
Collaborative research revenue	1,351			3,568
Royalty and license revenue	1,914			1,358
Total revenues	153,382			143,038
Operating expenses
Cost of product sales (excluding acquisition-related intangible amortization)	52,371			41,943
Acquisition-related intangible amortization	2,759			2,805
Research and development	28,586			28,963
Marketing and sales	19,045			16,522
General and administrative	18,954			18,153
Total operating expenses	121,715			108,386
Income from operations	31,667			34,652
Other income (expense)
Investment and interest income	2,538			735
Interest expense	(543		)	(503		)
Other income, net	128			177
Total other income, net	2,123			409
Income before income tax	33,790			35,061
Income tax expense	11,330			11,784
Net income	$	22,460		$	23,277
Net income per share
Basic	$	0.50		$	0.49
Diluted	$	0.49		$	0.48
Weighted average shares outstanding
Basic	45,124			47,861
Diluted	46,204			49,004

2See accompanying notes to consolidated financial statements

~~Table of Contents~~2

GEN-PROBE INCORPORATED

CONSOLIDATED STATEMENTS OF ~~CASH~~COMPREHENSIVE ~~FLOWS~~ INCOME

(In thousands)

(Unaudited)

	Nine Months EndedSeptember 30,
	Three Months Ended March 31,
	2011			2010
	2012			2011
Operating activities:
Comprehensive income	$	25,518		$	22,422
Net income	$	30,265		$	79,699
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		34,952			34,111
Amortization of premiums on investments, net of accretion of discounts		7,301			6,796
Stock-based compensation		19,226			18,538
Excess tax benefit from employee stock-based compensation		(4,418	)		(891	)
Deferred revenue		(91	)		(1,528	)
Deferred income tax		(1,601	)		(3,708	)
Gain on contingent consideration		—			(7,595	)
Other-than-temporary impairment loss on equity investment		39,482			—
Loss on disposal of property and equipment		251			603
Changes in assets and liabilities:
Trade and other accounts receivable		2,031			(2,127	)
Inventories		(4,327	)		204
Prepaid expenses		(5,072	)		2,861
Other current assets		1,909			685
Other long-term assets		952			(353	)
Accounts payable		(2,589	)		(6,177	)
Accrued salaries and employee benefits		(1,181	)		(3,884	)
Other accrued expenses		(873	)		(2,230	)
Income tax payable		11,303			10,863
Other long-term liabilities		300			(268	)
Net cash provided by operating activities		127,820			125,599
Investing activities:
Proceeds from sales and maturities of marketable securities		416,211			405,688
Purchases of marketable securities		(316,625	)		(313,475	)
Purchases of property, plant and equipment		(34,446	)		(22,090	)
Purchases of capitalized software		(5,032	)		(2,081	)
Purchases of intangible assets, including licenses and manufacturing access fees		(4,980	)		(2,139	)
Cash paid for investment in Pacific Biosciences		—			(50,000	)
Cash paid for investment in Roka Bioscience		(3,980	)		—
Other		(225	)		(83	)
Net cash provided by investing activities		50,923			15,820
Financing activities:
Repurchase and retirement of common stock		(150,000	)		(88,079	)
Proceeds from issuance of common stock and employee stock purchase plan		43,435			24,699
Payment of contingent consideration		—			(10,000	)
Repurchase and retirement of restricted stock for payment of taxes		(1,614	)		(1,252	)
Excess tax benefit from employee stock-based compensation		4,418			891
Borrowings, net		8,000			—
Net cash used in financing activities		(95,761	)		(73,741	)
Effect of exchange rate changes on cash and cash equivalents		(593	)		(1,234	)
Net increase in cash and cash equivalents		82,389			66,444
Cash and cash equivalents at the beginning of period		59,690			82,616
Cash and cash equivalents at the end of period	$	142,079		$	149,060

See accompanying notes to consolidated financial statements

~~Table~~GEN-PROBE ~~of Contents~~INCORPORATED

~~Notes~~CONSOLIDATED toSTATEMENTS ~~the~~OF ~~Consolidated~~CASH ~~Financial Statements (unaudited)~~ FLOWS

~~Note~~(In ~~1 — Summary of Significant Accounting Policies~~ thousands)

~~Basis of Presentation~~ (Unaudited)

The accompanying interim consolidated financial statements of Gen-Probe Incorporated (“Gen-Probe” or the “Company”) at September 30, 2011, and for the three and nine month periods ended September 30, 2011 and 2010, are unaudited and have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In management’s opinion, the unaudited interim consolidated financial statements include all adjustments, consisting only of normal recurring accruals, necessary to state fairly the financial information therein in accordance with U.S. GAAP. Interim results are not necessarily indicative of the results that may be reported for any other interim period or for the year ending December 31, 2011.



	Three Months Ended March 31,
	2012			2011
Operating activities
Net income	$	22,460		$	23,277
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	11,448			11,345
Amortization of premiums on investments, net of accretion of discounts	2,037			2,673
Stock-based compensation	6,152			6,036
Excess tax benefit from employee stock-based compensation	(1,246		)	(1,425		)
Deferred revenue	477			97
Deferred income tax	(245		)	(615		)
Loss on disposal of property and equipment	52			24
Changes in assets and liabilities
Trade and other accounts receivable	(8,117		)	(2,816		)
Inventories	(3,506		)	3,420
Prepaid expenses	(4,062		)	(2,116		)
Other current assets	1,161			(536		)
Other long-term assets	199			(132		)
Accounts payable	2,228			(3,196		)
Accrued salaries and employee benefits	(7,725		)	(7,847		)
Other accrued expenses	4,566			(40		)
Income tax payable	5,902			11,500
Other long-term liabilities	(49		)	456
Net cash provided by operating activities	31,732			40,105
Investing activities
Proceeds from sales and maturities of marketable securities	144,227			30,460
Purchases of marketable securities	(127,119		)	(5,731		)
Purchases of property, plant and equipment	(9,265		)	(10,762		)
Purchases of capitalized software	(1,738		)	(780		)
Purchases of intangible assets, including licenses and manufacturing access fees	(825		)	(923		)
Other	408			501
Net cash provided by investing activities	5,688			12,765
Financing activities
Repurchase and retirement of common stock	—			(47,972		)
Proceeds from issuance of common stock and employee stock purchase plan shares	14,232			17,390
Repurchase and retirement of restricted stock for payment of taxes	(1,124		)	(358		)
Excess tax benefit from employee stock-based compensation	1,246			1,425
Borrowings	—			10,000
Net cash provided by (used in) financing activities	14,354			(19,515		)
Effect of exchange rate changes on cash and cash equivalents	(21		)	518
Net increase in cash and cash equivalents	51,753			33,873
Cash and cash equivalents at the beginning of period	87,021			59,690
Cash and cash equivalents at the end of period	$	138,774		$	93,563

~~These~~See ~~unaudited~~accompanying ~~interim~~notes ~~consolidated~~to ~~financial statements and related footnotes should be read in conjunction with the audited~~ consolidated financial statements ~~and related footnotes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.~~

~~Certain prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications did not affect total revenues, income from operations, or net income (loss).~~ 4

~~Principles~~GEN-PROBE ~~of Consolidation~~ INCORPORATED

~~These~~NOTES TO ~~unaudited~~CONSOLIDATED ~~interim~~FINANCIAL consolidated financial statements include the accounts of Gen-Probe as well as its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. The Company has not identified any interests in variable interest entities that require consolidation. STATEMENTS

InNotes ~~December~~to ~~2010,~~Consolidated ~~the~~Financial ~~Company~~Statements ~~acquired Genetic Testing Institute, Inc.~~ (~~“GTI Diagnostics”~~unaudited), a privately held Wisconsin corporation now known as Gen-Probe GTI Diagnostics, Inc. GTI Diagnostics has broadened and strengthened the Company’s transplant diagnostics business, and has also provided the Company with access to new products in the specialty coagulation and transfusion-related blood bank markets. GTI Diagnostics’ results of operations have been included in the Company’s consolidated financial statements beginning in December 2010.

InNote ~~October 2009, the Company acquired Prodesse, Inc~~1. Summary ~~(“Prodesse”), a privately held Wisconsin corporation now known as Gen-Probe Prodesse, Inc. Prodesse develops molecular diagnostic products for a variety~~ of ~~infectious~~Significant ~~disease~~Accounting ~~applications.~~Policies ~~Prodesse’s results of operations have been included in the Company’s consolidated financial statements beginning in October 2009.~~

InBasis April 2009, the Company acquired Tepnel Life Sciences plc (“Tepnel”), a United Kingdom (“UK”) based international life sciences products and services company, now known as Gen-Probe Life Sciences Ltd. Tepnel’s results of ~~operations have been included in the Company’s consolidated financial statements beginning in April 2009.~~ Presentation

The ~~Company~~accompanying ~~translates~~interim ~~the~~consolidated financial statements of ~~its non~~Gen-~~U.S.~~Probe ~~operations~~Incorporated ~~using~~(“Gen-Probe” or the ~~end-~~“Company”) as of~~-period~~ ~~exchange~~March 31, ~~rates~~ 2012, and for ~~assets~~the three month periods ended March 31, 2012 and ~~liabilities~~2011, are unaudited and ~~the~~have ~~average~~been ~~exchange~~prepared ~~rates~~in ~~for~~accordance ~~each~~with ~~reporting~~United ~~period~~States generally accepted accounting principles (“U.S. GAAP”) for ~~results~~interim offinancial ~~operations~~information. ~~Net~~Accordingly, ~~gains~~they ~~and~~do ~~losses~~not ~~resulting~~include ~~from~~all of the ~~translation~~information ofand ~~foreign~~footnotes required by U.S. GAAP for complete financial statements. ~~and~~In ~~the~~management’s ~~effect~~opinion, ofthe ~~exchange~~unaudited ~~rates~~interim onconsolidated ~~intercompany receivables~~financial ~~and~~statements ~~payables~~include ofall aadjustments, ~~long-term~~consisting ~~investment~~only ~~nature~~of ~~are~~normal ~~recorded~~recurring asaccruals, anecessary ~~separate~~to ~~component~~state offairly ~~stockholders’~~the ~~equity~~financial ~~under~~information ~~the~~therein ~~caption~~in ~~“Accumulated~~accordance ~~other~~with ~~comprehensive~~U.S. ~~income~~GAAP.” ~~These~~Interim ~~adjustments~~results ~~will~~are ~~affect~~not ~~net~~necessarily ~~income~~indicative ~~(loss)~~of ~~upon~~ the ~~sale~~results orthat ~~liquidation~~may ofbe reported for any other interim period or for the ~~underlying~~year ~~investment.~~ending December 31, 2012.

4These unaudited interim consolidated financial statements and related footnotes should be read in conjunction with the audited consolidated financial statements and related footnotes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

~~Table~~Principles of ~~Contents~~Consolidation

~~Use~~These unaudited interim consolidated financial statements include the accounts of ~~Estimates~~Gen-Probe as well as its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. The Company has not identified any interests in variable interest entities that require consolidation.

The ~~preparation~~Company oftranslates the financial statements inof ~~conformity~~its ~~with~~ non-U.S. ~~GAAP~~operations ~~requires~~using ~~management~~the toend-of-period ~~make certain~~exchange ~~estimates~~rates ~~and~~for ~~assumptions~~assets ~~that~~and ~~affect~~liabilities and the ~~amounts~~average ~~reported~~exchange inrates ~~the~~for ~~consolidated~~each ~~financial~~reporting ~~statements.~~period ~~These~~for ~~estimates~~results ~~include~~of ~~assessing~~operations. ~~the~~Net ~~collectability~~gains ofand ~~accounts~~losses ~~receivable,~~resulting ~~recognition~~from the translation of ~~revenues,~~foreign financial statements and the ~~valuation~~effect of ~~the~~exchange ~~following: stock-based~~rates ~~compensation;~~on ~~marketable~~intercompany ~~securities;~~receivables ~~equity~~and ~~investments~~payables inof ~~publicly~~a ~~and~~long-term ~~privately~~investment ~~held~~nature ~~companies;~~are ~~income~~recorded ~~tax;~~as ~~accrued~~a ~~liabilities;~~separate ~~inventories;~~component ~~and~~of ~~goodwill~~stockholders’ ~~and~~equity ~~long-lived~~under ~~assets,~~the ~~including~~caption ~~patent~~“Accumulated ~~costs,~~other ~~capitalized~~comprehensive ~~software,~~income ~~purchased intangibles~~(loss).” ~~and~~These ~~licenses~~adjustments ~~and~~will ~~manufacturing~~affect ~~access~~net ~~fees.~~income ~~Actual~~upon ~~results~~the ~~could~~sale ~~differ~~or ~~from~~liquidation ~~those~~of ~~estimates~~the underlying investment.

~~Segment~~Use ~~Information~~of Estimates

The ~~Company~~preparation ~~currently~~of ~~operates~~financial statements in ~~one~~conformity ~~business~~with ~~segment:~~U.S. ~~the~~GAAP ~~development, manufacturing,~~requires ~~marketing,~~management ~~sales and support of molecular diagnostic products primarily~~ to ~~diagnose~~make ~~human~~certain ~~diseases,~~estimates ~~screen~~and ~~donated~~assumptions ~~human~~that ~~blood~~affect ~~and~~the ~~ensure~~amounts ~~transplant~~reported ~~compatibility.~~in ~~Although~~ the ~~Company’s~~consolidated ~~products~~financial ~~comprise~~statements. ~~distinct~~These ~~product~~estimates ~~lines to~~include ~~serve~~assessing ~~different~~the ~~end~~collectability ~~markets~~of ~~within~~accounts ~~molecular diagnostics~~receivable, the ~~Company~~recognition ~~does~~of ~~not~~revenues, ~~operate~~and ~~its~~the ~~business~~valuation inof ~~operating~~the ~~segments.~~following: ~~The~~stock-based ~~Company~~compensation; ismarketable ~~managed~~securities; byequity ainvestments ~~single~~in ~~functionally-based~~publicly ~~management~~and ~~team~~privately ~~that~~held ~~manages~~companies; ~~all~~income ~~aspects~~tax; ofaccrued ~~the~~liabilities; ~~Company’s business~~inventories; and ~~reports~~goodwill ~~directly~~and tolong-lived ~~the~~assets, ~~Chief~~including ~~Executive~~patent ~~Officer.~~costs, ~~For~~capitalized ~~all periods presented~~software, ~~the~~purchased ~~Company~~intangibles ~~operated~~and inlicenses aand ~~single~~manufacturing ~~business~~access ~~segment~~fees. ~~Product~~Actual ~~sales~~results bycould ~~product~~differ ~~line~~from ~~are~~those ~~presented in Note 11~~estimates.

~~Revenue~~Segment ~~Recognition~~ Information

The Company ~~records~~currently ~~shipments~~operates ofin ~~its~~one ~~clinical~~business segment: the development, manufacturing, marketing, sales and support of molecular diagnostic products asprimarily ~~product~~to ~~sales~~diagnose ~~when~~ human diseases, screen donated human blood and ensure transplant compatibility. Although the Company’s products comprise distinct product islines ~~shipped~~to serve different end markets within molecular diagnostics, ~~title~~the ~~and~~Company ~~risk~~does not operate its business in operating segments. The Company is managed by a single functionally- based management team that manages all aspects of ~~loss~~the ~~have~~Company’s ~~passed~~business and reports directly to the ~~customer~~Chief Executive Officer. For all periods presented, the ~~consideration~~Company isoperated ~~fixed~~in ~~and~~a ~~determinable,~~single ~~and~~business ~~collection~~segment. Product sales by product line are presented in Note 10 of ~~the~~these ~~resulting~~Notes ~~receivable~~to isConsolidated ~~reasonably~~Financial ~~assured~~Statements.

~~The~~Revenue Company manufactures blood screening products according to demand schedules provided by its collaboration partner, Novartis Vaccines and Diagnostics, Inc. (“Novartis”). Upon shipment to Novartis, the Company recognizes blood screening product sales at an agreed upon transfer price and records the related cost of products sold. Based on the terms of the Company’s collaboration agreement with Novartis, the Company’s ultimate share of the net revenue from sales to the end user is not known until reported to the Company by Novartis. The Company then adjusts blood screening product sales upon receipt of customer revenue reports and a net payment from Novartis of amounts reflecting the Company’s ultimate share of net sales by Novartis for these products, less the transfer price revenues previously recognized. Recognition

InThe ~~most cases, the~~ Company ~~provides~~records ~~its~~shipments ~~instrumentation~~of to its clinical ~~diagnostics~~diagnostic ~~customers~~products ~~without~~as ~~requiring~~product ~~them~~sales towhen ~~purchase~~ the ~~equipment~~ orproduct ~~enter~~is ~~into an equipment lease. Instead~~shipped, ~~the~~title ~~Company~~and ~~recovers~~risk ~~the cost~~ of ~~providing~~loss ~~the~~have ~~instrumentation~~passed ~~in the amount it charges for its diagnostic assays. The depreciation costs associated with an instrument are charged~~ to ~~cost of product sales on a straight-line basis over~~ the ~~estimated~~customer, ~~life of~~ the ~~instrument.~~consideration ~~The~~is ~~costs~~fixed toand ~~maintain~~determinable, ~~these~~and ~~instruments~~collection inof the ~~field~~resulting ~~are~~receivable ~~charged~~is toreasonably ~~cost of product sales as incurred~~assured.

The Company sells its instruments to Novartis for use in blood screening and records these instrument sales upon delivery since Novartis is responsible for the placement, maintenance and repair of the units with its customers. The Company also sells instruments to its clinical diagnostics customers and generally records sales of these instruments upon delivery and customer acceptance. For certain customers with non-standard payment terms, instrument sales are recorded based upon expected cash collection. Prior to delivery, each instrument is tested to meet Gen-Probe’s specifications and the specifications of the United States Food and Drug Administration (“FDA”), and is shipped fully assembled. Customer acceptance of the Company’s clinical diagnostic instrument systems requires installation and training by the Company’s technical service personnel. Installation is a standard process consisting principally of uncrating, calibrating and testing the instrumentation. 5

~~The~~GEN-PROBE Company records revenue on its research products and services in the period during which the related costs are incurred or the services are provided. This revenue consists of outsourcing services for the pharmaceutical, biotechnology and healthcare industries, including nucleic acid purification and analysis services, as well as the sale of monoclonal antibodies. INCORPORATED

~~Revenue~~NOTES TO ~~arrangements~~CONSOLIDATED ~~with~~FINANCIAL ~~multiple~~STATEMENTS deliverables are evaluated for proper accounting treatment. In these arrangements, the Company records revenue as separate units of accounting if the delivered items have value to the customer on a stand-alone basis, if the arrangement includes a general right of return relative to the delivered items, (Continued)

5The Company manufactures blood screening products according to demand schedules provided by its collaboration partner, Novartis Vaccines and Diagnostics, Inc. (“Novartis”). Upon shipment to Novartis, the Company recognizes blood screening product sales at an agreed upon transfer price and records the related cost of products sold. Based on the terms of the Company’s collaboration agreement with Novartis, the Company’s ultimate share of the net revenue from sales to the end user is not known until reported to the Company by Novartis. The Company then adjusts blood screening product sales upon receipt of customer revenue reports and a net payment from Novartis of amounts reflecting the Company’s ultimate share of net sales by Novartis for these products, less the transfer price revenues previously recognized.

~~Table~~In most cases, the Company provides its instrumentation to its clinical diagnostics customers without requiring them to purchase the equipment or enter into an equipment lease. Instead, the Company recovers the cost of ~~Contents~~providing the instrumentation in the amount it charges for its diagnostic assays. The depreciation costs associated with an instrument are charged to cost of product sales on a straight-line basis over the estimated life of the instrument. The costs to maintain these instruments in the field are charged to cost of product sales as incurred.

~~and~~The ~~if delivery or performance of the undelivered items is considered probable and substantially within the~~ Company’s ~~control.~~sells ~~For~~its ~~transactions~~instruments ~~entered into prior~~ to ~~2011,~~Novartis ~~consideration was generally allocated to each unit of accounting based on its relative fair value when objective and reliable evidence of fair value existed~~ for ~~all~~use ~~units of accounting~~ in anblood ~~arrangement.~~screening ~~The~~and ~~fair~~records ~~value~~these ofinstrument ansales ~~item~~upon ~~was~~delivery ~~generally~~since ~~the~~Novartis ~~price~~is ~~charged~~responsible for the ~~product~~placement, ifmaintenance ~~the~~and ~~item~~repair ~~was~~of ~~sold~~the onunits awith ~~stand-alone~~its ~~basis~~customers. ~~When~~The ~~the~~ Company ~~was~~also ~~unable~~sells instruments to ~~establish~~its ~~fair~~clinical ~~value~~diagnostics ~~for~~customers ~~delivered~~and ~~items~~records orsales ~~when fair value~~ of ~~undelivered~~these ~~items~~instruments ~~had~~upon ~~not~~delivery ~~been~~and ~~established,~~customer ~~revenue~~acceptance. ~~was~~For ~~deferred~~certain ~~until~~customers ~~all~~with ~~elements~~non-standard ~~were delivered~~payment ~~and~~terms, ~~services~~instrument ~~had~~sales ~~been~~are ~~performed~~recorded orbased ~~until~~upon ~~fair~~expected ~~value~~cash ~~could be objectively determined for any undelivered elements~~collection. ~~Beginning~~Prior into ~~2011~~delivery, ~~arrangement~~each ~~consideration~~instrument is ~~allocated~~tested ~~at the inception of the arrangement~~ to ~~all~~meet ~~deliverables using the relative selling price method that is based on a three~~Gen-~~tier~~Probe’s ~~hierarchy.~~specifications ~~The~~and ~~relative selling price method requires that~~ the ~~estimated~~specifications ~~selling price for each deliverable be based on vendor-specific objective evidence (“VSOE”)~~ of ~~fair value, which represents~~ the ~~price~~United ~~charged~~States ~~for~~Food ~~each~~and ~~deliverable~~Drug ~~when~~Administration ~~it is sold separately or, for a deliverable not yet being sold separately,~~ (the ~~price established by management. When VSOE of fair value is not available, third-party evidence (~~“~~TPE~~FDA”), ofand ~~fair value~~ is ~~acceptable,~~shipped orfully ~~a best estimate of selling price if neither VSOE nor TPE are available~~assembled. ACustomer ~~best~~acceptance ~~estimate~~ of ~~selling~~the ~~price~~Company’s ~~should~~clinical bediagnostic ~~consistent~~instrument ~~with~~systems ~~the~~requires ~~objective~~installation ofand ~~determining~~training ~~the~~by ~~price at which~~ the Company’s ~~would transact~~technical ifservice ~~the~~personnel. ~~deliverable~~Installation ~~were~~is ~~sold regularly on~~ a ~~stand-alone~~standard ~~basis~~process ~~and~~consisting ~~should~~principally ~~also~~of ~~take~~uncrating, ~~into~~calibrating ~~account market conditions~~ and ~~company-specific~~testing ~~factors.~~the instrumentation.

The Company ~~recognizes~~records ~~collaborative research~~ revenue ~~over~~for ~~the~~its ~~term~~research ofproducts ~~various~~and ~~collaboration~~services ~~agreements, as negotiated monthly contracted amounts are earned or reimbursable costs are incurred related to those agreements. Negotiated monthly contracted amounts are earned~~ in ~~relative proportion to~~ the ~~performance~~period ~~required~~during ~~under~~which the ~~applicable~~related ~~contracts.~~costs ~~Non-refundable license fees with stand-alone value~~ are ~~recognized~~incurred ator the ~~time~~services ~~that the Company has satisfied all performance obligations. License fees without stand-alone value~~ are ~~recognized in combination with any undelivered performance obligations~~provided. ~~Milestone~~This ~~consideration that is contingent upon achievement of a milestone in its entirety is recorded as~~ revenue inconsists the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. These criteria include: (i) the consideration being earned should be commensurate with either the Company’s performance to achieve the milestone or the enhancement of ~~the~~outsourcing ~~value~~services offor the ~~item~~pharmaceutical, ~~delivered~~biotechnology as a result of a specific outcome resulting from the Company’s performance to achieve the milestone; (ii) the consideration being earned should relate solely to past performance; (iii) the consideration being earned should be reasonable relative to all deliverables and ~~payment~~healthcare ~~terms~~industries, inincluding ~~the~~nucleic ~~arrangement;~~acid ~~and~~purification ~~(iv) the milestone should be considered in its entirety~~ and ~~cannot~~ beanalysis ~~bifurcated~~services, ~~into~~as ~~substantive~~well ~~and non-substantive components. Any amounts received prior to satisfying the Company’s revenue recognition criteria are recorded~~ as ~~deferred revenue on~~ the ~~Company’s~~sale ~~consolidated~~of ~~balance~~monoclonal ~~sheets~~antibodies.

~~Royalty~~Revenue ~~and~~arrangements ~~license~~with multiple deliverables are evaluated for proper accounting treatment. In these arrangements, the Company records revenue isas ~~recognized~~separate ~~related~~units of accounting if the delivered items have value to the ~~sale~~customer on a stand-alone basis, if the arrangement includes a general right of return relative to the delivered items, and if delivery or ~~use~~performance of the undelivered items is considered probable and substantially within the Company’s ~~products~~control. orBeginning ~~technologies~~in ~~under license~~2011, ~~agreements~~arrangement ~~with~~consideration ~~third~~is ~~parties.~~allocated ~~For~~at ~~those~~the ~~arrangements~~inception ~~where~~of ~~royalties~~the ~~are~~arrangement ~~reasonably~~to ~~estimable,~~all deliverables using the ~~Company~~relative ~~recognizes~~selling ~~revenue~~price method that is based on ~~estimates~~a ofthree-tier ~~royalties~~hierarchy. ~~earned~~The ~~during~~relative ~~the~~selling ~~applicable~~price ~~period~~method ~~and~~requires ~~adjusts~~that the estimated selling price for ~~differences~~each ~~between~~deliverable ~~the estimated~~be ~~and~~based ~~actual~~on ~~royalties~~vendor-specific inobjective evidence (“VSOE”) of fair value, which represents the ~~following~~price ~~period.~~charged ~~Historically~~for each deliverable when it is sold separately or, ~~these~~for ~~adjustments~~a ~~have~~deliverable not ~~been~~yet ~~material~~being sold separately, the price established by management. ~~For~~When ~~those~~VSOE ~~arrangements~~of ~~where~~fair ~~royalties~~value ~~are~~is not ~~reasonably~~available, ~~estimable~~third-party evidence (“TPE”) of fair value is acceptable, or a best estimate of the ~~Company~~selling ~~recognizes~~price ~~revenue~~if ~~upon~~neither ~~receipt~~VSOE nor TPE is available. A best estimate of ~~royalty~~the ~~statements from~~selling price should be consistent with the ~~applicable~~objective ~~licensee.~~of determining the price at which the Company would transact if the deliverable were sold regularly on a stand-alone basis and should also take into account market conditions and company-specific factors.

~~Stock~~The Company recognizes collaborative research revenue over the term of various collaboration agreements, as negotiated monthly contracted amounts are earned or reimbursable costs are incurred related to those agreements. Negotiated monthly contracted amounts are earned in relative proportion to the performance required under the applicable contracts. Non-~~based~~refundable ~~Compensation~~license fees with stand-alone value are recognized at the time that the Company has satisfied all performance obligations. License fees without stand-alone value are recognized in combination with any undelivered performance obligations. Milestone consideration that is contingent upon achievement of a milestone in its entirety is recorded as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. These criteria include: (i) the consideration being earned should be commensurate with either the Company’s performance to achieve the milestone or the enhancement of the value of the item delivered as a result of a specific outcome resulting from the Company’s performance to achieve the milestone; (ii) the consideration being earned should relate solely to past performance; (iii) the consideration being earned should be reasonable relative to all deliverables and payment terms in the arrangement; and (iv) the milestone should be considered in its entirety and cannot be bifurcated into substantive and non-substantive components. Any amounts received prior to satisfying the Company’s revenue recognition criteria are recorded as deferred revenue on the Company’s consolidated balance sheets.

~~Stock-based~~Royalty ~~compensation~~and ~~expense~~license revenue is recognized ~~for~~in ~~restricted~~connection ~~stock,~~with ~~deferred issuance~~the ~~restricted~~sale ~~stock, performance stock awards, which include awards subject to performance conditions and/~~or ~~market~~use conditions, stock options, and shares purchasable under the Company’s Employee Stock Purchase Plan (“ESPP”). Stock-based compensation expense for restricted stock, deferred issuance restricted stock, and performance condition stock awards is measured based on the closing fair market value of the Company’s ~~common~~products ~~stock~~or ontechnologies ~~the~~under ~~date~~license ofagreements ~~grant.~~with ~~Stock-based compensation~~third ~~expense for market condition stock awards is measured based on the fair value of the award on the date of grant using a Monte Carlo simulation model~~parties. ~~The~~For ~~Monte~~those ~~Carlo~~arrangements ~~simulation~~where ~~model~~royalties ~~utilizes~~are ~~multiple~~reasonably ~~point~~estimable, ~~variables that determine~~ the ~~probability~~ ofCompany ~~satisfying the market condition stipulated in the grant and calculates the fair value of the award.~~

The Company uses the Black-Scholes-Merton option pricing model to value stock options granted. The determination of the fair value of stock option awards on the date of grant using the Black-Scholes-Merton model is affected by the Company’s stock price and the implied volatility on its traded options, as well as the input of other subjective assumptions. These assumptions include, but are not limited to, the expected term of stock options and the Company’s expected stock price volatility over the term of the awards. 6

6GEN-PROBE INCORPORATED

~~Table~~NOTES TO ofCONSOLIDATED ~~Contents~~FINANCIAL STATEMENTS (Continued)

~~The~~recognizes ~~following~~revenue ~~table~~based ~~presents~~on ~~the~~estimates ~~weighted~~of ~~average~~royalties ~~assumptions~~earned ~~used~~during by the ~~Company~~applicable ~~to estimate~~period ~~the~~and ~~fair~~adjusts ~~value~~for ofdifferences ~~stock~~between ~~options~~the estimated and ~~performance~~actual ~~stock~~royalties ~~awards~~in ~~granted under~~ the ~~Company’s~~following ~~equity~~period. ~~incentive~~Historically, ~~plans~~these ~~and~~adjustments ~~the~~have ~~shares~~not ~~purchasable~~been ~~under~~material. ~~the~~For ~~Company’s~~those ~~ESPP,~~arrangements aswhere ~~well~~royalties asare ~~the~~not ~~resulting~~reasonably ~~average~~estimable, ~~fair~~the ~~values~~Company ~~for~~recognizes ~~the~~revenue ~~three~~upon ~~and nine~~receipt ~~month~~of ~~periods~~royalty ~~ended~~statements ~~September 30,~~from ~~2011~~the ~~and~~applicable ~~2010:~~ licensee.

	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	2011			2010			2011			2010
Stock option plans
Risk-free interest rate		1.5	%		1.5	%		1.7	%		2.1	%
Volatility		32.4	%		31.7	%		30.9	%		32.0	%
Dividend yield		—			—			—			—
Expected term (years)		4.3			4.4			4.3			4.4
Resulting average fair value	$	17.69		$	12.97		$	18.05		$	12.79
Performance stock awards (1)
Risk-free interest rate		—			—			1.3	%		—
Volatility		—			—			33.4	%		—
Dividend yield		—			—			—			—
Expected term (years)		—			—			2.9			—
Resulting average fair value	$	—		$	—		$	82.58		$	—
Employee stock purchase plan
Risk-free interest rate		0.1	%		0.2	%		0.1	%		0.2	%
Volatility		34.6	%		21.5	%		27.9	%		24.0	%
Dividend yield		—			—			—			—
Expected term (years)		0.5			0.5			0.5			0.5
Resulting average fair value	$	17.26		$	9.62		$	14.72		$	9.63

Stock-based Compensation

~~(1)~~Stock-based ~~These~~compensation ~~assumptions~~expense ~~apply~~is torecognized ~~the~~for ~~Company’s~~restricted ~~market~~stock, ~~condition~~deferred issuance restricted stock, performance stock awards, ~~granted~~which ininclude ~~February~~awards ~~2011.~~subject ~~Performance~~to ~~condition~~performance conditions and/or market conditions, stock ~~awards~~options, ~~granted~~and inshares ~~February~~purchasable ~~2010~~under ~~were~~the ~~valued~~Company’s atEmployee ~~$42.66~~Stock ~~per~~Purchase ~~share~~Plan ~~based~~(“ESPP”). onCertain ~~the~~of ~~closing~~these ~~fair~~costs ~~market~~are ~~value~~capitalized ofinto inventory on the Company’s ~~common~~consolidated ~~stock~~balance onsheets, and are recognized as an expense when the ~~date~~related ofproducts ~~grant~~are sold.

The Company’s ~~unrecognized~~uses ~~stock~~the Black-~~based~~Scholes-Merton ~~compensation~~option ~~expense~~pricing asmodel to value stock options granted. The determination of ~~September 30,~~the ~~2011,~~fair ~~before~~value ~~income~~of ~~taxes~~stock ~~and adjusted~~option ~~for~~awards ~~estimated~~on ~~forfeitures,~~the ~~related~~date toof ~~outstanding~~grant ~~unvested~~using ~~share~~the Black-~~based~~Scholes-Merton ~~payment~~model ~~awards~~is ~~was~~affected by the Company’s stock price and the implied volatility on its traded options, as ~~follows~~well ~~(in~~as ~~thousands~~the input of other subjective assumptions. These assumptions include, ~~except~~but ~~number~~are not limited to, the expected term of ~~years):~~stock options and the Company’s expected stock price volatility over the term of the awards.

Awards	Weighted AverageRemainingExpense Life(Years)		UnrecognizedExpense as ofSeptember 30,2011
Stock options		2.6	$	29,472
Performance stock awards		2.3		5,321
Restricted stock		1.4		2,144
Deferred issuance restricted stock		1.4		620
Employee stock purchase plan		0.2		102
Total			$	37,659

Stock-based compensation expense for restricted stock, deferred issuance restricted stock, and performance condition stock awards is measured based on the closing fair market value of the Company’s common stock on the date of grant. Stock-based compensation expense for market condition stock awards is measured based on the fair value of the award on the date of grant using a Monte Carlo simulation model. The Monte Carlo simulation model utilizes multiple point variables that determine the probability of satisfying the market condition stipulated in the grant and calculates the fair value of the award.

7The following table presents the weighted average assumptions used by the Company to estimate the fair value of stock options and performance stock awards granted under the Company’s equity incentive plans and the shares purchasable under the Company’s ESPP, as well as the resulting average fair values:



	Three Months Ended March 31,
	2012			2011
Stock options
Risk-free interest rate	0.7		%	1.7		%
Volatility	34.5		%	31.0		%
Dividend yield	—			—
Expected term (years)	4.3			4.3
Resulting average fair value	$	19.57		$	17.46
Performance stock awards
Risk-free interest rate	0.4		%	1.3		%
Volatility	30.1		%	33.4		%
Dividend yield	—			—
Resulting average fair value	$	81.96		$	82.58
Employee stock purchase plan shares
Risk-free interest rate	0.1		%	0.2		%
Volatility	38.7		%	21.5		%
Dividend yield	—			—
Expected term (years)	0.5			0.5
Resulting average fair value	$	15.27		$	12.27

The following table summarizes the stock-based compensation expense that the Company recorded in its consolidated statements of income for the three and nine month periods ended September 30, 2011 and 2010 (in thousands): 7

	Three Months EndedSeptember 30,				Nine Months EndedSeptember 30,
	2011		2010		2011		2010
Cost of product sales	$	773	$	946	$	2,355	$	2,817
Research and development		1,952		1,783		5,805		5,313
Marketing and sales		535		682		1,881		2,319
General and administrative		3,107		2,788		9,185		8,089
Total	$	6,367	$	6,199	$	19,226	$	18,538

GEN-PROBE INCORPORATED

~~Net~~NOTES TO ~~Income~~CONSOLIDATED ~~(Loss)~~FINANCIAL ~~Per~~STATEMENTS ~~Share~~ (Continued)

Diluted net income (loss) per share is reported based on the more dilutive of the treasury stock or the two-class method. Under the two-class method, net income (loss) is allocated to common stock and participating securities. The Company’s ~~restricted~~unrecognized stock,-based ~~deferred~~compensation ~~issuance~~expense ~~restricted~~as ~~stock and performance stock awards meet the definition~~ of ~~participating~~March 31, ~~securities.~~2012, ~~Basic~~before ~~net~~ income ~~(loss)~~taxes ~~per~~and ~~share under the two-class method is computed by dividing net income (loss)~~ adjusted for ~~earnings~~estimated ~~allocated~~forfeitures, related to ~~unvested stockholders for the period by the weighted average number of common shares~~ outstanding ~~during the period. Diluted net income (loss) per share under the two-class method is computed by dividing net income (loss) adjusted for earnings allocated to~~ unvested stockholders for the period by the weighted average number of common and common equivalent shares outstanding during the period. The Company excludes stock options from the calculation of diluted net income per share ~~when the combined exercise price, unrecognized stock~~-based ~~compensation~~payment ~~and~~awards ~~assumed tax~~was ~~benefits~~as ~~upon~~follows ~~exercise~~(in ~~are greater than the average market price for the Company’s common stock because their effect is anti-dilutive. Potentially dilutive securities totaling approximately 5~~thousands,~~979,000~~ ~~and~~except ~~4,065,000~~number shares for the three month periods ended September 30, 2011 and 2010, respectively, and 906,000 and 4,390,000 shares for the nine month periods ended September 30, 2011 and 2010, respectively, were excluded from the calculations of ~~diluted earnings per share (“EPS”~~years) ~~below because of their anti-dilutive effect.~~ :

The following table sets forth the computation of basic and diluted EPS for the three and nine month periods ended September 30, 2011 and 2010 (in thousands, except per share amounts):



	Weighted Average Remaining Expense Life (Years)	Unrecognized Expense
Stock options	3.0	$	36,530
Performance stock awards	2.6	10,871
Restricted stock	1.8	1,907
Deferred issuance restricted stock	1.2	247
Employee stock purchase plan shares	0.2	118
Total		$	49,673

	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	2011			2010			2011			2010
Basic Net Income (Loss) per Share
Net income (loss)	$	(15,356	)	$	27,396		$	30,265		$	79,699
Less: income allocated to participating securities		—			(99	)		(43	)		(327	)
Net income (loss) allocated to common stockholders	$	(15,356	)	$	27,297		$	30,222		$	79,372
Weighted average common shares outstanding—basic		47,092			48,254			47,613			48,796
Net income (loss) per share—basic	$	(0.33	)	$	0.57		$	0.63		$	1.63
Diluted Net Income (Loss) per Share
Net income (loss)	$	(15,356	)	$	27,396		$	30,265		$	79,699
Less: income allocated to participating securities		—			(99	)		(42	)		(324	)
Net income (loss) allocated to common stockholders	$	(15,356	)	$	27,297		$	30,223		$	79,375
Weighted average common shares outstanding—basic		47,092			48,254			47,613			48,796
Dilutive securities		—			425			1,200			461
Weighted average common shares outstanding—diluted		47,092			48,679			48,813			49,257
Net income (loss) per share—diluted	$	(0.33	)	$	0.56		$	0.62		$	1.61

The following table summarizes the stock-based compensation expense that the Company recorded in its consolidated statements of income for the three month periods ended March 31, 2012 and 2011 (in thousands):



	Three Months Ended March 31,
	2012		2011
Cost of product sales	$	850	$	788
Research and development	1,724		1,792
Marketing and sales	731		612
General and administrative	2,847		2,844
Total	$	6,152	$	6,036

~~Table~~Net ofIncome ~~Contents~~Per Share

~~Pending~~Diluted ~~Adoption~~net income per share is reported based on the more dilutive of ~~Recent~~the ~~Accounting~~treasury ~~Pronouncements~~stock or the two-class method. Under the two-class method, net income is allocated to common stock and participating securities. The Company’s restricted stock, deferred issuance restricted stock and performance stock awards meet the definition of participating securities. Basic net income per share under the two-class method is computed by dividing net income, adjusted for earnings allocated to unvested stockholders for the period, by the weighted average number of common shares outstanding during the period. Diluted net income per share under the two-class method is computed by dividing net income, adjusted for earnings allocated to unvested stockholders for the period, by the weighted average number of common and common equivalent shares outstanding during the period. The Company excludes stock options from the calculation of diluted net income per share when the combined exercise price, unrecognized stock-based compensation expense and assumed tax benefits upon exercise are greater than the average market price for the Company’s common stock because their effect is anti-dilutive. Potentially dilutive securities totaling approximately 1.4 million and 0.7 million shares for the three month periods ended March 31, 2012 and 2011, respectively, were excluded from the calculations of diluted earnings per share (“EPS”) below because of their anti-dilutive effect.

~~Accounting~~The ~~Standards~~following ~~Update~~table sets forth the computation of basic and diluted EPS for the three month periods ended March 31, 2012 and 2011~~-04~~ (in thousands, except per share amounts):

In May 2011, the FASB issued an Accounting Standards Update (“ASU”) on fair value measurement. The ASU expands the disclosure requirements of ASC Topic 820, Fair Value Measurement (“ASC Topic 820”), for fair value measurements and makes other amendments. Specifically, the ASU clarifies the accounting guidance for highest-and-best-use and valuation-premise concepts for non-financial assets, application to financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk, premiums or discounts in fair value measurement, and fair value of an instrument classified in an entity’s stockholders’ equity. Additionally, the ASU expands the disclosure requirements under ASC Topic 820, particularly for Level 3 inputs. The ASU is effective for interim and annual reporting periods of the Company beginning January 1, 2012. Early adoption is not permitted. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.



	Three Months Ended March 31,
	2012			2011
Basic net income per share
Net income	$	22,460		$	23,277
Less income allocated to participating securities	(30		)	(35		)
Net income allocated to common stockholders	$	22,430		$	23,242

Weighted average common shares outstanding - basic	45,124			47,861
Net income per share - basic	$	0.50		$	0.49

~~Accounting Standards Update 2011-05~~ 8

InGEN-PROBE June 2011, the FASB issued an ASU on the presentation of comprehensive income. The ASU removes the presentation options in ASC Topic 220, Comprehensive Income, and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The ASU does not change the items that must be reported in other comprehensive income and does not require any incremental disclosures in addition to those already required under existing accounting guidance. The ASU is effective for interim and annual reporting periods of the Company beginning January 1, 2012. The guidance must be applied retrospectively for all periods presented in the financial statements. Early adoption is permitted. The Company intends to adopt this guidance beginning January 1, 2012. The adoption of this guidance will not have any effect on the Company’s consolidated financial statements. INCORPORATED

~~Accounting~~NOTES TO ~~Standards~~CONSOLIDATED ~~Update~~FINANCIAL ~~2011-08~~STATEMENTS (Continued)

In September 2011, the FASB issued an ASU on performing goodwill impairment testing. The ASU amends the guidance in ASU Topic 350-20, Goodwill. Under the revised guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of the reporting unit (step 1 of the goodwill impairment test). If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. The ASU does not change how goodwill is calculated or assigned to reporting units, does not revise the requirement to test goodwill annually for impairment, and does not amend the requirement to test goodwill for impairment between annual tests if events and circumstances warrant. The ASU provides examples of events and circumstances to consider for qualitative assessment. The amendments are effective for annual and interim goodwill impairment tests performed by the Company beginning January 1, 2012. Early adoption is permitted. The Company intends to adopt this guidance in the fourth quarter of 2011 for its annual goodwill impairment testing. The adoption of this guidance will not have any effect on the Company’s consolidated financial statements.



	Three Months Ended March 31,
	2012			2011
Diluted net income per share
Net income	$	22,460		$	23,277
Less income allocated to participating securities	(29		)	—
Net income allocated to common stockholders	$	22,431		$	23,277

Weighted average common shares outstanding - basic	45,124			47,861
Dilutive securities	1,080			1,143
Weighted average common shares outstanding - diluted	46,204			49,004
Net income per share - diluted	$	0.49		$	0.48

Adoption of Recent Accounting Pronouncements

Accounting Standards Update ~~2010~~2011-06 04

In ~~January~~May ~~2010~~2011, the Financial Accounting Standards Board (“FASB ~~amended~~”) ~~ASC~~issued ~~Topic~~an ~~820~~Accounting toStandards ~~require~~Update ~~reporting~~(“ASU”) ~~entities~~on tofair ~~make~~value ~~new~~measurement. ~~disclosures~~The ~~about~~ASU ~~recurring~~expands ~~and~~the ~~non-recurring~~disclosure ~~fair~~requirements ~~value~~of ~~measurements,~~Accounting ~~including~~Standards ~~significant~~Codification ~~transfers~~(“ASC”) ~~into~~Topic ~~and~~820, ~~out~~Fair ofValue ~~Level~~Measurement 1(“ASC ~~and~~Topic ~~Level~~820”), 2for fair value measurements and ~~information~~makes ~~about purchases,~~other ~~sales,~~amendments. ~~issuances~~Specifically, the ASU clarifies the accounting guidance for highest-and-best-use ~~settlements~~and onvaluation-premise aconcepts ~~gross~~for ~~basis~~non-financial inassets, ~~the~~application ~~reconciliation~~to offinancial ~~Level~~assets 3and ~~fair~~financial ~~value~~liabilities ~~measurements.~~with ~~Except~~offsetting ~~for~~positions ~~the~~in ~~detailed~~market ~~Level~~risks 3or ~~roll~~counterparty ~~forward~~credit ~~disclosures~~risk, ~~the~~premiums ~~guidance~~or ~~was~~discounts ~~effective~~in ~~January 1~~fair value measurement, ~~2010.~~and ~~The~~fair ~~new~~value ~~disclosure requirements~~of ~~for~~an ~~purchases,~~instrument ~~sales,~~classified ~~issuances~~in an entity’s stockholders’ equity. Additionally, ~~and~~the ~~settlements~~ASU inexpands the ~~roll~~disclosure ~~forward~~requirements ~~activity~~under ASC Topic 820, particularly for Level 3 ~~fair~~inputs. ~~value~~The ~~measurements~~ASU ~~were~~was effective for ~~the~~interim ~~Company~~and asannual reporting periods of the Company beginning January 1, ~~2011~~2012. Upon adoption, the guidance did not have a material impact on the Company’s consolidated financial statements and is not expected to have a material impact on its future operating results.

Accounting Standards Update ~~2010~~2011-1705 and 2011-12

In ~~March~~June ~~2010~~2011, the FASB ~~ratified~~issued ASU 2011-05 on the ~~final~~presentation ~~consensus~~of ~~that~~comprehensive ~~offers~~income. anThe ~~alternative~~ASU ~~method~~removes ofthe ~~revenue~~presentation ~~recognition~~options ~~for~~in ~~milestone~~ASC ~~payments.~~Topic ~~The~~220, ~~guidance~~Comprehensive ~~states~~Income, ~~that~~and anrequires ~~entity~~entities ~~can~~to ~~make~~report ancomponents ~~accounting~~of ~~policy~~comprehensive ~~election~~income toin ~~recognize~~either (1) a ~~payment~~continuous ~~that~~statement isof ~~contingent~~comprehensive ~~upon~~income or (2) two separate but consecutive statements. The ASU does not change the ~~achievement~~ ofitems athat ~~substantive~~must ~~milestone~~be reported in ~~its~~other ~~entirety~~comprehensive inincome ~~the~~(loss) ~~period~~and does not require any incremental disclosures in ~~which~~addition ~~the~~to ~~milestone~~those isalready ~~achieved.~~required ~~The~~under existing accounting guidance. ~~has~~The ~~been~~ASU was effective for ~~fiscal~~interim ~~years,~~ and ~~interim~~annual reporting periods ~~within~~of ~~those~~the ~~years~~Company beginning January 1, 2012. For the three months ended March 31, 2012, the Company has applied the provisions of ASU 2011-05 by presenting comprehensive income in a statement separate from the consolidated statements of income.

9In December 2011, the FASB issued ASU 2011-12, deferring certain provisions of ASU 2011-05. One of the provisions of ASU 2011-05 required entities to present reclassification adjustments out of accumulated other comprehensive income (loss) by component in both the statement in which net income is presented and the statement in which other comprehensive income (loss) is presented (for both interim and annual financial statements). This requirement is indefinitely deferred by ASU 2011-12 and will be further deliberated by the FASB at a future date. The effective date of ASU 2011-12 is the same as that for the unaffected provisions of ASU 2011-05.

~~Table~~Accounting ofStandards ~~Contents~~Update 2011-08

~~beginning~~In September 2011, the FASB issued an ASU on orperforming ~~after~~goodwill ~~June 15,~~impairment ~~2010~~testing. ~~with~~The ~~early~~ASU ~~adoption~~amends ~~permitted~~the guidance in ASU Topic 350-20, ~~provided~~Goodwill. ~~that~~Under the revised guidance, isentities ~~applied~~testing ~~retrospectively~~goodwill tofor impairment have the ~~beginning~~option of performing a qualitative assessment before calculating the ~~year~~fair value of ~~adoption~~the reporting unit (step 1 of the goodwill impairment test). ~~The~~If ~~Company~~entities ~~elected to~~determine, ~~adopt~~on ~~this~~the ~~guidance~~basis ~~prospectively~~of qualitative factors, ~~effective~~that ~~for~~the fair value of the ~~Company’s~~reporting ~~fiscal~~unit ~~year~~is ~~beginning~~more ~~January 1,~~likely ~~2011.~~than ~~Upon~~not ~~adoption~~less than the carrying amount, the ~~guidance~~two-step ~~did~~impairment test would be required. The ASU does not ~~have~~change ahow ~~material~~goodwill ~~impact~~is oncalculated or assigned to reporting units, does not revise the ~~Company’s~~requirement ~~consolidated~~to ~~financial~~test ~~statements~~goodwill annually for impairment, and isdoes not ~~expected~~ amend the requirement to ~~have~~test agoodwill ~~material~~for ~~impact~~impairment onbetween ~~its~~annual ~~future~~tests ~~operating~~if ~~results~~events and circumstances warrant. The ASU provides examples of events and circumstances to consider for qualitative assessment. The amendments were effective for annual and interim goodwill impairment tests performed by the Company beginning January 1, 2012. The Company adopted this guidance in the first quarter

~~Accounting Standards Update 2009-13~~ 9

InGEN-PROBE September 2009, the FASB revised the authoritative guidance for revenue arrangements with multiple deliverables. The guidance addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how the arrangement consideration should be allocated among the separate units of accounting. The guidance may be applied retrospectively or prospectively for new or materially modified arrangements. The Company elected to adopt this guidance prospectively, effective for the Company’s fiscal year beginning January 1, 2011. Upon adoption, the guidance did not have a material impact on the Company’s consolidated financial statements and is not expected to have a material impact on its future operating results. INCORPORATED

~~Note~~NOTES TO 2CONSOLIDATED —FINANCIAL ~~Business~~STATEMENTS ~~Combination~~ (Continued)

~~The~~of ~~acquisition~~2012 ~~described below was accounted~~ for asits agoodwill ~~business~~impairment ~~combination~~testing. ~~and,~~The ~~accordingly, the~~ Company ~~has~~does ~~included the~~not ~~results~~believe ~~of operations of~~ the ~~acquired~~adoption ~~entity in its consolidated statements~~ of ~~income~~this ~~from~~guidance ~~the~~will ~~date of acquisition. Neither separate financial statements nor pro forma results of operations~~ have ~~been~~a ~~presented~~material ~~because~~impact ~~the~~on ~~acquisition~~its ~~does~~consolidated ~~not meet~~financial ~~the quantitative materiality tests under Regulation S-X~~statements.

~~Acquisition~~Note of2. Restructuring ~~GTI~~Activities ~~Diagnostics~~

InFollowing ~~December~~its ~~2010~~acquisition of Tepnel Life Sciences plc (“Tepnel”) in April 2009, the Company ~~acquired~~had ~~GTI~~four ~~Diagnostics~~locations in the United Kingdom (“UK”): Manchester, aCardiff, ~~privately~~Livingston, ~~held~~and ~~specialty~~Abingdon. ~~diagnostics~~In ~~company~~order ~~focused~~to onaccommodate the ~~transplantation~~anticipated growth in the business and to optimize expenses, ~~specialty~~ ~~coagulation~~the Company decided to consolidate its UK operations to Manchester and ~~transfusion-~~Livingston. This consolidation was communicated internally in May 2010. The Company estimates that expenses related ~~blood~~to ~~bank~~this ~~markets,~~consolidation ~~for~~will total approximately $534.07 million onand will be incurred in phases over a ~~net~~two-~~cash~~year ~~basis.~~period Asending ain ~~result~~the second quarter of ~~the~~2012. ~~acquisition~~These expenses will include termination costs, ~~GTI~~including ~~Diagnostics~~severance ~~became~~costs arelated ~~wholly~~to ~~owned~~the ~~subsidiary~~elimination of ~~the~~certain ~~Company.~~redundant ~~The~~positions ~~Company~~and ~~financed~~relocation ~~the~~costs ~~acquisition~~for ~~with~~certain ~~cash on~~key ~~hand.~~employees, and site closure costs.

~~The~~During ~~purchase~~the ~~price~~first ~~allocation~~quarter ~~for~~of 2012, the ~~acquisition~~Company ofdecided ~~GTI~~to ~~Diagnostics~~restructure ~~set~~certain ~~forth~~of ~~below~~its isbusiness ~~preliminary~~activities ~~and~~relating ~~subject~~ to ~~change~~ asits ~~more~~acquired ~~detailed~~Genetic ~~analysis~~Testing isInstitute, ~~completed~~Inc. ~~and~~(“GTI ~~additional~~Diagnostics”) ~~information~~business ~~with~~and ~~respect to~~ the ~~fair~~customer ~~value~~service offunctions for the ~~assets~~U.S. ~~and~~portion ~~liabilities~~of ~~acquired~~its ~~becomes~~Tepnel ~~available~~business. The ~~Company~~restructuring ~~intends~~is intended to ~~finalize~~optimize the ~~purchase~~operational ~~price~~efficiency ~~allocation~~and incost ~~the~~structure ~~fourth~~of ~~quarter~~the ~~of 2011~~Company. The ~~$53.0~~Company ~~million~~estimates ~~purchase~~that ~~price~~expenses ~~for~~relating ~~GTI~~to ~~Diagnostics~~this ~~exceeded~~restructuring ~~the~~will ~~value~~total of$0.5 ~~the~~million ~~acquired tangible~~ and ~~identifiable~~will ~~intangible~~be ~~assets,~~incurred ~~and~~within ~~therefore~~ the ~~Company~~first ~~originally~~half ~~allocated~~of ~~$28~~2012.0 ~~million~~These toexpenses ~~goodwill.~~will ~~During~~include ~~the~~severance ~~nine~~costs ~~months~~related ~~ended September 30,~~to ~~2011,~~ the ~~Company~~elimination ~~recorded~~of ~~adjustments~~certain topositions ~~the~~and ~~purchase~~site ~~price~~closure ~~allocation~~costs ~~resulting~~relating into a ~~net~~facility ~~decrease~~outside of ~~$1.2 million to goodwill. The adjusted purchase price allocation for~~ the ~~Company’s acquisition of GTI Diagnostics as of September 30, 2011 is as follows (in thousands):~~ U.S.

Total purchase price	$	53,000
Net working capital	$	7,882
Fixed assets		922
Goodwill		26,801
Net deferred tax liabilities		(10,862	)
Other intangible assets		32,100
Liabilities assumed		(3,843	)
Allocated purchase price	$	53,000

During the three months ended March 31, 2012, the Company recorded approximately $1.1 million of termination and site closure costs. These amounts are included in general and administrative expenses in the Company’s consolidated statements of income. Through March 31, 2012, the Company has recorded approximately $4.9 million of cumulative termination and site closure costs related to these restructuring activities.

The ~~fair~~following ~~values~~table ofsummarizes the ~~acquired~~restructuring ~~identifiable~~activities ~~intangible~~accounted ~~assets~~for ~~with~~under ~~definite~~ASC ~~lives~~Topic ~~are~~420 for the three months ended March 31, 2012, as ~~follows~~well as the remaining restructuring accrual on the Company’s consolidated balance sheets as of March 31, 2012 (in thousands):

Patents	$	10,600
	TerminationCosts			Site ClosureCosts			Total
In-process research and development		11,900
Restructuring reserves as of December 31, 2011	$	267		$	440		$	707
Customer relationships		3,500
Charged to expenses	657			448			1,105
Trade secrets		6,100
Amounts paid	(460		)	(425		)	(885		)
Total	$	32,100
Foreign currency translation	10			14			24
Restructuring reserves as of March 31, 2012	$	474		$	477		$	951

10Note 3. Balance Sheet Information

~~Table~~The following tables provide details of ~~Contents~~selected balance sheet line items as of March 31, 2012 and December 31, 2011 (in thousands):

The amortization periods for the acquired identifiable intangible assets with definite lives are as follows: six to nine years for patents, ten years for customer relationships, 20 years for trade secrets, and an estimated life to be determined for each in-process research and development project (to commence upon commercialization of the associated product). The Company is amortizing the acquired identifiable intangible assets set forth in the table above using the straight-line method of amortization. The Company believes that the use of the straight-line method is appropriate given the high customer retention rate of the acquired business, the historical and projected growth of revenues and related cash flows, and because the timing and amount of cash flows used for valuation purposes cannot be reliably determined. The Company will monitor and assess the acquired identifiable intangible assets and will adjust, if necessary, the expected life, amortization method or carrying value of such assets to best match the underlying economic value. Inventories

The fair value assigned to trade secrets has been determined primarily by using the income approach and a variation of the income approach known as the relief from royalty method, which estimates the future royalties which would have to be paid to the licensor of the asset for its current use. Tax is deducted and a discount rate is used to state future cash flows to a present value. This is based on the asset in its current use and savings from owning the asset, or relief from royalties that would be paid to the asset owner. The fair value assigned to patents, in-process research and development, and customer relationships has been determined primarily by using the income approach and a variation of the income approach known as the excess earnings method, which estimates the value of an asset based on discounted future earnings specifically attributed to that asset, that is, in excess of returns for other assets that contributed to those earnings. The discount rates used in these valuation methods ranged from 13 to 16 percent.



	March 31, 2012		December 31, 2011
Raw materials and supplies	$	18,170	$	19,429
Work in process	28,192		27,464
Finished goods	34,969		30,993
Inventories	$	81,331	$	77,886

The estimated amortization expense for the acquired identifiable intangible assets over future periods, excluding the in-process research and development assets due to uncertainty with respect to the commercialization of such assets, is as follows (in thousands): 10

Years Ending December 31,
Remainder of 2011	$	496
2012		1,983
2013		1,983
2014		1,983
2015		1,983
Thereafter		10,290
Total	$	18,718

GEN-PROBE INCORPORATED

~~Changes~~NOTES TO inCONSOLIDATED ~~Goodwill~~FINANCIAL ~~Resulting~~STATEMENTS ~~From Acquisitions~~ (Continued)

~~Changes~~Property, inPlant ~~goodwill~~and ~~for the nine months ended September 30~~Equipment, ~~2011 were as follows (in thousands):~~ Net

Goodwill balance as of December 31, 2010	$	150,308
	March 31, 2012			December 31, 2011
Additional goodwill recognized from purchase price allocation adjustments		79
Land	$	19,369		$	19,355
Reduction to goodwill from purchase price allocation adjustments		(1,282	)
Building	79,809			80,005
Changes due to foreign currency translation		84
Machinery and equipment	219,786			213,729
Goodwill balance as of September 30, 2011	$	149,189
Building improvements	64,956			60,628
Furniture and fixtures	22,270			21,790
Construction in-progress	1,199			2,789
Property, plant and equipment, at cost	407,389			398,296
Less: accumulated depreciation and amortization	(227,119		)	(222,215		)
Property, plant and equipment, net	$	180,270		$	176,081

~~Note~~Purchased ~~3 — Consolidation of UK Operations~~ Intangibles

Following its acquisition of Tepnel in April 2009, the Company had four locations in the UK: Manchester, Cardiff, Livingston, and Abingdon. In order to accommodate the anticipated growth in the business and to optimize expenses, the Company decided to consolidate its UK operations to Manchester and Livingston. This consolidation was communicated internally in May 2010. Consolidation activities related to the employees and facilities are being accounted for under ASC Topic 420, Exit or Disposal Costs (“ASC Topic 420”). The Company estimates that expenses related to this consolidation will total approximately $4.2 million and be incurred over a two-year period, as the consolidation will occur in phases. These expenses will include termination costs, including severance costs related to the elimination of certain redundant positions and relocation costs for certain key employees, and site closure costs.



	March 31, 2012					December 31, 2011
	Gross		Accumulated Amortization			Gross		Accumulated Amortization
Customer relationships	$	77,720	$	(17,447	)	$	77,326	$	(15,723	)
Developed technology	59,206		(38,855		)	59,206		(38,292		)
Trademarks	10,879		(1,631		)	10,817		(1,487		)
Trade names	7,300		(526		)	7,300		(435		)
In-process research and development	7,907		—			7,907		—
Total purchased intangibles	$	163,012	$	(58,459	)	$	162,556	$	(55,937	)

11License, Manufacturing Access Fees and Other Assets, Net



	March 31, 2012			December 31, 2011
License and manufacturing access fees	$	68,488		$	67,906
Investment in Qualigen, Inc.	5,404			5,404
Investment in DiagnoCure, Inc.	5,000			5,000
Investment in Roka Bioscience, Inc.	4,705			4,705
Other assets	11,909			11,257
License, manufacturing access fees and other assets, at cost	95,506			94,272
Less: accumulated amortization	(34,260		)	(32,534		)
License, manufacturing access fees and other assets, net	$	61,246		$	61,738

~~During~~Other ~~the~~Accrued nine months ended September 30, 2011, the Company recorded approximately $2.1 million of termination and site closure costs. These amounts are included in general and administrative expenses in the Company’s consolidated statements of income. As of September 30, 2011, the Company has recorded approximately $3.2 million of cumulative termination costs and site closure costs related to its UK consolidation activities. Expenses

The following table summarizes the restructuring activities accounted for under ASC Topic 420 for the nine months ended September 30, 2011, as well as the remaining restructuring accrual on the Company’s consolidated balance sheets as of September 30, 2011 (in thousands):



	March 31, 2012		December 31, 2011

Research and development	$	5,431	$	3,554
Professional fees	3,471		1,148
Royalties	2,778		3,047
Marketing and sales	1,754		1,261
Other	4,150		3,836
Other accrued expenses	$	17,584	$	12,846

	TerminationCosts			Site ClosureCosts			Total
Restructuring reserves at December 31, 2010	$	287		$	78		$	365
Charged to expenses		633			1,486			2,119
Amounts paid		(696	)		(1,090	)		(1,786	)
Foreign currency translation		4			(12	)		(8	)
Restructuring reserves at September 30, 2011	$	228		$	462		$	690

~~Note~~GEN-PROBE ~~4 — Balance Sheet Information~~ INCORPORATED

~~The following tables provide details of selected balance sheet line items as of September~~NOTES ~~30,~~TO ~~2011~~CONSOLIDATED ~~and December 31,~~FINANCIAL ~~2010~~STATEMENTS (~~in thousands~~Continued):

~~Inventories~~Note 4. Marketable Securities

	September 30,2011		December 31,2010
Raw materials and supplies	$	18,984	$	16,915
Work in process		28,276		21,446
Finished goods		29,269		28,055
Inventories	$	76,529	$	66,416

The Company’s marketable securities include equity securities, mutual funds, treasury securities and tax advantaged municipal securities. The equity securities consist of investments in common stock. The deferred compensation plan assets are invested in mutual funds with quoted market prices. The Company’s investment policy limits the effective maturity on individual securities to six years and an average portfolio maturity to three years with a minimum Moody’s credit rating of A3 or a Standard & Poor’s credit rating of A-. As of March 31, 2012, the Company’s portfolio had an average maturity of three years and an average credit quality of AA1 as defined by Moody’s.

~~Property~~The following is a summary of marketable securities as of March 31, ~~Plant~~2012 and ~~Equipment~~December 31, ~~Net~~2011 (in thousands):

	September 30,2011			December 31,2010
	AmortizedCost			GrossUnrealizedGains			GrossUnrealizedLosses			EstimatedFair Value
Land	$	19,357		$	19,287
March 31, 2012
Building		80,036			80,010
Debt securities	$	251,494		$	487		$	(677	)	$	251,304
Machinery and equipment		212,913			195,927
Equity securities	10,518			688			—			11,206
Building improvements		55,798			48,217
Mutual funds	6,233			408			—			6,641
Furniture and fixtures		21,036			21,999
Total marketable securities	$	268,245		$	1,583		$	(677	)	$	269,151
Construction in-progress		2,007			1,855
December 31, 2011
Property, plant and equipment, at cost		391,147			367,295
Debt securities	$	270,745		$	1,298		$	(191	)	$	271,852
Less: accumulated depreciation and amortization		(220,841	)		(206,432	)
Equity securities	10,518			—			(1,344		)	9,174
Property, plant and equipment, net	$	170,306		$	160,863
Mutual funds	6,127			16			(88		)	6,055
Total marketable securities	$	287,390		$	1,314		$	(1,623	)	$	287,081

The following table shows the estimated fair values and gross unrealized losses as of March 31, 2012 for the Company’s investments in individual debt securities that have been in a continuous unrealized loss position deemed to be temporary for less than 12 months and for more than 12 months (in thousands):



Less than 12 Months					More than 12 Months
Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
$	76,895	$	(677	)	$	—	$	—

~~Purchased~~As ~~Intangibles~~of March 31, ~~Net~~2012 and December 31, 2011, the Company had 22 and 18 marketable debt securities, respectively, in an unrealized loss position. Of the 22 debt securities in an unrealized loss position as of March 31, 2012, the average estimated fair value and average unrealized loss was $3.5 million and $31,000, respectively. Of the 18 debt securities in an unrealized loss position at December 31, 2011, the average estimated fair value and average unrealized loss was $2.9 million and $11,000, respectively.

	September 30,2011			December 31,2010
Purchased intangibles, at cost	$	166,650		$	166,541
Less: accumulated amortization		(53,540	)		(46,271	)
Purchased intangibles, net	$	113,110		$	120,270

The contractual terms of the debt securities held by the Company do not permit the issuer to settle the securities at a price less than the amortized cost of the investments. The Company does not consider its investments in debt securities with a current unrealized loss position to be other-than-temporarily impaired as of March 31, 2012 because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost.

~~License~~The Company periodically reviews its marketable equity securities for other-than-temporary declines in fair value below their cost basis, ~~Manufacturing~~or ~~Access~~whenever ~~Fees~~events or circumstances indicate that the carrying amount of an asset may not be recoverable. The determination that a decline is other-than-temporary is, in part, subjective and ~~Other~~influenced ~~Assets~~by many factors. When assessing marketable equity securities for other-than-temporary declines in value, ~~Net~~the Company considers factors including: the significance of the decline in value compared to the cost basis; the underlying factors contributing to a decline in the prices of securities in a single asset class; how long the market value of the investment has been less than its cost basis; any market conditions that impact liquidity; the views of external investment analysts; the financial condition and near-term prospects of the investee; any news or

	September 30,2011			December 31,2010
License and manufacturing access fees	$	67,915		$	64,259
Investment in Qualigen, Inc.		5,404			5,404
Investment in DiagnoCure, Inc.		5,000			5,000
Investment in Roka Bioscience, Inc.		4,705			725
Other assets		10,470			10,377
License, manufacturing access fees and other assets, at cost		93,494			85,765
Less: accumulated amortization		(30,777	)		(25,590	)
License, manufacturing access fees and other assets, net	$	62,717		$	60,175

~~Other~~GEN-PROBE ~~Accrued Expenses~~ INCORPORATED

	September 30,2011		December 31,2010
Research and development	$	3,994	$	3,385
Royalties		2,517		3,978
Professional fees		1,598		1,182
Marketing		1,050		1,177
Warranty		214		373
Interest		179		233
Other		3,540		3,607
Other accrued expenses	$	13,092	$	13,935

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~Note~~financial 5information —that ~~Marketable~~has ~~Securities~~been released specific to the investee; and the outlook for the overall industry in which the investee operates.

The ~~Company’s~~following ~~marketable~~table ~~securities~~shows ~~include~~the ~~equity~~current ~~securities, treasury securities, tax advantaged municipal securities~~ and ~~Federal~~non-current ~~Deposit~~classification ~~Insurance~~of ~~Corporation~~the ~~(“FDIC”) insured corporate bonds. The~~ Company’s ~~investment~~marketable ~~policy limits the effective maturity on individual~~ securities toas ~~six years and an average portfolio maturity to three years with a minimum Moody’s credit rating~~ of ~~A3 or a Standard~~March &31, ~~Poor’s~~2012 ~~credit~~and ~~rating of A-. As of September~~December 3031, 2011, ~~the~~(in ~~Company’s portfolio had an average maturity of three years and an average credit quality of AA1 as defined by Moody’s.~~ thousands):



	March 31, 2012		December 31, 2011
Current	$	174,409	$	218,789
Non-current⁽¹⁾	94,742		68,292
Total marketable securities	$	269,151	$	287,081

~~Table of Contents~~____________

~~The~~(1) ~~following~~Deferred iscompensation aplan ~~summary~~assets ofinvested ~~marketable~~in ~~securities~~mutual ~~held~~funds byare ~~the~~included ~~Company~~under asthe ~~of September 30~~caption “License, ~~2011~~manufacturing access fees and ~~December 31~~other assets, ~~2010~~net” ~~(in~~on ~~thousands):~~the Company’s consolidated balance sheets.

	AmortizedCost		GrossUnrealizedGains		GrossUnrealizedLosses			EstimatedFair Value
September 30, 2011
Debt securities:
Municipal securities	$	273,629	$	650	$	(546	)	$	273,733
Equity securities		10,518		—		—			10,518
Total marketable securities	$	284,147	$	650	$	(546	)	$	284,251
December 31, 2010
Debt securities:
Treasury securities	$	7,937	$	11	$	(57	)	$	7,891
Municipal securities		368,583		550		(2,833	)		366,300
Corporate debt securities		3,722		—		(78	)		3,644
Equity securities		50,000		2,130		—			52,130
Total marketable securities	$	430,242	$	2,691	$	(2,968	)	$	429,965

As of March 31, 2012, the Company held non-current marketable debt and equity securities of $76.9 million and $11.2 million, respectively, and non-current deferred compensation plan assets invested in mutual funds of $6.6 million. As of December 31, 2011, the Company held non-current marketable debt and equity securities of $53.0 million and $9.2 million, respectively, and non-current deferred compensation plan assets invested in mutual funds of $6.1 million. Investments in an unrealized loss position deemed to be temporary as of March 31, 2012 and December 31, 2011 that have a contractual maturity of greater than 12 months have been classified on the Company’s consolidated balance sheets as non-current marketable securities under the caption “Marketable securities, net of current portion,” reflecting the Company’s current intent and ability to hold such investments to maturity. The Company’s investments in marketable debt and equity securities, other than mutual funds, are classified as available-for-sale.

The following table shows the ~~estimated~~gross ~~fair~~realized ~~values~~gains and ~~gross unrealized~~ losses asfrom ~~of September 30, 2011 for~~ the ~~Company’s~~ ~~investments~~sale inof ~~individual~~marketable ~~debt and equity~~ securities, ~~that~~based ~~have~~on ~~been~~the inspecific aidentification ~~continuous~~method ~~unrealized~~during ~~loss~~the ~~position~~three ~~deemed~~month toperiods beended ~~temporary~~March ~~for~~31, ~~less~~2012 ~~than 12 months~~ and ~~for~~2011 ~~more than 12 months~~ (in thousands):

Less than 12 Months				More than 12 Months
	Three Months Ended March 31,
Estimated Fair Value	UnrealizedLosses			Estimated FairValue			UnrealizedLosses
	2012			2011
$ 122,251	$	(546	)	$	2,000		$	—
Proceeds from sale of marketable securities	$	146,184		$	30,153
Gross realized gains	$	1,957		$	2
Gross realized losses	—			(356		)
Net realized gain (loss)	$	1,957		$	(354	)

AtNote ~~September 30, 2011 and December 31, 2010, the Company had 35 and 110 marketable debt securities, respectively, in an unrealized loss position~~5. Fair OfValue ~~the~~Measurements 35 debt securities in an unrealized loss position at September 30, 2011, the average estimated fair value and average unrealized loss was $3.6 million and $16,000, respectively. Of the 110 debt securities in an unrealized loss position at December 31, 2010, the average estimated fair value and average unrealized loss was $2.1 million and $27,000, respectively. The decrease in the number of debt securities held in an unrealized loss position at September 30, 2011 is due to the timing of purchases and sales of the Company’s debt securities during the first nine months of 2011, along with decreases in market interest rates.

The ~~contractual~~Company ~~terms~~determines the fair value of ~~the~~its ~~debt~~assets ~~securities~~and ~~held~~liabilities bybased on the ~~Company~~exchange doprice ~~not~~that ~~permit~~would ~~the~~be ~~issuer~~received tofor ~~settle~~an ~~the~~asset ~~securities~~or atpaid to transfer a liability (exit price) ~~less~~in ~~than~~ the ~~amortized~~principal ~~cost~~or most advantageous market for the asset or liability in an orderly transaction between market participants as of the ~~investments~~measurement date. ~~The~~There ~~Company~~is ~~does~~an ~~not~~established ~~consider~~hierarchy ~~its~~for ~~investments~~inputs used in ~~debt~~measuring ~~securities~~fair ~~with~~value athat ~~current~~maximizes ~~unrealized~~the ~~loss~~use ~~position~~of toobservable beinputs ~~other-than-temporarily~~and ~~impaired~~minimizes asthe use of ~~September 30,~~unobservable ~~2011,~~inputs ~~because~~by requiring that the ~~Company~~most ~~does~~observable ~~not~~inputs ~~intend to~~be ~~sell~~used when available. Observable inputs are inputs market participants would use in valuing the ~~investments~~asset or liability and itare isdeveloped ~~not~~based ~~more~~on ~~likely~~market ~~than~~data ~~not~~obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s ~~will~~assumptions beabout ~~required~~the tofactors ~~sell~~market participants would use in valuing the ~~investments~~asset ~~before~~or ~~recovery~~liability. Applicable accounting guidance under ASC Topic 820 establishes three levels of ~~their~~inputs ~~amortized~~that ~~cost.~~may be used to measure fair value:

~~The~~• ~~Company~~Level ~~periodically~~1 ~~reviews its marketable equity securities for other~~-~~than-temporary declines~~ inQuoted fair value below their cost basis, or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. The determination that a decline is other-than-temporary is, in part, subjective and influenced by many factors. When assessing marketable equity securities for other-than-temporary declines in value, the Company considers factors including: the significance of the decline in value compared to the cost basis; the underlying factors contributing to a decline in the prices of securities in a single asset class; how long the market value of the investment has been less than its cost basis; any market conditions that impact liquidity; the views of external investment managers; the financial condition and near-term prospects of the investee; any news or financial information that has been released specific to the investee; and the outlook for ~~the~~identical ~~overall~~instruments ~~industry~~ in ~~which~~active ~~the investee operates~~markets. During the third quarter of 2011, the Company recorded an other-than-temporary impairment loss of $39.5 million related to the Company’s investment in Pacific Biosciences of California, Inc. (“Pacific Biosciences”), which reduced the Company’s cost basis in the Pacific Biosciences’ common stock from

14• Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

~~Table~~• ofLevel ~~Contents~~3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

~~$50.0 million~~Assets toand ~~$10.5~~liabilities ~~million.~~are ~~The~~classified ~~loss~~based isupon ~~recorded within~~ the ~~Company’s~~lowest ~~other~~level ~~income (expense) section on the consolidated statements~~ of ~~income.~~input ~~The~~that ~~charge~~is tosignificant ~~earnings was offset by a reduction in unrealized losses recorded in accumulated other comprehensive income resulting in no impact on the Company’s consolidated stockholders’ equity. In addition~~ to the ~~Company’s~~fair ~~investment,~~value ~~the Company continues to collaborate with Pacific Biosciences in the development of third generation sequencing systems for in vitro diagnostics~~measurement.

~~The following table shows the current and non-current classification of the Company’s marketable securities as of September 30, 2011 and December 31, 2010 (in thousands):~~ 13

	September 30,2011		December 31,2010
Current	$	160,305	$	170,648
Non-current		123,946		259,317
Total marketable securities	$	284,251	$	429,965

GEN-PROBE INCORPORATED

~~As of September~~NOTES ~~30,~~TO ~~2011,~~CONSOLIDATED ~~the~~FINANCIAL ~~Company~~STATEMENTS held non-current marketable debt and equity securities of $113.4 million and $10.5 million, respectively. As of December 31, 2010, the Company held non-current marketable debt and equity securities of $207.2 million and $52.1 million, respectively. Investments in an unrealized loss position deemed to be temporary at September 30, 2011 and December 31, 2010 that have a contractual maturity of greater than 12 months have been classified on the Company’s consolidated balance sheets as non-current marketable securities under the caption “Marketable securities, net of current portion,” reflecting the Company’s current intent and ability to hold such investments to maturity. The Company’s investments in marketable debt securities and marketable equity securities are classified as available-for-sale. (Continued)

The ~~following~~carrying ~~table~~amounts ~~shows~~of ~~the~~financial ~~gross~~instruments ~~realized~~such ~~gains~~as cash equivalents, accounts receivable, prepaid and ~~losses~~other ~~from~~current assets, accounts payable and other current liabilities approximate the ~~sale of~~related ~~marketable~~fair ~~securities,~~values ~~based~~due onto the ~~specific~~short-term ~~identification~~maturities ~~method,~~of ~~for~~these instruments. The Company reviews the ~~three~~fair ~~and~~value ~~nine~~hierarchy ~~month~~on ~~periods~~a ~~ended~~quarterly ~~September 30,~~basis. ~~2011~~Changes ~~and~~in ~~2010~~the (observations or valuation inputs may result in ~~thousands):~~a reclassification of levels for certain securities within the fair value hierarchy.

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2011		2010			2011			2010
Proceeds from sale of marketable securities	$	195,666	$	126,754		$	420,844		$	412,019
Gross realized gains	$	2,894	$	2,261		$	5,006		$	6,346
Gross realized losses		—		(4	)		(356	)		(15	)
Net realized gain	$	2,894	$	2,257		$	4,650		$	6,331

Set forth below is a description of the Company’s valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy. Where appropriate, the description includes details of the valuation models, the key inputs to those models, as well as any significant assumptions.

~~Note~~Assets 6and —Liabilities Measured at Fair Value ~~Measurements~~on a Recurring Basis

The Company’s ~~determines~~cash ~~the~~equivalents ~~fair~~and ~~value~~marketable ofsecurities ~~its~~include ~~assets~~equity ~~and~~securities, ~~liabilities based~~mutual onfunds, ~~the~~treasury ~~exchange~~securities, ~~price~~tax ~~that~~advantaged ~~would~~municipal besecurities, ~~received~~and ~~for~~money anmarket ~~asset~~funds. When oravailable, ~~paid~~the Company uses quoted market prices to ~~transfer~~determine afair ~~liability~~value ~~(exit~~and ~~price)~~classifies insuch ~~the~~items ~~principal~~as orLevel ~~most~~1. ~~advantageous~~The ~~market~~Company’s ~~for~~Level ~~the~~1 ~~asset~~financial orinstruments ~~liability~~include inequity ansecurities ~~orderly~~and ~~transaction~~mutual ~~between~~funds. ~~market~~The ~~participants~~Company asobtains the fair value of ~~the measurement~~its ~~date.~~Level ~~There~~2 isfinancial aninstruments ~~established~~from ~~hierarchy~~a ~~for~~professional ~~inputs~~pricing ~~used~~service, inwhich ~~measuring~~may determine the fair value ~~that~~using ~~maximizes~~quoted ~~the~~prices ~~use~~for ofrecently ~~observable~~traded ~~inputs~~financial ~~and~~instruments ~~minimizes~~with ~~the~~similar ~~use~~underlying ofterms ~~unobservable~~as ~~inputs~~well byas ~~requiring~~directly ~~that~~or ~~the~~indirectly ~~most~~ observable inputs, besuch ~~used~~as ~~when~~interest ~~available. Observable~~rates ~~inputs~~and yield curves that are ~~inputs~~observable ~~market~~at ~~participants~~commonly ~~would~~quoted ~~use~~intervals. inThe ~~valuing~~Company validates the ~~asset~~fair orvalue ~~liability~~of ~~and~~its ~~are~~Level ~~developed~~2 ~~based~~marketable ondebt ~~market~~securities ~~data~~provided ~~obtained~~by ~~from~~its ~~sources~~professional ~~independent~~pricing ofservice by evaluating the ~~Company.~~reasonableness ~~Unobservable~~of ~~inputs~~the ~~are~~methods ~~inputs~~and ~~that~~assumptions ~~reflect~~used by the ~~Company’s assumptions~~professional ~~about~~pricing ~~the~~service, ~~factors~~and ~~market~~by ~~participants~~comparing ~~would~~their ~~use~~assessment inof ~~valuing~~the fair value of the ~~asset~~Company’s orinvestment ~~liability.~~portfolio ~~Applicable~~against ~~accounting~~the ~~guidance~~fair ~~under~~value ~~ASC~~of ~~Topic~~the ~~820~~Company’s ~~establishes~~investment ~~three~~portfolio ~~levels~~from ofan ~~inputs~~independent ~~that~~professional ~~may~~pricing besource ~~used~~and towith ~~measure~~publicly ~~fair~~available ~~value:~~data for actual transactions.

•The ~~Level~~following 1tables —present ~~Quoted~~the ~~prices~~Company’s fair value hierarchy for ~~identical~~assets ~~instruments~~and inliabilities ~~active~~measured ~~markets.~~at fair value on a recurring basis (as described above) as of March 31, 2012 and December 31, 2011 (in thousands):

• Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.



	March 31, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Carrying Value in the Consolidated Balance Sheets
Assets
Cash equivalents	$	—	$	82,762	$	—	$	82,762
Marketable securities
Equity securities	11,206		—		—		11,206
Municipal securities	—		251,304		—		251,304
Mutual funds	6,641		—		—		6,641
Total marketable securities	17,847		251,304		—		269,151
Total assets at fair value	$	17,847	$	334,066	$	—	$	351,913
Liabilities
Deferred compensation plan liabilities	$	6,641	$	—	$	—	$	6,641
Total liabilities at fair value	$	6,641	$	—	$	—	$	6,641

~~• Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.~~14

Assets and liabilities are classified based upon the lowest level of input that is significant to the fair value measurement. The carrying amounts of financial instruments such as cash equivalents, accounts receivable, prepaid and other current assets, accounts payable and other current liabilities approximate the related fair values due to the shortGEN-~~term~~PROBE maturities of these instruments. The Company reviews the fair value hierarchy on a quarterly basis. Changes in the observations or valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. INCORPORATED

15NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	December 31, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Carrying Value in the Consolidated Balance Sheets
Assets
Cash equivalents	$	—	$	28,364	$	—	$	28,364
Marketable securities
Equity securities	9,174		—		—		9,174
Municipal securities	—		271,852		—		271,852
Mutual funds	6,055		—		—		6,055
Total marketable securities	15,229		271,852		—		287,081
Total assets at fair value	$	15,229	$	300,216	$	—	$	315,445
Liabilities
Deferred compensation plan liabilities	$	6,055	$	—	$	—	$	6,055
Total liabilities at fair value	$	6,055	$	—	$	—	$	6,055

~~Set~~Activity ~~forth~~Between ~~below is a description of the Company’s valuation methodologies used for assets~~ and ~~liabilities~~Within ~~measured~~Levels ~~at fair value, as well as the general classification~~ of ~~such instruments pursuant to~~ the ~~valuation~~Fair ~~hierarchy.~~Value ~~Where appropriate, the description includes details of the valuation models, the key inputs to those models, as well as any significant assumptions.~~ Hierarchy

~~Assets~~The Company’s policy is to record transfers of assets and liabilities between Level 1 and Level 2 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. There were no transfers between levels during the first quarter of 2012. In the fourth quarter of 2011, the Company converted its deferred compensation plan assets into mutual funds traded in active markets with quoted market prices. Similarly, in the fourth quarter of 2011, the participants’ selected investments were converted to investments based on mutual funds traded in active markets with quoted market prices. Liabilities ~~Measured~~under the deferred compensation plan are recorded at ~~Fair~~amounts ~~Value~~due to participants, based on athe ~~Recurring~~fair ~~Basis~~value of the participants’ selected investments. Therefore, for the year ended December 31, 2011, the Company transferred $6.1 million of both deferred compensation plan assets and deferred compensation plan liabilities, respectively, from Level 2 to Level 1.

~~The~~For ~~Company’s~~those ~~cash~~financial ~~equivalents~~instruments ~~and~~measured ~~marketable~~at ~~securities~~fair ~~include equity~~value ~~securities,~~on ~~treasury~~a ~~securities,~~recurring ~~tax advantaged municipal securities, FDIC insured corporate bonds~~ and ~~money~~non-recurring ~~market~~basis ~~funds.~~with ~~When~~significant ~~available, the Company uses quoted market prices to determine fair value and classifies such items as~~ Level 3 ~~1. If quoted market prices are not available~~inputs, ~~prices~~there ~~are~~was ~~determined~~no ~~using~~activity ~~prices~~ for ~~recently~~the ~~traded~~three ~~financial~~months ~~instruments~~ended ~~with similar underlying terms as well as directly or indirectly observable inputs~~March 31, ~~such as interest rates and yield curves that are observable at commonly quoted intervals~~2012. ~~The Company classifies such items as Level 2.~~

InAssets ~~connection~~and ~~with~~Liabilities aMeasured ~~collaboration~~at ~~agreement~~Fair ~~the~~Value Company entered into with Pacific Biosciences in June 2010, the Company purchased $50.0 million of Pacific Biosciences’ Series F preferred stock, as a participant in Pacific Biosciences’ Series F preferred stock round of financing that raised a total of approximately $109.0 million. In October 2010, Pacific Biosciences completed an initial public offering of its common stock, which now trades on ~~the NASDAQ Global Select Market under the symbol “PACB.” As~~ a result of the initial public offering, the preferred stock held by the Company was converted into common stock. During the quarter ended December 31, 2010, the Company reclassified its investment in Pacific Biosciences from a Level 3 investment to a Level 1 investment. During the third quarter of 2011, the Company recorded an otherNon-~~than-temporary~~recurring impairment loss of $39.5 million related to the Company’s investment in Pacific Biosciences, which reduced the Company’s cost basis in the Pacific Biosciences’ common stock from $50.0 million to $10.5 million. The Company’s investment in Pacific Biosciences, which had a value of $10.5 million as of September 30, 2011, is included in “Marketable securities, net of current portion,” on the Company’s consolidated balance sheets. Basis

~~The~~Certain ~~following~~assets ~~table~~and ~~presents~~liabilities, ~~the~~including ~~Company’s~~cost method investments, are measured at fair value ~~hierarchy~~on ~~for~~a ~~assets~~non-recurring basis and ~~liabilities~~therefore are not included in the tables above. Such instruments are not measured at fair value on aan ~~recurring~~ongoing basis ~~(as~~but ~~described~~are ~~above)~~subject asto offair ~~September 30,~~value ~~2011~~adjustments ~~and~~in ~~December 31,~~certain ~~2010~~circumstances (infor ~~thousands):~~example, when there is evidence of impairment).

	Fair Value Measurements at September 30, 2011
	Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1)		SignificantOtherObservableInputs(Level 2)		SignificantUnobservableInputs(Level 3)		Total CarryingValue in theConsolidatedBalance Sheets
Assets:
Cash equivalents	$	—	$	55,054	$	—	$	55,054
Marketable securities
Equity securities		10,518		—		—		10,518
Municipal securities		—		273,733		—		273,733
Total marketable securities		10,518		273,733		—		284,251
Deferred compensation plan assets		—		5,758		—		5,758
Total assets at fair value	$	10,518	$	334,545	$	—	$	345,063
Liabilities:
Deferred compensation plan liabilities	$	—	$	5,538	$	—	$	5,538
Total liabilities at fair value	$	—	$	5,538	$	—	$	5,538

Equity Investment in Public Company

16In April 2009, the Company made a $5.0 million preferred stock investment in DiagnoCure, Inc. (“DiagnoCure”), a publicly-held company traded on the Toronto Stock Exchange. The Company’s equity investment was initially valued based on the transaction price under the cost method of accounting. The market value of the underlying common stock is the most observable value of the preferred stock, but because there is no active market for DiagnoCure’s preferred shares the Company has classified its equity investment in DiagnoCure as Level 2 in the fair value hierarchy. The Company's investment in DiagnoCure, which had a value of $5.0 million as of March 31, 2012, is included in “Licenses, manufacturing access fees and other assets, net” on the Company’s consolidated balance sheets.

~~Table~~Equity ofInvestments ~~Contents~~in Private Companies

	Fair Value Measurements at December 31, 2010
	Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1)		SignificantOtherObservableInputs(Level 2)		SignificantUnobservableInputs(Level 3)		Total CarryingValue in theConsolidatedBalance Sheets
Assets:
Cash equivalents	$	—	$	1,211	$	—	$	1,211
Marketable securities
Equity securities		52,130		—		—		52,130
Treasury securities		—		7,891		—		7,891
Municipal securities		—		366,300		—		366,300
Corporate debt securities		—		3,644		—		3,644
Total marketable securities		52,130		377,835		—		429,965
Deferred compensation plan assets		—		6,298		—		6,298
Total assets at fair value	$	52,130	$	385,344	$	—	$	437,474
Liabilities:
Deferred compensation plan liabilities	$	—	$	6,246	$	—	$	6,246
Total liabilities at fair value	$	—	$	6,246	$	—	$	6,246

The valuation of investments in non-public companies requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity and the long-term nature of such assets. The Company’s equity investments in private companies are initially valued based upon the transaction price under the cost method of accounting. Equity investments

~~Assets and Liabilities Measured at Fair Value on a Non-recurring Basis~~ 15

~~Certain assets and liabilities, including cost method investments, are measured at fair value on a non~~GEN-~~recurring~~PROBE basis and therefore are not included in the table above. Such instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). INCORPORATED

~~Equity~~NOTES TO ~~Investment~~CONSOLIDATED inFINANCIAL ~~Public~~STATEMENTS ~~Company~~ (Continued)

~~In April 2009, the Company made a $5.0 million preferred stock investment~~ in ~~DiagnoCure, Inc. (“DiagnoCure”), a publicly~~non-~~held~~public ~~company~~companies ~~traded~~are on the Toronto Stock Exchange. The Company’s equity investment was initially valued based on the transaction price under the cost method of accounting. The market value of the underlying common stock is the most observable value of the preferred stock, but because there is no active market for DiagnoCure’s preferred shares the Company has classified ~~its equity investment in DiagnoCure~~ as Level 23 in the fair value hierarchy. The Company’s investment in DiagnoCure, which had a value of $5.0 million as of September 30, 2011, is included in “Licenses, manufacturing access fees and other assets, net” on the Company’s consolidated balance sheets.

~~Equity~~The ~~Investments~~Company records impairment charges when an investment has experienced a decline that is deemed to be other-than-temporary. The determination that a decline is other-than-temporary is, in ~~Private~~part, ~~Companies~~subjective and influenced by many factors. Future adverse changes in market conditions or poor operating results of investees could result in losses or an inability to recover the carrying value of the investments, thereby possibly requiring impairment charges in the future. When assessing investments in private companies for an other-than-temporary decline in value, the Company considers many factors, including, but not limited to, the following: the share price from the investee’s latest financing round; the performance of the investee in relation to its own operating targets and its business plan; the investee’s revenue and cost trends; the investee’s liquidity and cash position, including its cash burn rate; and market acceptance of the investee’s products and services. From time to time, the Company may consider third party evaluations or valuation reports. The Company also considers new products and/or services that the investee may have forthcoming, any significant news specific to the investee, the investee’s competitors and the outlook of the overall industry in which the investee operates. In the event the Company’s judgments change as to other-than-temporary declines in value, the Company may record an impairment loss, which could have an adverse effect on its results of operations.

~~The~~Roka ~~valuation of investments in non-public companies requires significant management judgment due to the absence of quoted market prices~~Bioscience, ~~inherent lack of liquidity and the long-term nature of such assets~~Inc. The Company’s equity investments in private companies are initially valued based upon the transaction price under the cost method of accounting. Equity investments in non-public companies are classified as Level 3 in the fair value hierarchy.

~~The~~In ~~Company records~~September ~~impairment~~2009, ~~charges~~the ~~when~~Company anspun-off ~~investment~~its ~~has~~industrial ~~experienced~~testing aassets ~~decline that is deemed~~ to beRoka ~~other-than-temporary. The determination that a decline is other-than-temporary is~~Bioscience, inInc. ~~part~~(“Roka”), ~~subjective~~a ~~and~~newly ~~influenced~~formed byprivate ~~many factors~~company. ~~Future~~In ~~adverse changes~~consideration infor ~~market~~the ~~conditions~~contribution ~~or poor operating results~~ of ~~investees~~assets, ~~could~~the ~~result~~Company inreceived ~~losses~~shares orof anpreferred ~~inability~~stock torepresenting ~~recover~~19.9% ~~the carrying value~~ of ~~the~~Roka’s ~~investments,~~capital ~~thereby~~stock ~~possibly~~on ~~requiring~~a ~~impairment~~fully ~~charges~~diluted ~~in the future~~basis. ~~When~~The ~~assessing investments in private companies for an other-than-temporary decline in value, the~~ Company considers ~~many~~Roka ~~factors, including, but not limited~~ to, ~~the~~be ~~following:~~a ~~the~~variable ~~share~~interest ~~price~~entity ~~from the investee’s latest financing round; the performance of the investee~~ in ~~relation~~ toaccordance ~~its~~with ~~own~~ASC ~~operating~~Topic ~~targets and its business plan; the investee’s revenue and cost trends; the investee’s liquidity and cash position~~810, ~~including its cash burn rate; and market acceptance of the investee’s products and services~~Consolidation. ~~From time to time~~However, the Company ~~may~~is ~~consider~~not ~~third~~the ~~party~~primary ~~evaluations~~beneficiary orof ~~valuation~~Roka ~~reports. The Company also considers new products~~ and~~/or~~ ~~services~~therefore ~~that~~has ~~the~~not ~~investee~~consolidated ~~may have forthcoming, any significant news specific to the investee, the investee~~Roka’s ~~competitors~~financial ~~and~~position ~~the~~or ~~outlook~~results of ~~the~~operations ~~overall industry~~ in ~~which~~ the ~~investee operates. In the event the~~ Company’s ~~judgments~~consolidated ~~change~~financial ~~as to other-than-temporary declines in value, the Company may record an impairment loss, which could have an adverse effect on its results of operations~~statements.

17In April 2011, the Company purchased approximately $4.0 million of Roka’s Series C preferred stock as a participant in Roka’s Series C preferred stock round of financing that raised a total of approximately $20.0 million. As of March 31, 2012, the Company owns shares of preferred stock representing approximately 14.7% of Roka’s capital stock on a fully diluted basis. The Company’s investment has been valued based on the transaction price under the cost basis of accounting. The Company’s overall investment in Roka had a value of approximately $4.7 million as of March 31, 2012, and is included in “Licenses, manufacturing access fees and other assets, net” on the Company’s consolidated balance sheets.

~~Table~~Qualigen, ofInc. ~~Contents~~

~~Roka~~The ~~Bioscience~~Company invested in Qualigen, Inc. (“Qualigen”), a private company, in 2006. The Company’s investment in Qualigen, which had a value of approximately $5.4 million as of March 31, 2012, has been valued based upon several factors, including a market approach and an income (discounted cash flow) approach. This investment is also included in “Licenses, manufacturing access fees and other assets, net” on the Company’s consolidated balance sheets.

InNote ~~September 2009, the Company spun-off its industrial testing assets to Roka Bioscience, Inc~~6. Borrowings (“Roka”), a newly formed private company. In consideration for the contribution of assets, the Company received shares of preferred stock representing 19.9% of Roka’s capital stock on a fully diluted basis. The Company considers Roka to be a variable interest entity in accordance with ASC Topic 810, Consolidation. However, the Company is not the primary beneficiary of Roka and therefore has not consolidated Roka’s financial position or results of operations in the Company’s consolidated financial statements.

In ~~April~~February ~~2011~~2009, the Company ~~purchased~~entered ~~approximately~~into a credit agreement with Bank of America, N.A. (“Bank of America”), which provided for a one-year senior secured revolving credit facility in an amount of up to $4180.0 million ofthat ~~Roka’s~~is ~~Series~~subject Cto ~~preferred~~a ~~stock~~borrowing asbase ~~a participant~~formula. inSubject ~~Roka’s~~to ~~Series~~the Cterms ~~preferred~~of ~~stock~~the ~~round~~credit agreement, including the amount of ~~financing~~funds that ~~raised~~the Company is permitted to borrow from time to time under the credit agreement, the revolving credit facility has a ~~total~~sub-limit for the issuance of ~~approximately~~letters of credit in a face amount of up to $2010.0 million. ~~Following~~Advances ~~this~~under ~~Series~~the Crevolving ~~investment,~~credit facility were used to consummate the Company’s ~~owns~~acquisition ~~shares~~ of ~~preferred~~Tepnel ~~stock~~and ~~representing~~are ~~approximately~~also ~~19%~~available offor ~~Roka~~other general corporate purposes. At the Company’s ~~capital~~ ~~stock~~option, loans accrue interest at a per annum rate based on, either: the base rate (the base rate is defined as the greatest of (i) the federal funds rate plus a ~~fully~~margin ~~diluted~~equal ~~basis~~to 0.50%, ~~The~~(ii) Bank ~~Company~~of America’s ~~overall~~prime ~~investment~~rate inand ~~Roka~~(iii) the ~~had~~London Interbank Offered Rate (“LIBOR”) plus a ~~value~~margin ofequal ~~approximately~~to $41.700%); ~~million~~or asLIBOR plus a margin equal to 0.60%, in each case for interest periods of ~~September 30~~1, ~~2011~~2, ~~and~~3 isor ~~included~~6 inmonths ~~“Licenses~~as selected by the Company. In connection with the credit agreement, ~~manufacturing~~the ~~access~~Company ~~fees~~also ~~and~~entered ~~other~~into ~~assets~~a security agreement, ~~net” on~~pursuant to which the Company’s ~~consolidated~~secured ~~balance~~its ~~sheets.~~obligations under the credit agreement with a first priority security interest in the securities, cash and other investment property held in specified accounts maintained by Merrill Lynch, Pierce, Fenner & Smith Incorporated, an affiliate of Bank of America.

~~Qualigen~~In March 2009, ~~Inc~~the Company and Bank of America amended the credit agreement to increase the amount that the Company may borrow from time to time under the credit agreement from $180.0 million to $250.0 million. The term of the credit facility with Bank of America has been extended three times and currently expires in February 2013. In June 2011, Bank of America issued a £1.2 million standby letter of credit on behalf of the Company, thereby reducing the amount the Company can borrow under the credit facility by the face amount of the letter of credit. The total principal amount outstanding under the revolving credit

In 2006, the Company invested in Qualigen, Inc. (“Qualigen”), a private company. The Company’s investment in Qualigen, which had a value of approximately $5.4 million as of September 30, 2011, is also included in “Licenses, manufacturing access fees and other assets, net” on the Company’s consolidated balance sheets. 16

~~Note~~GEN-PROBE ~~7 — Borrowings~~ INCORPORATED

In February 2009, the Company entered into a credit agreement with Bank of America, N.A. (“Bank of America”), which provided for a one-year senior secured revolving credit facility in an amount of up to $180.0NOTES ~~million~~TO ~~that~~CONSOLIDATED isFINANCIAL ~~subject~~STATEMENTS to a borrowing base formula. Subject to the terms of the credit agreement, including the amount of funds that the Company is permitted to borrow from time to time under the credit agreement, the revolving credit facility has a sub-limit for the issuance of letters of credit in a face amount of up to $10.0 million. Advances under the revolving credit facility were used to consummate the Company’s acquisition of Tepnel and are also available for other general corporate purposes. At the Company’s option, loans accrue interest at a per annum rate based on, either: the base rate (~~the base rate is defined as the greatest of (i~~Continued) the federal funds rate plus a margin equal to 0.50%, (ii) Bank of America’s prime rate and (iii) the London Interbank Offered Rate (“LIBOR”) plus a margin equal to 1.00%); or LIBOR plus a margin equal to 0.60%, in each case for interest periods of 1, 2, 3 or 6 months as selected by the Company. In connection with the credit agreement, the Company also entered into a security agreement, pursuant to which the Company secured its obligations under the credit agreement with a first priority security interest in the securities, cash and other investment property held in specified accounts maintained by Merrill Lynch, Pierce, Fenner & Smith Incorporated, an affiliate of Bank of America. In connection with the execution of the credit agreement with Bank of America, the Company terminated the commitments under its unsecured bank line of credit with Wells Fargo Bank, N.A., effective as of February 27, 2009. There were no amounts outstanding under the Wells Fargo Bank line of credit as of the termination date.

In March 2009, the Company and Bank of America amended the credit agreement to increase the amount that the Company can borrow from time to time under the credit agreement from $180.0 million to $250.0 million. The term of the credit facility ~~with~~as ~~Bank~~ of ~~America has been extended twice and currently expires in February 2012. As of December~~March 31, ~~2010,~~2012 ~~the total principal amount outstanding under the revolving credit facility~~ was $240.0 million. The Company borrowed the remaining $10.0 million under the revolving credit facility during the first quarter of 2011. In June 2011, the Company and Bank of America amended the credit agreement to facilitate the issuance of letters of credit in certain non-U.S. currencies. In June 2011, the Company paid down its credit facility with Bank of America by $2.0 million and Bank of America issued a £1.2 million standby letter of credit on behalf of the Company. In September 2011, the Company and Bank of America further amended the credit agreement to modify the way the borrowing base is calculated under the credit agreement. As a result, the total principal amount outstanding under the revolving credit facility was $248.0 million ~~as of September 30~~, ~~2011,~~ the interest rate payable on such outstanding amount was approximately 0.8384% and no further borrowings are currently available under the credit facility.

18Note 7. Income Tax

~~Table~~As of ~~Contents~~March 31, 2012, the Company had total gross unrecognized tax benefits of $13.0 million. The amount of unrecognized tax benefits (net of the federal benefit for state taxes) that would favorably affect the Company’s effective income tax rate, if recognized, was $10.0 million. The Company’s federal tax returns for the 2008 through 2010 tax years, California tax returns for the 2005 through 2010 tax years, and UK tax returns for the 2008 through 2010 tax years are subject to future examination.

Note 8. Contingencies ~~— Income Tax~~

The Company has not taken any tax benefit for the other-than-temporary impairment loss on the equity investment in Pacific Biosciences recognized in the third quarter of 2011 since the loss, if realized on the Company’s U.S. tax returns, would be a capital loss. This capital loss, if realized, could only be offset by capital gains. Capital losses can be carried back three years and carried forward five years for federal income tax purposes. At this time, the Company cannot reasonably determine if sufficient capital gains would be available in the requisite time frame to offset this capital loss since the Company does not know if the loss will ever be realized on its tax returns. Therefore, the Company has established a $14.6 million valuation allowance related to the other-than-temporary impairment loss. Litigation

AsThe ~~of September 30, 2011, the~~ Company ~~had~~is ~~total~~a ~~gross~~party ~~unrecognized~~to ~~tax~~the ~~benefits~~following oflitigation ~~$12.1~~and ~~million.~~may ~~The~~also ~~amount~~be ofinvolved ~~unrecognized~~in ~~tax benefits~~other ~~(net~~litigation ofarising in the ~~federal~~ordinary ~~benefit~~course ~~for~~of ~~state~~business ~~taxes)~~from ~~that~~time ~~would~~to ~~favorably~~time. ~~affect~~The ~~the~~ Company’s ~~effective~~intends ~~income~~to ~~tax~~vigorously ~~rate,~~defend ifits ~~recognized,~~interests ~~was~~in ~~$9.6~~these ~~million~~matters. The Company’s ~~federal~~expects ~~tax~~that ~~returns for~~ the ~~2008~~resolution ~~through~~of ~~2010~~these ~~tax~~matters ~~years,~~will ~~California tax~~not ~~returns~~have ~~for~~a ~~the~~material ~~2005~~adverse ~~through~~effect ~~2010~~on ~~tax~~its ~~years~~business, ~~and~~financial UKcondition ~~tax~~or ~~returns~~results ~~for~~of operations. However, due to the ~~2006~~uncertainties ~~through~~inherent ~~2009~~in ~~tax~~litigation, ~~years~~no ~~are~~assurance ~~subject~~can be given as to ~~future~~the ~~examination.~~outcome of these proceedings.

~~Note~~Becton, 9Dickinson —and ~~Contingencies~~ Company

~~Contingent~~In ~~Consideration~~October 2009, the Company filed a patent infringement action against Becton, Dickinson and Company (“BD”) in the U.S. District Court for the Southern District of California. The complaint alleges that BD’s Viper™ XTR™ testing system infringes five of the Company’s U.S. patents covering automated processes for preparing, amplifying and detecting nucleic acid targets. The complaint also alleges that BD’s ProbeTec™ Female Endocervical and Male Urethral Specimen Collection Kits for Amplified Chlamydia trachomatis/Neisseria gonorrhoeae (CT/GC) DNA assays used with the Viper XTR testing system infringe two of the Company’s U.S. patents covering penetrable caps for specimen collection tubes. The complaint seeks monetary damages and injunctive relief. In March 2010, the Company filed a second complaint for patent infringement against BD in the U.S. District Court for the Southern District of California alleging that BD’s BD MAX System™ (formerly known as the HandyLab Jaguar system) infringes four of the Company’s U.S. patents covering automated processes for preparing, amplifying and detecting nucleic acid targets. The second complaint also seeks monetary damages and injunctive relief. In June 2010, these two actions were consolidated into a single legal proceeding. There can be no assurances as to the final outcome of this litigation.

InEnzo ~~connection~~Life ~~with its acquisition of Prodesse~~Sciences, ~~the Company was originally obligated to make certain contingent payments to former Prodesse securityholders of up to $25~~Inc.0 million based on multiple performance measures, including commercial and regulatory milestones. As a result of the failure to achieve a specified milestone, the maximum amount of contingent consideration the Company may be required to pay for its acquisition of Prodesse has been reduced to $15.0 million.

~~The~~In ~~Company~~January ~~initially~~2012, ~~recorded~~Enzo ~~$18~~Life Sciences, Inc.0 ~~million~~(“Enzo”) asfiled ofa ~~the~~patent ~~date~~infringement ofaction ~~acquisition~~against asthe Company in the ~~fair~~United ~~value of~~States ~~this~~District ~~potential~~Court ~~contingent~~for ~~consideration~~the ~~liability~~District of Delaware. InThe ~~July~~complaint ~~2010,~~alleges that the Company’s ~~received~~manufacture ~~FDA~~and ~~clearance~~sale of ~~its~~certain ~~ProFAST+~~molecular ~~assay~~diagnostic assays, ~~thereby~~including ~~satisfying~~the ~~one~~APTIMA ofCombo 2 and APTIMA HPV assays, that incorporate the ~~acquisition-related~~Company’s ~~milestones~~patented ~~and~~hybridization ~~triggering~~protection aassay ~~$10~~technology infringe Enzo’s U.0S. ~~million~~patent ~~payment~~number to6,992,180. ~~former~~The ~~Prodesse securityholders~~complaint seeks monetary damages and injunctive relief. The ~~fair~~Company ~~value~~intends ofto vigorously defend the ~~remaining~~lawsuit. ~~contingent~~There ~~consideration~~can isbe $0no assurances as ofto ~~September 30,~~the ~~2011,~~final ~~because~~outcome ~~the~~of this litigation. The Company ~~does~~has not ~~currently~~recorded ~~expect~~an toaccrual ~~make~~as ~~any~~of ~~further~~March ~~milestone~~31, ~~payments~~2012 ~~related~~for toa ~~its~~contingent ~~acquisition~~liability ofassociated ~~Prodesse.~~with ~~Future milestone~~this ~~payments,~~legal ifproceeding based on the Company’s belief that any, ~~will~~liability ~~occur~~is byneither ~~the~~probable ~~second~~nor ~~quarter~~reasonably possible. In addition, any possible loss or range of ~~2012.~~loss cannot be reasonably estimated at this time.

~~Litigation~~ 17

~~The~~GEN-PROBE Company is a party to the following litigation and may also be involved in other litigation arising in the ordinary course of business from time to time. The Company intends to vigorously defend its interests in these matters. The Company expects that the resolution of these matters will not have a material adverse effect on its business, financial condition or results of operations. However, due to the uncertainties inherent in litigation, no assurance can be given as to the outcome of these proceedings. INCORPORATED

~~Becton,~~NOTES TO ~~Dickinson~~CONSOLIDATED ~~and~~FINANCIAL ~~Company~~STATEMENTS (Continued)

InNote ~~October 2009, the Company filed a patent infringement action against Becton, Dickinson and Company (“BD”) in the U~~9.~~S. District Court for the Southern District of California. The complaint alleges that BD~~ Stockholders’s ~~Vipertm~~Equity XTRtm testing system infringes five of the Company’s U.S. patents covering automated processes for preparing, amplifying and detecting nucleic acid targets. The complaint also alleges that BD’s ProbeTectm Female Endocervical and Male Urethral Specimen Collection Kits for Amplified Chlamydia trachomatis/Neisseria gonorrhoeae (CT/GC) DNA assays used with the Viper XTR testing system infringe two of the Company’s U.S. patents covering penetrable caps for specimen collection tubes. The complaint seeks monetary damages and injunctive relief. In March 2010, the Company filed a second complaint for patent infringement against BD in the U.S. District Court for the Southern District of California alleging that BD’s BD MAX Systemtm (formerly known as the HandyLab Jaguar system) infringes four of the Company’s U.S. patents covering automated processes for preparing, amplifying and detecting nucleic acid targets. The second complaint also seeks monetary damages and injunctive relief. In June 2010, these two actions were consolidated into a single legal proceeding. There can be no assurances as to the final outcome of this litigation.

19Changes in stockholders’ equity for the three months ended March 31, 2012 were as follows (in thousands):



Balance as of December 31, 2011	$	700,342
Net income	22,460
Other comprehensive income, net	3,058
Proceeds from the issuance of common stock and ESPP shares	14,232
Issuance of common stock to board members	71
Repurchase and retirement of restricted stock for payment of taxes	(1,124		)
Stock-based compensation	6,104
Stock-based compensation income tax benefits	1,021
Balance as of March 31, 2012	$	746,164

~~Note~~Comprehensive 10Income ~~— Stockholders’ Equity~~

~~Changes~~All components of comprehensive income, including net income, are reported in the consolidated financial statements in the period in which they are recognized. Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income and other comprehensive income (loss), which includes certain changes in stockholders’ equity, ~~for~~such as foreign currency translation of the ~~nine~~Company’s ~~months~~wholly ~~ended~~owned ~~September 30~~subsidiaries’ financial statements and unrealized gains and losses on the Company’s available-for-sale securities, ~~2011~~are ~~were~~reported, asnet ~~follows~~of ~~(in~~their ~~thousands):~~ related tax effect, to arrive at comprehensive income.

Balance at December 31, 2010	$	823,379
Net income		30,265
Other comprehensive loss, net		(104	)
Proceeds from the issuance of common stock and ESPP		43,435
Issuance of common stock to board members		275
Repurchase and retirement of common stock		(150,000	)
Repurchase and retirement of restricted stock for payment of taxes		(1,614	)
Stock-based compensation		19,048
Stock-based compensation income tax benefits		4,142
Balance at September 30, 2011	$	768,826

Components of comprehensive income, net of income tax, for the three month periods ended March 31, 2012 and 2011 were as follows (in thousands):

Comprehensive Income (Loss)



	Three Months Ended March 31,
	2012			2011
Net income, as reported	$	22,460		$	23,277
Other comprehensive income (loss)
Foreign currency translation adjustment	1,788			2,328
Unrealized gains (losses)
Change in net unrealized gain (loss) on available-for-sale securities during the period	2,542			(3,413		)
Realized (gain) loss on available-for-sale securities, net of tax	(1,272		)	230
Total unrealized gains (losses)	1,270			(3,183		)
Total other comprehensive income (loss), net	3,058			(855		)
Comprehensive income	$	25,518		$	22,422

All components of comprehensive income (loss), including net income (loss), are reported in the consolidated financial statements in the period in which they are recognized. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss), which includes certain changes in stockholders’ equity, such as foreign currency translation of the Company’s wholly owned subsidiaries’ financial statements and unrealized gains and losses on the Company’s available-for-sale securities, are reported, net of their related tax effect, to arrive at comprehensive income (loss). 18

~~Components~~GEN-PROBE ~~of comprehensive income (loss), net of income tax, for the three and nine month periods ended September 30, 2011 and 2010 were as follows (in thousands):~~ INCORPORATED

	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	2011			2010			2011			2010
Net income (loss), as reported	$	(15,356	)	$	27,396		$	30,265		$	79,699
Other comprehensive income (loss):
Foreign currency translation adjustment		(3,519	)		3,822			(346	)		(530	)
Change in net unrealized gain or loss on available-for-sale securities during the period		9,682			(1,753	)		(498	)		(5,406	)
Reclassification adjustments:
Realized gain on available-for-sale securities, net of tax		1,881			1,467			740			4,121
Total other comprehensive income (loss), net		8,044			3,536			(104	)		(1,815	)
Comprehensive income (loss)	$	(7,312	)	$	30,932		$	30,161		$	77,884

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20Stock Options

~~Table~~A summary of ~~Contents~~the Company’s stock option activity for all equity incentive plans for the three months ended March 31, 2012 is as follows (in thousands, except per share data and number of years):

Stock Options



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Outstanding as of December 31, 2011	5,513		$	50.80
Granted	767		68.39
Exercised	(316	)	45.09
Cancelled	(35	)	59.00
Outstanding as of March 31, 2012	5,929		$	53.33	4.1	$	80,823
Exercisable as of March 31, 2012	3,737		$	49.97	3.1	$	62,235

ARestricted ~~summary~~Stock ~~of the Company’s stock option activity for all equity incentive plans for the nine months ended September 30, 2011 is as follows (in thousands, except per share data~~ and ~~number~~Deferred ~~of years):~~Issuance Restricted Stock

	Number ofShares			WeightedAverageExercisePrice		WeightedAverageRemainingContractualLife (Years)		AggregateIntrinsicValue
Outstanding at December 31, 2010		5,700		$	46.56
Granted		1,012			65.35
Exercised		(951	)		43.07
Cancelled		(88	)		51.72
Outstanding at September 30, 2011		5,673		$	50.41		4.2	$	51,312
Exercisable at September 30, 2011		3,636		$	48.13		3.3	$	37,662

A summary of the Company’s restricted stock and deferred issuance restricted stock award activity for the three months ended March 31, 2012 is as follows (in thousands, except per share data):

Restricted Stock and Deferred Issuance Restricted Stock



	Number of Shares		Weighted Average Grant Date Fair Value
Unvested as of December 31, 2011	62		$	54.35
Granted	3		61.86
Vested	(3	)	51.17
Forfeited	(1	)	53.26
Unvested as of March 31, 2012	61		$	54.82

APerformance ~~summary~~Stock ~~of the Company’s restricted stock and deferred issuance restricted stock award activity for the nine months ended September 30, 2011 is as follows (in thousands, except per share data):~~ Awards

	Number ofShares			WeightedAverageGrant DateFair Value
Unvested at December 31, 2010		121		$	54.41
Granted		7			71.66
Vested and exercised		(70	)		57.08
Cancelled		(2	)		56.61
Unvested at September 30, 2011		56		$	53.23

A summary of the Company’s performance stock award activity for the three months ended March 31, 2012 is as follows (in thousands, except per share data):

Performance Stock Awards



	Number of Shares		Weighted Average Grant Date Fair Value
Unvested as of December 31, 2011	109		$	73.92
Awarded	108		82.00
Vested and issued	(46	)	72.33
Cancelled	(1	)	72.63
Unvested as of March 31, 2012	170		$	79.46

ABeginning ~~summary~~in 2010, the Company transitioned from its historical practice of granting certain senior Company employees annual restricted stock awards with time-based vesting provisions only, to granting these employees the right to receive a designated number of shares of Company’s ~~performance~~common stock ~~award~~based ~~activity~~on ~~for~~the achievement of specific performance criteria over a defined performance period (the ~~nine~~“Performance ~~months~~Stock ~~ended~~Awards”). ~~September 30,~~All ~~2011~~Performance isStock Awards have been granted under the Company’s 2003 Incentive Award Plan and are intended to qualify as ~~follows~~performance-based compensation under Section 162(inm) ~~thousands,~~of ~~except~~the ~~per~~Internal ~~share~~Revenue ~~data):~~Code of 1986, as amended.

	Number ofShares			MaximumSharesEligible toReceive			WeightedAverageGrant DateFair Value
Unvested at December 31, 2010		65			97		$	42.66
Awarded		91			182			82.58
Issued		(12	)		(12	)		42.66
Cancelled		(29	)		(63	)		43.74
Unvested at September 30, 2011		115			204		$	74.07

~~Beginning in 2010, the Company transitioned from its historical practice of granting certain senior Company employees annual restricted stock awards with time~~GEN-~~based~~PROBE vesting provisions only, to granting these employees the right to receive a designated number of shares of Company common stock based on the achievement of specific performance criteria over a defined performance period (the “Performance Stock Awards”). All Performance Stock Awards have been granted under the Company’s 2003 Incentive Award Plan and are intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended. INCORPORATED

InNOTES TO ~~February~~CONSOLIDATED ~~2010,~~FINANCIAL ~~the~~STATEMENTS ~~Compensation Committee granted certain senior Company employees Performance Stock Awards based on the Company’s 2010 revenues, earnings per share and return on invested capital~~ (~~collectively, the “2010 Performance Stock Criteria”~~Continued)~~. Each recipient was eligible to receive between zero and 150% of the target~~

21Note 10. Product Line and Significant Customer Information

~~Table~~The Company currently operates in one business segment: the development, manufacturing, marketing, sales and support of ~~Contents~~molecular diagnostic products primarily to diagnose human diseases, screen donated human blood and ensure transplant compatibility.

~~number~~Product ofsales ~~shares~~by ofproduct ~~Company~~line ~~common~~for ~~stock subject to~~ the ~~applicable~~three ~~award~~month ~~based~~periods onended ~~actual~~March ~~performance as measured against the 2010 Performance Stock Criteria. In February 2011~~31, ~~the~~2012 Company issued an aggregate of approximately 37,500 shares of Company common stock to award recipients based on actual performance. One-third of the issued shares vested on the date of issuance, one-third of the shares will vest on the first anniversary of the date of issuance and ~~one-third~~2011 ofwere ~~the shares will vest on the second anniversary of the date of issuance,~~ as ~~long~~follows as(in ~~the award recipient is employed by the Company on each such vesting date.~~ thousands):

In February 2011, the Compensation Committee granted certain senior Company employees Performance Stock Awards based on the Company’s adjusted relative stockholder return in comparison to a defined market index over a three-year performance period (the “2011 Performance Stock Criteria”). Each recipient is eligible to receive between zero and 200% of the target number of shares of Company common stock subject to the applicable award based on actual performance as measured against the 2011 Performance Stock Criteria. Performance under the awards will be measured annually from January 1, 2011 for performance intervals of one, two and three years, with each performance interval representing one-third of the total potential award. Shares issued following each annual performance measurement will be immediately vested upon issuance. Award recipients will be eligible to receive shares issued pursuant to such awards as long as the award recipient is employed by the Company on each such issuance date.



	Three Months Ended March 31,
	2012				2011
	$		%		$		%
Clinical diagnostics	$	94,919	63	%	$	88,290	64	%
Blood screening	52,543		35	%	46,705		34	%
Research products and services	2,655		2	%	3,117		2	%
Total product sales	$	150,117	100	%	$	138,112	100	%

~~Stock~~During ~~Repurchase~~the ~~Programs~~three month periods ended March 31, 2012 and 2011, 36% and 35%, respectively, of the Company’s total revenues were from Novartis. No other customer accounted for more than 10% of the Company’s revenues during the three month periods ended March 31, 2012 and 2011.

InNote ~~February 2010, the Company’s Board of Directors authorized the repurchase of up to $100~~11.0 Subsequent million of the Company’s common stock until December 31, 2010, through negotiated or open market transactions. There was no minimum or maximum number of shares to be repurchased under the program. The Company completed the program in December 2010, repurchasing and retiring an aggregate of approximately 2,165,000 shares at an average price of $46.16 per share, or approximately $99.9 million in total. Event

InEntry ~~February~~into ~~2011,~~Agreement the Company’s Board of Directors authorized the repurchase of up to $150.0 million of the Company’s common stock until December 31, 2011, through negotiated or open market transactions. There was no minimum or maximum number of shares to be repurchased under the program. During the three months ended September 30, 2011, the Company repurchased approximately 1,744,000 shares under this program at an average price of $58.49 per share, or approximately $102.0 million. The Company completed the program in August 2011, repurchasing and ~~retiring~~Plan ~~approximately 2,500,000 shares since the program’s inception at an average price~~ of ~~$60.00~~Merger ~~per~~with ~~share~~Hologic, ~~or approximately $150~~Inc.~~0 million in total.~~

InOn ~~September 2011~~April 29, 2012, the Company’s ~~Board~~entered ofinto ~~Directors~~an ~~authorized~~Agreement and Plan of Merger (the ~~repurchase~~“Merger Agreement”) with Hologic, Inc. (“Hologic”) and Gold Acquisition Corp., a wholly owned subsidiary of upHologic (“Merger Sub”), pursuant to anwhich ~~additional~~Merger ~~$100~~Sub will merge with and into the Company, with the Company continuing as the surviving corporation and as a wholly owned subsidiary of Hologic (the “Merger”).~~0 million~~ Upon the effective time of the Merger, each outstanding share of the Company’s common stock ~~from~~(other ~~November~~than ~~2011~~shares ~~through~~held ~~June~~by ~~2012~~any stockholders who are entitled to and who properly exercise appraisal rights under Delaware law, ~~through~~treasury ~~negotiated~~shares, and shares held by the Company, Hologic, Merger Sub or ~~open~~any ~~market~~of ~~transactions~~their respective subsidiaries) will be canceled and converted into the right to receive $82.75 ~~There~~in cash, without interest, on the terms and subject to the conditions set forth in the Merger Agreement. Consummation of the Merger is ~~no minimum~~subject to various conditions, including, among others, adoption of the Merger Agreement by the stockholders of the Company, and the termination or ~~maximum~~expiration ~~number~~of all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of ~~shares~~1976, toas beamended, ~~repurchased~~and under any similar foreign statutes and regulations applicable to the ~~program~~Merger. The Company expects the Merger to close in the second half of 2012.

~~Note~~The 11Merger —Agreement ~~Product~~contains ~~Line~~certain termination rights for each of Hologic and ~~Significant~~the ~~Customer~~Company, ~~Information~~and if the Merger Agreement is terminated under certain circumstances, the Company may be required to pay Hologic a termination fee of $128.0 million or reimburse Hologic for its reasonable and documented out-of-pocket transaction-related expenses in an amount up to $20.0 million. Under certain circumstances specified in the Merger Agreement relating to Hologic’s failure to secure adequate financing for the Merger, Hologic is required to pay the Company a financing failure fee of $200.0 million.

The Company currently operates in one business segment, the development, manufacturing, marketing, sales and support of molecular diagnostic products primarily to diagnose human diseases, screen donated human blood and ensure transplant compatibility. 20

~~Product~~Item ~~sales~~2. byManagement’s ~~product~~Discussion ~~line for the three~~ and ~~nine~~Analysis ~~month~~of ~~periods~~Financial ~~ended~~Condition ~~September 30, 2011~~ and ~~2010~~Results ~~were~~of ~~as follows (in thousands):~~ Operations

	Three Months Ended September 30,										Nine Months Ended September 30,
	2011					2010					2011					2010
	$		%			$		%			$		%			$		%
Clinical diagnostics	$	86,593		63	%	$	74,893		58	%	$	262,357		64	%	$	225,693		58	%
Blood screening		47,388		35	%		50,316		39	%		137,275		34	%		155,542		40	%
Research products and services		2,412		2	%		3,104		2	%		7,794		2	%		10,381		3	%
Total product sales	$	136,393		100	%	$	128,313		100	%	$	407,426		100	%	$	391,616		100	%

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which provides a “safe harbor” for these types of statements. Forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “hopes,” “may,” “will,” “plans,” “intends,” “estimates,” “could,” “should,” “would,” “continue,” “seeks” or “anticipates,” or other similar words (including their use in the negative), or by discussions of future matters, such as our ability to complete the proposed merger transaction with Hologic, Inc. pursuant to the definitive agreement and plan of merger between the parties, the ability to satisfy the conditions to closing the merger transaction, including obtaining the required approval of our stockholders and necessary regulatory clearances or approvals, and the ability to recognize the anticipated benefits of the merger transaction, the development and commercialization of new products, technology enhancements, regulatory approvals or clearance, possible changes in legislation, expectations for future growth, estimates of future revenues, expenses, profits, cash flows or balance sheet items, or other financial guidance and other statements that are not historical. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from any results, level of activity, performance or achievements expressed or implied by any forward-looking statement. We assume no obligation to update any forward-looking statements.

~~During~~The ~~the~~following ~~nine~~information ~~month~~should ~~periods~~be ~~ended~~read ~~September~~in conjunction with our March 3031, ~~2011~~2012 unaudited interim consolidated financial statements and ~~2010,~~related ~~35%~~notes included elsewhere in this Quarterly Report and ~~41%,~~with ~~respectively~~our audited consolidated financial statements and related notes for the year ended December 31, of2011 and the ~~Company~~related “Management’s ~~total~~ ~~revenues~~Discussion ~~were~~and ~~from~~Analysis ~~Novartis.~~of NoFinancial ~~other~~Condition ~~customer~~and ~~accounted~~Results ~~for~~of ~~more~~Operations” ~~than~~section contained in our Annual Report on Form 10%-K offor the ~~Company’s~~year ~~revenues~~ended ~~during~~December 31, 2011. We also urge you to review and consider our disclosures describing various risks that may affect our business, which are set forth under the ~~three~~heading “Risk Factors” in this Quarterly Report and ~~nine~~in ~~month~~our ~~periods~~Annual Report on Form 10-K for the year ended ~~September~~December 3031, 2011 ~~and 2010~~.

22Some totals included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and elsewhere in this Quarterly Report may not foot due to rounding.

~~Table of Contents~~Overview

~~Item~~Gen-Probe 2.Incorporated ~~Management’s~~(NASDAQ: ~~Discussion~~GPRO) is a global leader in the development, manufacture and ~~Analysis~~marketing of ~~Financial~~rapid, ~~Condition~~accurate and ~~Results~~cost-effective molecular diagnostic products and services that are used primarily to diagnose human diseases, screen donated human blood, and ensure transplant compatibility. Our molecular diagnostic products are designed to detect diseases more rapidly and/or accurately than older tests, and are among the fastest-growing categories of ~~Operations~~the in vitro diagnostics, or IVD, industry.

~~This~~We ~~report~~market ~~contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which provides~~ a ~~“safe~~broad ~~harbor”~~portfolio ~~for these types~~ of ~~statements.~~nucleic ~~Forward-looking~~acid ~~statements can be identified by the use of forward-looking words such as “believes~~tests,” ~~“expects,”~~or ~~“hopes~~NATs,” ~~“may,”~~to ~~“will,” “plans,”~~detect ~~“intends,”~~infectious ~~“estimates~~microorganisms,” ~~“could,”~~including ~~“should,”~~those ~~“would,”~~causing ~~“continue,”~~sexually ~~“seeks”~~transmitted ~~or “anticipates~~diseases,” or ~~other similar words (including their use in the negative)~~STDs, ~~or by discussions of future matters~~tuberculosis, ~~such~~strep asthroat ~~the development~~ and ~~commercialization~~other ofinfections. ~~new~~Our ~~products,~~leading ~~technology~~clinical ~~enhancements,~~diagnostics ~~regulatory~~products ~~approvals~~include orour ~~clearance,~~APTIMA ~~possible~~family ~~changes in legislation, expectations for future growth, estimates~~ of ~~future~~ ~~revenues,~~assays ~~expenses, profits, cash flows or balance sheet items, or other financial guidance and other statements~~ that are ~~not~~used ~~historical.~~to ~~Forward-looking~~detect ~~statements~~the ~~are~~common ~~not~~STDs ~~guarantees~~chlamydia ~~of performance. They involve known~~ and ~~unknown risks~~gonorrhea, ~~uncertainties~~ ~~and~~certain ~~assumptions~~high-risk ~~that~~strains ~~may~~of ~~cause~~the ~~actual~~human ~~results~~papillomavirus, ~~levels of activity, performance~~ or ~~achievements to differ materially from any results~~HPV, ~~level~~and ofTrichomonas ~~activity~~vaginalis, ~~performance~~the orparasite ~~achievements~~that ~~expressed~~causes ~~or implied by any forward-looking statement~~trichomoniasis. ~~We assume no obligation to update any forward-looking statements.~~

~~The~~In ~~following~~recent ~~information~~years, ~~should~~we behave ~~read~~expanded ~~in conjunction with~~ our ~~September 30,~~portfolio ~~2011~~of ~~unaudited~~products ~~interim~~with ~~consolidated~~acquisitions ~~financial~~focused ~~statements~~on transplant-related and ~~related~~respiratory ~~notes~~diagnostics. ~~included~~Our ~~elsewhere~~transplant indiagnostics ~~this~~business, ~~Quarterly~~which ~~Report~~we ~~and~~obtained ~~with~~as part of our ~~audited~~acquisition ~~consolidated~~of ~~financial~~Tepnel ~~statements~~Life ~~and~~Sciences ~~related~~plc, ~~notes~~or ~~for~~Tepnel, ~~the~~in ~~year~~April ~~ended December 31~~2009, ~~2010~~offers ~~and~~diagnostics to help determine the ~~related~~compatibility ~~“Management’s~~between ~~Discussion~~donors and ~~Analysis~~recipients ofin ~~Financial~~tissue ~~Condition~~ and ~~Results~~organ transplants. Our acquisition of ~~Operations”~~Prodesse, ~~section~~Inc., ~~contained~~or Prodesse, in ~~our~~October ~~Annual~~2009 ~~Report~~added ona ~~Form~~portfolio 10of real-Ktime ~~for~~polymerase ~~the~~chain ~~year~~reaction, ~~ended~~or ~~December 31~~PCR, ~~2010.~~products Wefor ~~also~~detecting ~~urge you~~influenza toand ~~review~~other ~~and~~infectious ~~consider~~organisms. ~~our~~In ~~disclosures~~addition, ~~describing~~in ~~various~~December ~~risks~~2010 ~~that~~we ~~may~~acquired ~~affect~~Genetic ~~our~~Testing ~~business~~Institute, ~~which~~Inc., ~~are~~or ~~set~~GTI ~~forth~~Diagnostics, ~~under~~a ~~the~~manufacturer ~~heading~~of ~~“Risk~~certain ~~Factors”~~of inour ~~this~~transplant ~~Quarterly~~diagnostic ~~Report~~products, ~~and~~as inwell ~~our~~as ~~Annual~~specialty ~~Report~~coagulation onand ~~Form 10~~transfusion-Krelated ~~for~~blood ~~the~~bank ~~year ended December 31, 2010~~products.

~~Some~~In ~~totals~~blood ~~included~~screening, inwe ~~this~~developed ~~“Management’s~~and ~~Discussion~~manufacture ~~and~~the ~~Analysis~~PROCLEIX family of ~~Financial~~assays, ~~Condition~~ which are used to detect human immunodeficiency virus (type 1), or HIV-1, the hepatitis C virus, or HCV, the hepatitis B virus, or HBV, and ~~Results~~the ofWest ~~Operations”~~Nile ~~section~~virus, or WNV, in donated human blood. These blood screening products are marketed worldwide by our blood screening collaborator, Novartis Vaccines and ~~elsewhere~~Diagnostics, Inc., or Novartis, under Novartis’ trademarks. We were awarded a 2004 National Medal of Technology, the nation’s highest honor for technological innovation, in ~~this~~recognition ~~Quarterly~~of ~~Report~~our ~~may~~pioneering ~~not~~work ~~foot~~in ~~due~~developing NAT systems to ~~rounding.~~safeguard the blood supply in the United States.

~~Overview~~Several of our current and future molecular tests can be performed on our TIGRIS instrument, a fully automated, high-throughput NAT system for diagnostics and blood screening. We are building on the success of our TIGRIS instrument system by commercializing our next-generation PANTHER instrument, which is a versatile, fully automated NAT system for low- to mid-volume laboratories. The PANTHER instrument was CE-marked and launched in Europe for diagnostic use in the fourth quarter

We are a global leader in the development, manufacture and marketing of rapid, accurate and cost-effective molecular diagnostic products and services that are used primarily to diagnose human diseases, screen donated human blood, and ensure transplant compatibility. Our molecular diagnostic products are designed to detect diseases more rapidly and/or accurately than older tests, and are among the fastest-growing categories of the in vitro diagnostics industry. 21

Weof ~~market~~2010. In addition, in May 2011 we filed a ~~broad~~510(k) ~~portfolio~~application ofwith ~~nucleic acid~~the ~~tests~~United States Food and Drug Administration, or ~~NATs~~FDA, for clearance of our PANTHER system to ~~detect~~run ~~infectious~~our ~~microorganisms,~~APTIMA ~~including~~Combo ~~those~~2 ~~causing~~assay ~~sexually~~for ~~transmitted~~the ~~diseases,~~detection orof ~~STDs,~~chlamydia ~~tuberculosis~~and gonorrhea. In August 2011, ~~strep~~Health ~~throat~~Canada ~~and~~granted ~~other~~us ~~infections.~~a ~~Our~~medical ~~leading~~device ~~clinical~~license ~~diagnostics~~to ~~products~~use ~~include~~the PANTHER system to run our APTIMA ~~family~~Combo of2 ~~assays that~~assay in Canada. We are ~~used~~also todeveloping ~~detect~~the PANTHER system for use in the ~~common~~blood ~~STDs~~screening ~~chlamydia~~market ~~and~~as ~~gonorrhea.~~part of our blood screening collaboration with Novartis.

~~In 2009 and 2010, we expanded our portfolio of products with acquisitions focused on transplant-related and respiratory diagnostics.~~ Our ~~transplant~~development ~~diagnostics~~pipeline ~~business,~~includes which we obtained as part of our acquisition of Tepnel Life Sciences plc, or Tepnel, in April 2009, offers diagnostics to help determine the compatibility between donors and recipients in tissue and organ transplants. Our acquisition of Prodesse, Inc., or Prodesse, added a portfolio of real-time polymerase chain reaction, or real-time PCR, products for detecting influenza and other infectious organisms. In addition, in December 2010 we acquired Genetic Testing Institute, Inc., or GTI Diagnostics, a manufacturer of certain of our transplant diagnostic products, in addition to ~~specialty coagulation and transfusion-related blood bank products.~~ detect:

In• ~~blood~~certain ~~screening,~~genotypes ~~we develop and manufacture the PROCLEIX family~~ of ~~assays~~HPV, which ~~are~~can ~~used~~cause tocervical detect human immunodeficiency virus (type 1), or HIV-1, the hepatitis C virus, or HCV, the hepatitis B virus and the West Nile virus in donated human blood. Our blood screening products are marketed worldwide by Novartis Vaccines and Diagnostics, Inc., or Novartis, under Novartis’ trademarks. We were awarded the 2004 National Medal of Technology, the nation’s highest honor for technological innovation, in recognition of our pioneering work in developing NAT testing systems to safeguard the nation’s blood supply. cancer;

~~Several~~• ~~of our current and future molecular tests can be performed on our TIGRIS instrument, a fully automated, high~~gene-~~throughput~~based ~~NAT~~markers ~~system~~ for ~~diagnostics~~prostate and blood screening. We are building on the success of our TIGRIS instrument system by developing and commercializing our next-generation PANTHER instrument, which is a versatile, fully automated NAT system for low- to mid-volume laboratories. The PANTHER instrument was cancer;

23• the quantity of certain viruses, often referred to as the “viral load”;

~~Table~~• ofcertain ~~Contents~~gastrointestinal pathogens;

~~CE-marked~~• ~~and~~antigens ~~launched in Europe for diagnostic use in the fourth quarter of 2010. In addition, in May 2011 we filed a 510(k) application with the United States Food~~ and ~~Drug~~antibodies ~~Administration,~~that ~~or FDA,~~are ~~for~~used ~~our PANTHER system~~ to ~~run~~determine ~~our~~transplant ~~APTIMA~~and ~~Combo~~transfusion 2compatibility; assay. In August 2011, Health Canada granted us a medical device license to use the PANTHER system to run our APTIMA Combo 2 assay in Canada. We are also developing the PANTHER system for use in the blood screening market as part of our blood screening collaboration with Novartis. and

~~Our~~• ~~development~~coagulation ~~pipeline includes products to detect:~~ disorders.

•Recent ~~certain genotypes of the human papillomavirus, or HPV, which can cause cervical cancer;~~Events

•Entry ~~gene-based~~into ~~markers~~Agreement ~~for~~and ~~prostate~~Plan ~~cancer;~~of Merger with Hologic

•On ~~the~~April ~~quantity~~29, 2012, we entered into an Agreement and Plan of ~~certain~~Merger, ~~viruses~~or the Merger Agreement, ~~often~~with ~~referred~~Hologic, Inc., or Hologic, and Gold Acquisition Corp., a wholly-owned subsidiary of Hologic, or Merger Sub, pursuant to which Merger Sub will merge with and into us, and we will continue as the ~~viral~~surviving ~~load;~~corporation in the merger and as a wholly owned subsidiary of Hologic, which we refer to as the Merger.

•At ~~certain~~the ~~respiratory~~effective ~~infections;~~time of the Merger, each outstanding share of our common stock (other than shares held by any stockholders who are entitled to and who properly exercise appraisal rights under Delaware law, treasury shares, and shares of common stock held by us, Hologic, Merger Sub or any of their respective subsidiaries) will be canceled and converted into the right to receive $82.75 in cash, without interest, on the terms and subject to the conditions set forth in the Merger Agreement.

•We ~~antigens~~made customary representations and ~~antibodies~~warranties ~~that~~and ~~are~~covenants ~~used~~in the Merger Agreement, including, among others, to ~~determine~~cause ~~transplant~~a meeting of our stockholders to be held to consider the adoption of the Merger Agreement, and ~~transfusion~~to ~~compatibility;~~observe certain limits on the conduct of our business between the date of the Merger Agreement and the consummation of the Merger. Consummation of the Merger is subject to customary closing conditions, including adoption of the Merger Agreement by our stockholders, and the termination or expiration of all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and under any similar foreign statutes and regulations applicable to the Merger. We expect the Merger to close in the second half of 2012.

•The ~~coagulation~~Merger ~~disorders~~Agreement contains certain termination rights in favor of each of Hologic and us. Upon the termination of the Merger Agreement under certain circumstances, we are required to pay Hologic a termination fee of $128.0 million or reimburse Hologic for its reasonable and documented out-of-pocket transaction-related expenses in an amount up to $20.0 million.

~~Recent~~To ~~Events~~support its obligations under the Merger Agreement, Hologic has obtained debt financing commitments from Goldman Sachs Bank USA and Goldman Sachs Lending Partners LLC. Under certain circumstances specified in the Merger Agreement relating to Hologic’s failure to secure adequate financing for the Merger, Hologic is required to pay us a financing failure fee of $200.0 million.

~~Financial~~Our ~~Results~~board of directors unanimously approved the Merger Agreement following the unanimous recommendation of a strategic transaction committee of our board of directors.

~~Product~~Certain ~~sales~~terms ~~for the third quarter~~ of ~~2011 were $136.4 million, compared to $128.3 million in~~ the ~~same~~Merger ~~period~~Agreement ofand the ~~prior~~Merger ~~year,~~are ~~an increase~~summarized ~~of 6%. Total revenues for the third quarter of 2011 were $139.1 million~~in, ~~compared~~and ~~to $132.6 million in~~ the ~~same~~Merger ~~period~~Agreement ofhas ~~the~~been ~~prior~~filed ~~year,~~as an ~~increase~~exhibit ~~of 5%. Net loss for the third quarter of 2011 was $15.4 million ($0.33 per diluted share), compared~~ to ~~net income of $27.4 million ($0.56 per diluted share) in the same period of the prior year~~, ~~a decrease of 156%. The net loss for~~ the ~~third~~Current ~~quarter~~Report ofon ~~2011~~Form ~~was caused primarily by a $39.5 million other~~8-~~than-temporary~~K ~~impairment, or OTTI, loss~~ we ~~recorded~~filed inwith the ~~quarter~~Securities onand ~~our~~Exchange ~~equity~~Commission ~~investment~~on inMay ~~Pacific Biosciences of California~~1, ~~Inc~~2012.~~, or Pacific Biosciences.~~

~~Product~~Financial sales for the first nine months of 2011 were $407.4 million, compared to $391.6 million in the same period of the prior year, an increase of 4%. Total revenues for the first nine months of 2011 were $418.1 million, compared to $406.6 million in the same period of the prior year, an increase of 3%. Net income for the first nine months of 2011 was $30.3 million ($0.62 per diluted share), compared to $79.7 million ($1.61 per diluted share) in the same period of the prior year, a decrease of 62%. Results

~~Our~~Product ~~total~~sales ~~revenues,~~for ~~net~~the ~~income~~first ~~(loss)~~quarter ~~and~~of ~~diluted~~2012 ~~earnings~~were ~~(loss)~~$150.1 ~~per~~million, ~~share~~compared ~~during~~to ~~the~~$138.1 ~~three~~million ~~and~~in ~~nine~~the ~~month~~same ~~periods~~period ~~ended September 30,~~of ~~2011 included~~ the ~~results~~prior ofyear, ~~operations~~an increase of ~~GTI~~9%. ~~Diagnostics,~~Total ~~which~~revenues ~~were~~for ~~not~~the ~~included~~first inquarter ~~our~~of ~~results~~2012 ofwere ~~operations~~$153.4 ~~for~~million, ~~the~~compared ~~comparable~~to ~~periods~~$143.0 ofmillion in the ~~prior~~same ~~year.~~

~~Approval of APTIMA HPV Assay by FDA~~ 22

Inperiod ~~October~~of ~~2011~~the prior year, ~~the~~an ~~FDA approved~~increase ~~our~~of ~~APTIMA~~7%. ~~HPV~~Net ~~assay,~~income anfor ~~amplified~~the ~~nucleic~~first ~~acid~~quarter ~~test~~of ~~that~~2012 ~~detects~~was ~~high-risk~~$22.5 ~~strains~~million of($0.49 ~~HPV~~per ~~that~~diluted ~~are~~share), ~~associated~~compared ~~with~~to ~~cervical~~net ~~cancer~~income ~~and~~of ~~precancerous~~$23.3 ~~lesions,~~million ~~for~~($0.48 ~~sale~~per ~~and~~diluted ~~marketing~~share) in the ~~U.S.~~same ~~The~~period ~~APTIMA~~of ~~HPV~~the ~~assay~~prior ~~has~~year, ~~been~~an ~~approved~~increase toof ~~run~~ 2% on ~~our~~a ~~fully~~per ~~automated,~~diluted ~~high-throughput~~share ~~TIGRIS instrument system~~basis.

~~Acquisition~~FDA Clearance of ~~GTI~~APTIMA ~~Diagnostics~~Trichomonas Assay

In ~~December~~April ~~2010~~2011, wethe ~~acquired~~FDA ~~GTI~~cleared ~~Diagnostics,~~our aAPTIMA ~~privately~~Trichomonas ~~held~~vaginalis ~~Wisconsin~~assay ~~corporation,~~ for ~~approximately~~sale ~~$53.0~~and ~~million~~marketing onin athe ~~net-cash basis~~United States. ~~Our~~The ~~acquisition~~APTIMA ofTrichomonas ~~GTI~~assay ~~Diagnostics~~is ~~has~~an ~~broadened~~amplified ~~and~~NAT ~~strengthened~~that ~~our~~detects ~~transplant~~Trichomonas ~~diagnostics business~~vaginalis, ~~and~~the ~~has~~most ~~also~~common ~~provided~~curable ussexually ~~access~~transmitted toinfection ~~new products~~ in the ~~specialty~~United ~~coagulation~~States. ~~and~~The ~~transfusion~~APTIMA Trichomonas assay has been approved for use on our fully automated, high-~~related~~throughput ~~blood~~TIGRIS ~~bank~~instrument ~~markets~~system.

~~Stock~~FDA ~~Repurchase~~Approval ~~Programs~~of APTIMA HPV Assay

In ~~February~~October 2011, ~~our Board of Directors authorized~~ the ~~repurchase~~FDA ofapproved ~~up to $150.0 million of~~ our ~~common~~APTIMA ~~stock~~HPV ~~until December 31~~assay, ~~2011,~~an ~~through~~amplified ~~negotiated~~NAT orthat ~~open~~detects ~~market~~high-risk ~~transactions.~~strains ~~There was no minimum or maximum number~~ of ~~shares~~HPV tothat beare ~~repurchased~~associated ~~under~~with ~~the~~cervical ~~program.~~cancer Weand ~~completed~~precancerous ~~the program in August 2011~~lesions, ~~repurchasing~~for sale and ~~retiring~~marketing ~~approximately~~in ~~2.5 million shares since~~ the ~~program’s~~United ~~inception~~States. atThe anAPTIMA ~~average~~HPV ~~price~~assay ofhas ~~$60.00~~been ~~per share,~~approved orto ~~approximately~~run ~~$150.0~~on ~~million~~our inTIGRIS ~~total.~~instrument system.

24FDA Approval of PROGENSA PCA3 Assay

~~Table~~In ofFebruary ~~Contents~~2012, the FDA approved our PROGENSA PCA3 assay, a prostate-cancer specific molecular diagnostic test, for sale and marketing in the United States. The PROGENSA PCA3 assay has been approved for use on our semi-automated Direct Tube Sampling, or DTS, instrument systems.

InStock ~~September~~Repurchase 2011, our Board of Directors authorized the repurchase of up to an additional $100.0 million of our common stock from November 2011 through June 2012, through negotiated or open market transactions. There is no minimum or maximum number of shares to be repurchased under the program. Programs

~~Critical~~In ~~Accounting~~February ~~Policies~~2011, our Board of Directors authorized the repurchase of up to $150.0 million of our common stock until December 31, 2011, through negotiated or open market transactions. There was no minimum or maximum number of shares to be repurchased under the program. We completed the program in August 2011, repurchasing and ~~Estimates~~retiring approximately 2.5 million shares at an average price of $60.00 per share, or approximately $150.0 million in total.

~~Our~~In ~~discussion~~September ~~and~~2011, ~~analysis of~~ our ~~financial~~Board ~~condition and results~~ of ~~operations~~Directors isauthorized ~~based~~the onrepurchase ~~our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP. The preparation~~ of ~~these~~up ~~consolidated financial statements requires us~~ to ~~make~~an ~~estimates~~additional ~~and~~$100.0 ~~judgments~~million ~~that affect the reported amounts~~ of ~~assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate~~ our ~~estimates,~~common ~~including~~stock ~~those~~from ~~related~~November to2011 ~~revenue~~through ~~recognition,~~June ~~the collectability of accounts receivable~~2012, ~~valuation~~through ofnegotiated ~~inventories~~or ~~and~~open ~~long-lived~~market ~~assets,~~transactions. ~~including license~~There ~~and~~was ~~manufacturing~~no ~~access~~minimum ~~fees,~~or ~~patent~~maximum ~~costs~~number ~~and capitalized software, equity investments in publicly and privately held companies, accrued liabilities, income tax and the valuation~~ of ~~stock-based~~shares ~~compensation. We base our estimates on historical experience and on various other assumptions that we believe~~ to be ~~reasonable~~repurchased under the ~~circumstances,~~program. ~~which~~We ~~form~~completed the ~~basis~~program ~~for~~in ~~making~~December ~~judgments about the carrying values of assets and liabilities. Senior management has discussed the development~~2011, ~~selection~~repurchasing and ~~disclosure~~retiring ofapproximately ~~these~~1.7 ~~estimates~~million ~~with~~shares ~~the~~at ~~Audit~~an ~~Committee~~average ofprice ~~our Board~~ of ~~Directors~~$58.83 ~~Actual~~per ~~results~~share, ~~may~~or ~~differ~~approximately ~~from~~$100.0 ~~these~~million ~~estimates.~~in total.

WeThe ~~believe~~Merger ~~there~~Agreement ~~have been no significant changes during the third quarter of 2011 to the items that~~ we ~~disclosed~~entered asinto ~~our~~with ~~critical~~Hologic ~~accounting~~on ~~policies~~April ~~and~~29, ~~estimates~~2012 indoes ~~the~~not ~~“Management’s Discussion~~allow ~~and~~us ~~Analysis~~to ofrepurchase ~~Financial~~additional ~~Condition~~shares ~~and Results~~ of ~~Operations”~~our ~~section~~common ofstock, ~~our~~subject ~~Annual~~to ~~Report~~certain onlimited ~~Form~~exceptions ~~10-K~~set ~~for~~forth in the ~~year~~Merger ~~ended December 31, 2010~~Agreement.

~~Recent~~Critical Accounting ~~Pronouncements~~Policies and Estimates

~~For~~Our ~~information~~discussion and analysis of our financial condition and results of operations is based on ~~the~~our ~~recent~~ consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting ~~pronouncements~~principles, ~~impacting~~or U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our ~~business~~estimates, ~~see~~including ~~Note~~those 1related to revenue recognition, the collectability of accounts receivable, valuation of inventories and long-lived assets, including license and manufacturing access fees, patent costs and capitalized software, equity investments in publicly and privately held companies, accrued liabilities, income tax and the ~~Notes~~valuation of stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to ~~Consolidated~~be ~~Financial~~reasonable ~~Statements~~under ~~included~~the ~~elsewhere~~circumstances, inwhich ~~this~~form ~~Quarterly~~the ~~Report~~basis for making judgments about the carrying values of our assets and liabilities. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual results may differ from these estimates.

We believe there have been no significant changes during the first quarter of 2012 to the items that we disclosed as our critical accounting policies and estimates in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2011.

~~Product Sales~~ 23

(Dollars in millions)	Three Months Ended September 30,												Nine Months Ended September 30,
	2011			2010			$ Change			% Change			2011			2010			$ Change			% Change
Clinical diagnostics	$	86.6		$	74.9		$	11.7			16	%	$	262.3		$	225.7		$	36.6			16	%
Blood screening		47.4			50.3			(2.9	)		-6	%		137.3			155.5			(18.2	)		-12	%
Research products and services		2.4			3.1			(0.7	)		-23	%		7.8			10.4			(2.6	)		-25	%
Total product sales	$	136.4		$	128.3		$	8.1			6	%	$	407.4		$	391.6		$	15.8			4	%
As a percent of total revenues		98	%		97	%								97	%		96	%

Recent Accounting Pronouncements

~~Our~~For ~~primary~~information ~~source~~on ~~of revenue comes from product sales, which consist primarily of~~ the ~~sale~~recent ofaccounting ~~clinical diagnostics~~pronouncements ~~and~~impacting ~~blood~~our ~~screening~~business, ~~products.~~see ~~Our~~Note ~~clinical~~1 ~~diagnostic product sales consist primarily~~ of the ~~sale~~Notes ofto ~~our~~Consolidated ~~women’s~~Financial ~~health,~~Statements ~~other~~included ~~infectious~~elsewhere ~~disease,~~in ~~transplant~~this ~~diagnostics,~~Quarterly ~~and genetic testing products~~Report. The principal customers for our clinical diagnostics products include reference laboratories, public health institutions and hospitals. The blood screening assays and instruments we manufacture are marketed and distributed worldwide through our collaboration with Novartis under Novartis’ Procleix and Ultrio trademarks.

WeResults ~~recognize product sales from the manufacture and shipment~~ of tests for screening donated blood at the contractual transfer prices specified in our collaboration agreement with Novartis for sales to end-user blood bank facilities located in countries where our products have obtained governmental approvals. Blood screening product sales are then adjusted monthly corresponding to Novartis’ payment to us of amounts reflecting our ultimate share of net revenue from sales by Novartis to end users, less the transfer price revenues previously recorded. Net sales are ultimately equal to the sales of the assays by Novartis to third parties, less freight, duty and certain other adjustments specified in our collaboration agreement with Novartis, multiplied by our share of the net revenue. Operations

25Product Sales



(Dollars in millions)	Three Months Ended March 31,
	2012			2011			$ Change			% Change
Clinical diagnostics	$	94.9		$	88.3		$	6.6		7	%
Blood screening	52.5			46.7			5.8			12	%
Research products and services	2.7			3.1			(0.4		)	(13	)%
Total product sales	$	150.1		$	138.1		$	12.0		9	%
As a percent of total revenues	98		%	97		%

~~Product~~Our ~~sales~~primary ~~increased~~source byof 6%revenue ~~and~~comes 4%from ~~during~~product sales, which consist primarily of the ~~three~~sale ~~and~~of ~~nine~~clinical ~~month~~diagnostics ~~periods~~and ~~ended September 30,~~blood ~~2011~~screening asproducts. ~~compared~~Our toclinical ~~the~~diagnostic ~~same~~product ~~periods~~sales consist primarily of the ~~prior~~sale ~~year.~~of ~~These~~our ~~results~~women’s ~~were~~health, ~~primarily~~other ~~attributed~~infectious todisease, ~~higher~~transplant ~~contributions~~diagnostics, ~~from~~and ~~product~~genetic ~~lines~~testing ofproducts. The principal customers for our ~~acquired~~clinical ~~companies~~diagnostics ~~and~~products ~~APTIMA~~include ~~assay~~reference ~~sales~~laboratories, ~~offset~~public byhealth ~~lower~~institutions and hospitals. The blood screening assays and ~~research~~ ~~products~~instruments we manufacture are marketed and ~~services~~distributed ~~revenues.~~worldwide through our collaboration with Novartis under Novartis’ Procleix and Ultrio trademarks.

~~Clinical~~We ~~Diagnostic~~recognize ~~Product~~product ~~Sales~~sales from the manufacture and shipment of tests for screening donated blood at the contractual transfer prices specified in our collaboration agreement with Novartis for sales to end-user blood bank facilities located in countries where our products have obtained governmental approvals. Blood screening product sales are then adjusted monthly corresponding to Novartis’ payment to us of amounts reflecting our ultimate share of net revenue from sales by Novartis to end users, less the transfer price revenues previously recorded. Net sales are ultimately equal to the sales of the assays by Novartis to third parties, less freight, duty and certain other adjustments specified in our collaboration agreement with Novartis, multiplied by our share of the net revenue.

~~Clinical~~Product ~~diagnostic product~~ sales, ~~including~~increased ~~assay,~~by ~~instrument, and ancillary sales, represented $86.6 million, or 63~~9% ~~of product sales~~ during the ~~third~~first quarter of ~~2011,~~2012 ~~compared to $74.9 million, or 58% of product sales during the same period of the prior year. The $11.7 million increase during the three month period ended September 30, 2011,~~ as compared to the same period ~~of the~~in ~~prior year, was primarily attributed to increased APTIMA sales,~~ the inclusion of product sales of our acquired GTI Diagnostics business, and increased sales of transplant diagnostics products. Clinical diagnostic product sales, including assay, instrument, and ancillary sales, represented $262.3 million, or 64% of product sales during the first nine months of 2011, compared to $225.7 million, or 58% of product sales during the same period of the prior year. The ~~$36.6 million~~ increase ~~during~~ ~~the nine month period ended September 30, 2011, as compared to the same period of the prior year,~~ was primarily attributed to ~~increased~~higher ~~APTIMA~~ sales, ~~the~~from ~~inclusion~~APTIMA ofassays ~~product~~and ~~sales of our acquired GTI Diagnostics business~~instrumentation, and ~~increased sales~~higher ofblood ~~transplant~~screening ~~diagnostics and other infectious disease products~~revenues.

Clinical ~~diagnostic~~Diagnostic ~~product~~Product sales were positively affected by favorable estimated exchange rate impacts of $0.7 million during the third quarter of 2011 as compared to the same period of the prior year, primarily due to a weaker U.S. dollar versus the Euro and the Canadian dollar. Clinical diagnostic product sales were positively affected by favorable estimated exchange rate impacts of $2.7 million during the first nine months of 2011 as compared to the same period of the prior year, primarily due to a weaker U.S. dollar versus the Euro and Canadian dollar. Sales

~~Blood~~Clinical ~~Screening~~diagnostic ~~Product~~product ~~Sales~~sales, including assay, instrument, and ancillary sales, represented $94.9 million, or 63% of product sales during the first quarter of 2012, compared to $88.3 million, or 64% of product sales during the same period of the prior year. The $6.6 million increase was primarily attributed to increased sales of APTIMA assays and instruments. The increase was partially offset by lower sales of other infectious disease products.

~~Blood~~During ~~screening product sales, including assay, instrument, and ancillary sales, represented $47.4 million, or 35% of product sales during~~ the ~~third~~first quarter of ~~2011~~2012, ~~compared~~clinical todiagnostic ~~$50.3 million, or 39% of~~ product sales ~~during~~were ~~the~~negatively ~~same~~affected ~~period~~by ofunfavorable ~~the~~estimated ~~prior~~exchange ~~year.~~rate ~~The~~impacts of $20.95 million ~~decrease during the third quarter of 2011~~ as compared to the ~~same period of the~~ prior year, ~~was~~ primarily ~~attributed~~ todue ~~decreased sales of blood screening-related instrumentation~~ to ~~Novartis.~~a ~~Blood~~stronger ~~screening product sales, including assay, instrument, and ancillary sales, represented $137~~U.~~3 million, or 34% of product sales during the first nine months of 2011, compared to $155~~S.~~5 million, or 40% of product sales during the same period of the prior year. The $18.2 million decrease during the nine months ended September~~ ~~30,~~dollar ~~2011~~versus ~~as compared to~~ the same period of the prior year was primarily attributed to decreased sales of blood screening-related instrumentation and assays to Novartis, and lower net revenue payments received from Novartis due to fluctuations in Novartis’ inventory levelsEuro.

Blood ~~screening~~Screening ~~product~~Product sales were positively affected by favorable estimated exchange rate impacts of $1.7 million and $1.9 million during the three and nine month periods ended September 30, 2011, respectively, as compared to the same periods of the prior year, primarily due to a weaker U.S. dollar versus the Euro. Sales

~~Research~~Blood ~~Products~~screening product sales, including assay, instrument, and ~~Services~~ancillary sales, represented $52.5 million, or 35% of product sales during the first quarter of 2012, compared to $46.7 million, or 34% of product sales during the same period of the prior year. The $5.8 million increase was attributed to increased sales of blood screening-related instrumentation and assays to Novartis.

WeDuring ~~established~~the anfirst ~~additional~~quarter ~~category~~ of ~~product sales as a result of our acquisition of Tepnel in 2009~~2012, ~~which~~blood wescreening ~~refer~~product ~~to as “Research products and services.” These~~ sales ~~represent~~were ~~outsourcing services~~negatively ~~for~~affected ~~the~~by ~~pharmaceutical,~~unfavorable ~~biotechnology~~estimated ~~and~~exchange ~~healthcare~~rate ~~industries,~~impacts ~~including nucleic acid purification and analysis services, as well as the sale~~ of ~~monoclonal antibodies. These sales totaled~~ $20.41 million ~~during~~as ~~the third quarter of 2011,~~ compared to ~~$3.1 million during~~ the ~~same period of the~~ prior year, aprimarily ~~decrease~~due ~~of $0.7 million. During the first nine months of 2011, research products and services revenue was $7.8 million, compared~~ to ~~$10.4 million during the same period of the prior year,~~ a ~~decrease~~stronger ~~of $2~~U.~~6 million~~S. ~~The decreases during the three and nine month periods ended September~~ ~~30,~~dollar ~~2011~~versus ~~as compared to~~ the ~~same periods of the prior year were primarily due to continued market weakness affecting contract research organizations~~Euro.

26Research Products and Services

~~Table~~As a result of ~~Contents~~our acquisition of Tepnel in April 2009, we have established an additional category of product sales, which we refer to as “Research products and services.” These sales represent outsourcing services for the pharmaceutical, biotechnology

~~Collaborative Research Revenue~~ 24

(Dollars in millions)	Three Months Ended September 30,												Nine Months Ended September 30,
	2011			2010			$ Change			% Change			2011			2010			$ Change			% Change
Collaborative research revenue	$	1.1		$	3.4		$	(2.3	)		-68	%	$	6.3		$	10.8		$	(4.5	)		-42	%
As a percent of total revenues		1	%		3	%								2	%		3	%

and healthcare industries, including nucleic acid purification and analysis services, as well as the sale of monoclonal antibodies. Research products and services revenues were $2.7 million during the first quarter of 2012 compared to $3.1 million during the same period of the prior year. The $0.4 million decrease was primarily due to continued market weakness affecting contract research organizations.

WeCollaborative ~~recognize~~Research collaborative research revenue over the term of various collaboration agreements, as negotiated monthly contracted amounts are earned, in relative proportion to the performance required under the contracts, or as reimbursable costs are incurred related to those agreements. Non-refundable license fees are recognized over the related performance period or at the time that we have satisfied all performance obligations. Milestone payments are recognized as revenue upon the achievement of specified milestones. Revenue

The costs associated with collaborative research revenue are based on fully burdened full-time equivalent rates and are reflected in our consolidated statements of income under the captions “Research and development,” “Marketing and sales” and “General and administrative,” based on the nature of the costs. We do not separately track all of the costs applicable to our collaborations and, therefore, are not able to quantify all of the costs associated with collaborative research revenue.



(Dollars in millions)	Three Months Ended March 31,
	2012			2011			$ Change			% Change
Collaborative research revenue	$	1.4		$	3.6		$	(2.2	)	(61	)%
As a percent of total revenues	1		%	3		%

~~Collaborative~~We recognize collaborative research revenue ~~decreased~~over ~~68% during~~ the ~~third~~term ~~quarter~~ of ~~2011~~various ~~compared~~collaboration toagreements, ~~the~~as ~~same~~negotiated ~~period~~monthly ofcontracted ~~the~~amounts ~~prior~~are ~~year.~~earned, ~~Collaborative~~in ~~research~~relative ~~revenue~~proportion ~~decreased~~to ~~42% during~~ the ~~first~~performance ~~nine~~required ~~months~~under ~~of 2011 compared to~~ the ~~same~~contracts, ~~period~~or ofas ~~the~~reimbursable ~~prior~~costs ~~year.~~are ~~The~~incurred ~~$2.3~~related ~~million~~to ~~and~~those $4agreements.5 Milestone ~~million~~consideration ~~decreases~~that ~~during~~is ~~the~~contingent ~~three~~upon ~~and~~achievement ~~nine~~of ~~month~~a ~~periods~~milestone ~~ended~~in ~~September 30,~~its ~~2011,~~entirety ~~respectively,~~is recorded as ~~compared~~revenue toin the ~~same~~period ~~periods~~in ofwhich the ~~prior~~milestone ~~year,~~is ~~were~~achieved ~~primarily due~~only toif ~~decreased~~the ~~reimbursements~~milestone ~~received~~meets ~~from~~all ~~Novartis~~criteria ~~for shared development expenses attributable~~ to ~~the~~be ~~development~~considered ~~of the PANTHER instrument and product enhancements for use in the blood screening market~~substantive.

~~Collaborative~~The ~~research~~costs ~~revenue~~associated ~~tends~~with tocollaborative ~~fluctuate~~research revenue are based on ~~the~~fully ~~type~~burdened ~~and~~full-time ~~amount~~equivalent ofrates ~~research~~and ~~services~~are ~~performed,~~reflected ~~the~~in ~~status~~our ofconsolidated ~~projects under~~statements ~~collaboration and the achievement~~ of ~~milestones.~~income ~~Due~~under to the ~~nature~~captions of“Research ~~our~~and ~~collaborative research revenue~~development,” ~~results~~“Marketing inand ~~any~~sales” ~~one~~and ~~period~~“General ~~are~~and ~~not~~administrative,” ~~necessarily~~based ~~indicative~~on of the ~~results~~nature ~~that~~of ~~will be achieved in~~ the ~~future~~costs. ~~Our~~We ~~ability~~do tonot ~~generate additional~~separately ~~collaborative~~track ~~research~~all ~~revenue~~of ~~depends,~~the incosts ~~part,~~applicable onto our ~~ability~~collaborations ~~to initiate~~ and, ~~maintain~~therefore, ~~relationships~~are ~~with~~not ~~potential~~able ~~and~~to ~~current~~quantify ~~collaborative~~all ~~partners~~of ~~and~~ the ~~advancement~~costs ofassociated ~~related~~with collaborative research ~~and development activities~~revenue.

~~Royalty~~Collaborative research revenue decreased 61% during the first quarter of 2012 compared to the same period of the prior year. The $2.2 million decrease was primarily due to decreased reimbursements received from Novartis for shared development expenses attributable to the development of the PANTHER instrument and ~~License~~related ~~Revenue~~product enhancements for use in the blood screening market.

(Dollars in millions)	Three Months Ended September 30,											Nine Months Ended September 30,
	2011			2010			$ Change		% Change			2011			2010			$ Change		% Change
Royalty and license revenue	$	1.6		$	0.8		$	0.8		100	%	$	4.3		$	4.2		$	0.1		2	%
As a percent of total revenues		1	%		1	%							1	%		1	%

Collaborative research revenue tends to fluctuate based on the type and amount of research services performed, the status of projects under collaboration and the achievement of milestones. Due to the nature of our collaborative research revenue, results in any one period are not necessarily indicative of the results that will be achieved in the future. Our ability to generate additional collaborative research revenue depends, in part, on our ability to initiate and maintain relationships with potential and current collaborative partners and the advancement of related collaborative research and development activities.

WeRoyalty recognize revenue for royalties due to us under license agreements with third parties upon the manufacture, sale or use of our products or technologies. For those arrangements where royalties are reasonably estimable, we recognize revenue based on estimates of royalties earned during the applicable period and adjust for differences between the estimated and actual royalties. Historically, these adjustments have not been material. For those arrangements where royalties are not reasonably estimable, we recognize revenue upon receipt of royalty statements from the applicable licensee. Non-refundable license fees with stand-alone value are recognized at the time that we have satisfied all performance obligations. License ~~fees without stand-alone value are recognized in combination with any undelivered performance obligations.~~ Revenue

Royalty and license revenue doubled during the third quarter of 2011 compared to the same period of the prior year. The $0.8 million increase during the third quarter of 2011 as compared to the same period of the prior year was related to increased collaboration royalties received from Novartis related to the plasma testing market. Royalty and license revenue increased by 2% during the first nine months of 2011 compared to the same period of the prior year. The $0.1 million increase during the nine month period ended September 30, 2011 as compared to the same period of the prior year was attributable to increased collaboration royalties received from Novartis related to the plasma testing market, offset by decreases in other royalty and license revenue.



(Dollars in millions)	Three Months Ended March 31,
	2012			2011			$ Change		% Change
Royalty and license revenue	$	1.9		$	1.4		$	0.5	36	%
As a percent of total revenues	1		%	1		%

27We recognize revenue for royalties due to us under license agreements with third parties upon the manufacture, sale or use of our products or technologies. For those arrangements where royalties are reasonably estimable, we recognize revenue based on estimates of royalties earned during the applicable period and adjust for differences between the estimated and actual royalties. Historically, these adjustments have not been material. For those arrangements where royalties are not reasonably estimable, we recognize revenue upon receipt of royalty statements from the applicable licensee. Non-refundable license fees with stand-alone value are recognized at the time that we have satisfied all performance obligations. License fees without stand-alone value are recognized in combination with any undelivered performance obligations.

~~Table~~Royalty and license revenue increased by 36% during the first quarter of ~~Contents~~2012 compared to the same period of the prior year. The $0.5 million increase was primarily attributable to an increase in collaboration royalties received from Novartis related to the plasma testing market.

Royalty and license revenue may fluctuate based on the nature of the related agreements and the timing of receipt ~~and recognition~~ of license fees. Results in any one period are not necessarily indicative of ~~the~~ results ~~that~~to ~~will~~ be achieved in the future. In addition, our ability to generate additional royalty and license revenue will depend, in part, on our ability to market and commercialize our technologies.

~~Cost of Product Sales~~ 25

(Dollars in millions)	Three Months Ended September 30,												Nine Months Ended September 30,
	2011			2010			$ Change			% Change			2011			2010			$ Change			% Change
Cost of product sales	$	40.5		$	42.1		$	(1.6	)		-4	%	$	121.9		$	129.1		$	(7.2	)		-6	%
Gross profit margin as a percent of product sales		70	%		67	%								70	%		67	%

Cost of Product Sales

Cost of product sales includes direct material, direct labor and manufacturing overhead associated with the production of inventories. Cost of product sales may fluctuate significantly in different periods based on changes in production volumes for both commercially approved products and products under development or in clinical trials. Cost of product sales is also affected by manufacturing efficiencies, allowances for scrap or expired material, additional costs related to initial production quantities of new products after achieving FDA approval, instrument and software amortization, and contractual adjustments, such as instrumentation costs, instrument service costs, warranty costs and royalties. Cost of product sales excludes the amortization of acquisition-related intangibles.



(Dollars in millions)	Three Months Ended March 31,
	2012			2011			$ Change		% Change
Cost of product sales	$	52.4		$	41.9		$	10.5	25	%
Gross profit margin as a percent of product sales	65		%	70		%

InCost ~~addition,~~of weproduct ~~manufacture~~sales ~~significant~~includes ~~quantities~~direct ~~of materials~~material, ~~development~~direct ~~lots,~~labor and ~~clinical~~manufacturing ~~trial~~overhead ~~lots~~associated with the production of ~~product~~inventories. ~~prior~~Cost toof ~~receiving approval~~product ~~from~~sales ~~the~~may ~~FDA~~fluctuate ~~for~~significantly ~~commercial~~in ~~sale.~~different ~~The~~periods ~~majority~~based ofon ~~costs~~changes ~~associated~~in ~~with~~production ~~development~~volumes ~~lots~~for ~~are~~both ~~classified~~commercially asapproved ~~research~~products and products under development, or ~~R&D,~~in ~~expense~~clinical trials. ~~The~~Cost ~~portion~~ of aproduct ~~development~~sales ~~lot~~is ~~that~~also isaffected ~~manufactured~~by manufacturing efficiencies, allowances for ~~commercial~~scrap ~~sale~~or ~~is capitalized~~expired material, additional costs related to ~~inventory~~initial production quantities of new products after achieving FDA approval, instrument and ~~classified~~software amortization, and contractual adjustments, such as ~~cost~~instrumentation costs, instrument service costs, warranty costs and royalties. Cost of product sales ~~upon~~excludes ~~shipment.~~the amortization of acquisition-related intangibles.

~~Cost~~In ofaddition, ~~product~~we ~~sales~~manufacture ~~decreased~~significant 4%quantities ~~during the third quarter~~ of ~~2011~~materials, ~~compared~~development tolots, ~~the~~and ~~same~~clinical ~~period~~trial lots of ~~the~~product prior ~~year.~~to ~~The~~receiving ~~$1.6~~approval ~~million~~from ~~decrease~~the ~~was~~FDA ~~primarily~~for ~~due~~commercial ~~to lower instrumentation sales and royalty costs~~sale. ~~These~~The ~~lower~~majority ~~costs were partially offset by additional cost~~ of ~~product~~costs ~~sales~~associated ~~related~~with ~~to our~~development ~~acquired~~lots ~~GTI~~are ~~Diagnostics~~classified ~~business~~as ~~and~~research ~~higher sales of our APTIMA assays~~ and ~~transplant~~development, ~~diagnostic~~or ~~products~~R&D, expense. ~~Cost~~The ofportion ~~product sales decreased 6% during the first nine months~~ of ~~2011~~a ~~compared~~development tolot ~~the~~that ~~same~~is ~~period~~manufactured offor ~~the~~commercial ~~prior~~sale ~~year.~~is ~~The~~capitalized ~~$7.2 million decrease was primarily due~~ to ~~lower~~inventory ~~instrumentation sales~~ and ~~lower~~classified ~~research~~as ~~products and service revenues. These lower costs were partially offset by additional~~ cost of product sales ~~related~~upon ~~to our acquired GTI Diagnostics business~~shipment.

~~Our~~Cost ~~gross profit margin as a percentage~~ of product sales increased ~~to 70~~25% during the ~~three~~first ~~and~~quarter ~~nine~~of ~~month~~2012 ~~periods~~compared ~~ended September 30,~~to ~~2011 from 67% during~~ the same ~~periods~~period of the prior year. ~~These~~The ~~increases~~$10.5 inmillion ~~gross~~increase ~~profit~~was ~~margin~~primarily asdue ato ~~percentage~~additional cost of ~~product~~ sales ~~were~~related ~~principally attributed~~ to higher ~~APTIMA~~ sales ~~and~~from ~~lower~~our ~~sales~~APTIMA ofproducts, ~~lower~~instruments ~~margin~~and ~~instrumentation. Partially offsetting these increases was a decrease in~~ blood screening ~~net~~shipments ~~revenues~~to ~~received from~~ Novartis.

AOur ~~portion~~gross ofprofit ~~our blood~~margin ~~screening~~as ~~revenues~~a ispercentage ~~attributable~~of toproduct sales ofdecreased ~~TIGRIS and PANTHER instruments~~ to ~~Novartis,~~65% ~~which totaled $5.3 million and $14.7 million~~ during the first ~~nine~~quarter ~~months~~ of ~~2011~~2012 ~~and~~from ~~2010,~~70% ~~respectively.~~during ~~Under~~the ~~our~~same ~~collaboration~~period ~~agreement~~of ~~with Novartis,~~the weprior ~~sell~~year. ~~instruments~~The todecrease ~~Novartis~~in atgross ~~prices~~profit ~~that~~margin ~~approximate~~as ~~cost~~a ~~and~~percentage ~~share in profits~~ of ~~end-user~~product sales inwas ~~the~~principally ~~United~~attributed ~~States.~~to ~~These~~increased ~~instrument~~ sales, ~~therefore,~~of ~~negatively~~lower ~~impact our gross~~ margin ~~percentage~~instrumentation inand ~~the~~lower ~~periods during which they occur, but are a necessary precursor to increased~~ sales of ~~blood~~higher ~~screening~~margin ~~assays~~infectious indisease ~~the future~~products.

~~Acquisition~~A portion of our blood screening revenues is attributable to sales of TIGRIS and PANTHER instruments to Novartis, which totaled $3.3 million and $2.0 million during the first quarter of 2012 and 2011, respectively. Under our collaboration agreement with Novartis, we sell instruments to Novartis at prices that approximate cost and share in profits of end-~~related~~user ~~Intangible Amortization~~sales in the United States. These instrument sales, therefore, negatively impact our gross margin percentage in the periods during which they occur, but are a necessary precursor to increased sales of blood screening assays in the future.

(Dollars in millions)	Three Months Ended September 30,											Nine Months Ended September 30,
	2011			2010			$ Change		% Change			2011			2010			$ Change		% Change
Acquisition-related intangible amortization	$	2.8		$	2.2		$	0.6		27	%	$	8.3		$	6.6		$	1.7		26	%
As a percent of total revenues		2	%		2	%							2	%		2	%

Acquisition-related Intangible Amortization

Amortization expense related to our acquired intangible assets increased 27% and 26% during the three and nine month periods ended September 30, 2011, respectively, as compared to the same periods of the prior year. These increases were attributable to additional amortization expense resulting from our acquisition of GTI Diagnostics in December 2010. Our acquired intangible assets are amortized using the straight-line method over their estimated useful lives, which range from 5 to 20 years.



(Dollars in millions)	Three Months Ended March 31,
	2012			2011			$ Change		% Change
Acquisition-related intangible amortization	$	2.8		$	2.8		$	—	—	%
As a percent of total revenues	2		%	2		%

28Amortization expense related to our acquired intangible assets during the first quarter of 2012 was consistent with the same period of the prior year. Our acquired intangible assets are amortized using the straight-line method over their estimated useful lives, which range from 5 to 20 years.

~~Table~~Research ofand ~~Contents~~Development

Research and Development



(Dollars in millions)	Three Months Ended March 31,
	2012			2011			$ Change			% Change
Research and development	$	28.6		$	29.0		$	(0.4	)	(1	)%
As a percent of total revenues	19		%	20		%

(Dollars in millions)	Three Months Ended September 30,											Nine Months Ended September 30,
	2011			2010			$ Change		% Change			2011			2010			$ Change		% Change
Research and development	$	27.9		$	27.4		$	0.5		2	%	$	84.5		$	84.2		$	0.3		0	%
As a percent of total revenues		20	%		21	%							20	%		21	%

We invest significantly in R&D as part of our ongoing efforts to develop new products and technologies. Our R&D expenses include the development of proprietary products and instrument platforms, as well as expenses related to the development of new products and technologies in collaboration with our partners. R&D spending is dependent on the status of projects under development and may vary substantially between quarterly or annual reporting periods. 26

~~R&D~~products ~~expenses~~and ~~increased~~technologies 2%in ~~during~~collaboration ~~the~~with ~~third quarter of 2011 compared to the same period of the prior year. The $0.5 million increase was primarily attributable to additional R&D expenses related to~~ our ~~acquired GTI Diagnostics business~~partners. ~~Overall,~~ R&D ~~expenses~~spending ~~remained~~is ~~essentially~~dependent ~~constant~~on ~~during~~ the ~~first~~status ~~nine months~~ of ~~2011~~projects ~~compared~~under ~~to the same period of the prior year. However, increased R&D expense as a result of the inclusion of R&D programs at our acquired GTI Diagnostics business was offset by a reduction in~~ development ~~expenses as a result of the wind-down of the clinical trials for our HPV, PCA3~~ and ~~Trichomonas~~ ~~assays,~~may ~~and~~vary ~~lower~~substantially ~~development~~between ~~costs~~quarterly ~~resulting~~or ~~from~~annual ~~the~~reporting ~~commercialization of our PANTHER instrument~~periods.

~~Marketing~~R&D expenses decreased 1% during the first quarter of 2012 compared to the same period of the prior year. The $0.4 million decrease was primarily related to the reduction in development expenses as a result of the wind-down of the clinical trials for our HPV assay and ~~Sales~~ lower development costs relating to our PANTHER instrument. These decreases were offset by increases in R&D expense relating to instrument development and virology programs. We have expanded our instrument development programs to include the addition of real-time PCR capabilities for the next-generation PANTHER system, and to develop a new instrument to further automate molecular testing from liquid-based cytology specimens.

(Dollars in millions)	Three Months Ended September 30,											Nine Months Ended September 30,
	2011			2010			$ Change		% Change			2011			2010			$ Change		% Change
Marketing and sales	$	17.3		$	13.9		$	3.4		24	%	$	51.3		$	44.5		$	6.8		15	%
As a percent of total revenues		12	%		10	%							12	%		11	%

Marketing and Sales

Our marketing and sales expenses include salaries and other personnel-related expenses, promotional expenses, and fees for outside services.



(Dollars in millions)	Three Months Ended March 31,
	2012			2011			$ Change		% Change
Marketing and sales	$	19.0		$	16.5		$	2.5	15	%
As a percent of total revenues	12		%	12		%

~~Marketing~~Our marketing and sales expenses ~~increased~~include ~~24%~~salaries and ~~15%,~~other ~~respectively, during the three and nine month periods ended September 30, 2011 as compared to the same periods of the prior year. These increases were primarily attributed to increases in headcount,~~ personnel-related expenses, ~~and~~promotional ~~marketing~~expenses, ~~activities attributable to our acquired GTI Diagnostics business~~ and ~~continued~~fees ~~investment~~for inoutside ~~international expansion, primarily in Western Europe~~services.

~~General~~Marketing and ~~Administrative~~ sales expenses increased 15% during the first quarter of 2012 compared to the same period of the prior year. The $2.5 million increase was primarily attributed to increases in headcount and personnel-related expenses attributable to our women’s health business and other marketing activities.

(Dollars in millions)	Three Months Ended September 30,											Nine Months Ended September 30,
	2011			2010			$ Change		% Change			2011			2010			$ Change		% Change
General and administrative	$	18.3		$	11.5		$	6.8		59	%	$	55.2		$	41.2		$	14.0		34	%
As a percent of total revenues		13	%		9	%							13	%		10	%

General and Administrative

Our general and administrative, or G&A, expenses include expenses for our finance, legal, strategic planning and business development, public relations and human resources functions.



(Dollars in millions)	Three Months Ended March 31,
	2012			2011			$ Change		% Change
General and administrative	$	19.0		$	18.2		$	0.8	4	%
As a percent of total revenues	12		%	13		%

~~G&A~~Our ~~expenses~~general ~~increased 59%~~ and ~~34% during the three and nine month periods ended September 30~~administrative, ~~2011~~or as compared to the same periods of the prior year. The $6.8 million and $14.0 million increases during the three and nine month periods ended September 30, 2011, respectively, were primarily attributable to higher G&A ~~costs relating to litigation~~, ~~patent~~expenses ~~prosecution~~include ~~and~~expenses ~~other~~for ~~professional services~~finance, ~~our acquired GTI Diagnostics business~~legal, ~~stock-based~~strategic ~~compensation~~planning and ~~costs~~business ~~associated with the consolidation of our United Kingdom operations. Additionally~~development, inpublic ~~the~~relations ~~third quarter of 2010, we received a $2.9 million arbitration award for attorneys’ fees~~ and ~~costs~~human ~~related to an arbitration proceeding with Digene Corporation (now Qiagen Gaithersburg, Inc~~resources.~~), which reduced G&A expenses for the three and nine month periods ended September 30, 2010.~~

29G&A expenses increased 4% during the first quarter of 2012 compared to the same period of the prior year. The $0.8 million increase is primarily attributable to higher G&A costs relating to litigation and other professional services, and costs associated with our internal restructuring activities.

~~Table~~Total ofOther ~~Contents~~Income, Net

Total Other Income (Expense), Net



(Dollars in millions)	Three Months Ended March 31,
	2012			2011			$ Change			% Change
Investment and interest income	$	2.5		$	0.7		$	1.8		257	%
Interest expense	(0.5		)	(0.5		)	—			—	%
Other income, net	0.1			0.2			(0.1		)	(50	)%
Total other income, net	$	2.1		$	0.4		$	1.7		425	%

(Dollars in millions)	Three Months Ended September 30,												Nine Months Ended September 30,
	2011			2010			$ Change			% Change			2011			2010			$ Change			% Change
Investment and interest income	$	3.7		$	3.2		$	0.5			16	%	$	7.4		$	10.4		$	(3.0	)		-29	%
Interest expense		(0.5	)		(0.6	)		0.1			-17	%		(1.5	)		(1.7	)		0.2			-12	%
Gain on contingent consideration		—			1.5			(1.5	)		-100	%		—			7.6			(7.6	)		-100	%
Other-than-temporary impairment loss on equity investment		(39.5	)		—			(39.5	)		N/M			(39.5	)		—			(39.5	)		N/M
Other income (expense), net		(1.4	)		0.3			(1.7	)		-567	%		0.1			(0.1	)		0.2			-200	%
Total other income (expense), net	$	(37.7	)	$	4.4		$	(42.1	)		-957	%	$	(33.5	)	$	16.2		$	(49.7	)		-307	%

Investment and Interest Income

~~Investment~~The $1.8 million increase in investment and ~~Interest~~interest ~~Income~~income during the first quarter of 2012 compared to the same period of the prior year is primarily attributed to higher net realized gains on sales of marketable securities, partially offset by decreased interest income from lower investment balances during the first quarter of 2012 as a result of the sale of investments during 2011 to fund our stock repurchase programs.

The $0.5 million increase in investment and interest income during the third quarter of 2011 as compared to the same period of the prior year is primarily attributed to increased investment and interest income resulting from higher net realized gains on sales of marketable securities and lower purchase premium amortizations from our tax-advantaged municipal bonds during the third quarter of 2011 as compared to the same period of the prior year. 27

~~The~~Interest $3.0 million decrease in investment and interest income during the first nine months of 2011 as compared to the same period of the prior year is primarily attributed to lower net realized gains on sales of marketable securities, decreased interest income due to lower investment balances in 2011 as a result of the sale of investments to fund our stock repurchase programs and recent acquisitions, and higher purchase premium amortizations from our tax-advantaged municipal bonds. Expense

~~Gain~~Interest onexpense ~~Contingent~~was ~~Consideration~~consistent, totaling $0.5 million during each of the first quarters of 2012 and 2011.

WeOther ~~recorded~~Income ~~gains of $1.5 million and $7.6 million for the three and nine month periods ended September 30~~(Expense), ~~2010, respectively, as a result of reductions in the fair value of the contingent consideration liability related to our acquisition of Prodesse.~~ Net

~~The~~Other ~~fair~~income ~~value~~(expense), ofnet ~~our~~decreased ~~contingent~~by ~~consideration liability is~~ $0.1 asmillion ofduring ~~September 30,~~the ~~2011,~~first ~~because~~quarter weof do2012 ~~not~~compared ~~currently expect~~ to ~~make~~the ~~any~~same ~~further~~period ~~milestone payments related to our acquisition~~ of ~~Prodesse.~~the ~~Future~~prior ~~milestone payments~~year, ifprimarily ~~any,~~related ~~will~~to ~~occur~~unfavorable byexchange ~~the~~rate ~~second quarter of 2012~~impacts.

~~Other-than-temporary~~Income ~~Impairment~~Tax ~~Loss on Equity Investment~~ Expense

In June 2010, we purchased $50.0 million of Pacific Biosciences’ Series F preferred stock as a participant in Pacific Biosciences’ Series F preferred stock round of financing, which raised a total of approximately $109.0 million. In October 2010, Pacific Biosciences completed an initial public offering of its common stock at a price of $16.00 per share, and the stock now trades on the NASDAQ Global Select Market under the symbol “PACB.” As a result of the initial public offering, our preferred stock was converted into common stock with a basis of $15.26 per share.



(Dollars in millions)	Three Months Ended March 31,
	2012			2011			$ Change			% Change
Income tax expense	$	11.3		$	11.8		$	(0.5	)	(4	)%
As a percent of income before income tax	34		%	34		%

InOur ~~the~~income ~~third~~tax ~~quarter~~expense ofdecreased ~~2011,~~4% ~~Pacific Biosciences’ share price declined from $12.00 per share on July 1 to $3.21 per share on September 30. The share prices of other publicly-traded sequencing companies also declined~~ during the ~~third~~first quarter ~~due to market conditions. As~~ of ~~September 30,~~2012 ~~2011,~~compared to the ~~trading~~same ~~price~~period of the ~~Pacific~~prior ~~Biosciences~~year. ~~common~~The ~~stock~~$0.5 ~~had~~million ~~declined~~decrease bywas ~~approximately~~attributable ~~80%~~to ~~from~~lower ~~the~~2012 ~~original~~pre-tax ~~cost basis of our investment and our Pacific Biosciences’ common stock had been in an unrealized loss position for approximately seven months~~earnings.

~~The~~Liquidity ~~determination of whether a decline in value is other-than-temporary is, in part, subjective~~ and ~~influenced~~Capital by many factors. We considered various factors in determining whether the impairment was deemed to be other-than-temporary, including the near-term and long-term prospects of Pacific Biosciences, the length of time and relative magnitude of the price decline, the general and industry-specific market conditions affecting Pacific Biosciences, the views of external investment analysts, and our intent and ability to hold the investment until the price recovers. Resources



(Dollars in millions)	March 31, 2012		December 31, 2011
Cash, cash equivalents and current marketable securities	$	313.2	$	305.8
Working capital	$	183.0	$	164.9
Current ratio	1.6:1		1.5:1

~~Table~~Our working capital as of ~~Contents~~March 31, 2012 increased $18.1 million from December 31, 2011. This increase in working capital during the first quarter of 2012 was primarily attributable to increases in our trade accounts receivable, prepaid expenses and inventories, which totaled $9.4 million, $4.2 million and $3.4 million, respectively.

~~Based~~The onprimary ~~our~~objectives ~~consideration~~ of ~~the~~our ~~relevant~~investment ~~accounting~~policy ~~guidance~~are liquidity and ~~because~~safety ~~the trading price~~ of ~~the~~principal. ~~Pacific~~Consistent ~~Biosciences~~with ~~common~~these ~~stock~~objectives, ~~may~~investments ~~remain~~are ~~below~~made ~~our~~with ~~cost~~the ~~basis~~goal ~~for an extended period~~ of ~~time,~~achieving ~~we recognized a $39.5 million OTTI loss in~~ the ~~third~~highest ~~quarter~~rate of ~~2011~~return. ~~related~~The topolicy ~~our~~places ~~investment~~emphasis inon ~~Pacific~~securities ~~Biosciences, even though the market price~~ of ~~Pacific~~high ~~Biosciences’~~credit ~~common~~quality, ~~stock~~with ~~may~~restrictions ~~recover~~placed toon atmaturities ~~least~~and ~~our~~concentration ~~original~~by ~~cost~~security ~~over~~type ~~time.~~and issuer.

WeOur ~~originally invested~~marketable insecurities ~~Pacific~~include ~~Biosciences~~equity ~~with~~securities, amutual ~~long-term~~funds, ~~horizon~~treasury ~~and~~securities ~~continue to possess the intent~~ and ~~ability~~tax toadvantaged ~~hold~~municipal ~~our shares for the long-term~~securities. InOur ~~addition to our~~ investment, wepolicy ~~are~~limits ~~collaborating~~the ~~with~~effective ~~Pacific~~maturity ~~Biosciences~~on inindividual ~~the~~securities ~~development~~to ofsix ~~third generation~~years ~~sequencing~~and ~~systems~~an ~~for~~average inportfolio ~~vitro~~maturity ~~diagnostics.~~to Wethree ~~believe~~years ~~that~~with ~~third~~a ~~generation~~minimum ~~sequencing~~Moody’s ~~technology~~credit ~~offers~~rating ~~multiple~~of ~~advantages~~A3 ~~over~~or ~~earlier~~a ~~methods,~~Standard & ~~including~~Poor’s ~~lower~~credit ~~cost~~rating ~~and~~of ~~greater speed~~A-. ~~Despite~~As ~~the recent decline in the trading price~~ of ~~Pacific~~March 31, ~~Biosciences’ common stock~~2012, weour ~~continue~~portfolios tohad ~~believe~~an ~~that~~average ~~significant~~maturity ~~value~~of ~~exists~~three ~~within~~years ~~Pacific~~and ~~Biosciences~~an ~~related~~average tocredit ~~third~~quality ~~generation~~of ~~sequencing~~AA1 ~~technology, especially~~ as itdefined ~~may~~by ~~be applied to the diagnostics market~~Moody’s.

Other Income (Expense), Net



(Dollars in millions)	Three Months Ended March 31,
	2012			2011			$ Change
Cash provided by (used in):
Operating activities	$	31.7		$	40.1		$	(8.4	)
Investing activities	5.7			12.8			(7.1		)
Financing activities	14.4			(19.5		)	33.9
Purchases of property, plant and equipment (included in investing activities above)	(9.3		)	(10.8		)	1.5

~~Other~~Our ~~income~~primary ~~(expense),~~source ~~net~~of ~~decreased~~liquidity byhas ~~$1.7~~been ~~million~~cash ~~during~~from ~~the~~operations, ~~third~~which ~~quarter~~includes the collection of ~~2011~~accounts asand ~~compared~~other receivables related to ~~the~~product ~~same~~sales, ~~period~~collaborative ofresearch ~~the~~agreements, ~~prior~~and ~~year~~royalty and license fees. Additionally, ~~primarily~~our ~~related~~liquidity towas ~~unfavorable~~enhanced ~~exchange~~in ~~rate~~2009 ~~impacts~~by our credit facility with Bank of America, N.A., ~~Other income~~or ~~(expense)~~Bank of America, ~~net~~described ~~increased~~in byNote ~~$0.2~~6 ~~million~~— ~~during~~Borrowings, of the ~~first~~Notes ~~nine~~to ~~months~~Consolidated ofFinancial ~~2011~~Statements asincluded ~~compared~~elsewhere toin ~~the~~this ~~same~~Quarterly ~~period~~Report. The term of ~~the~~our ~~prior~~credit ~~year~~facility currently expires in February 2013. Our primary short-term cash needs, ~~primarily~~which ~~related~~are subject to ~~favorable~~change, ~~exchange~~include ~~rate~~continued ~~impacts.~~R&D expense to support

~~Income Tax Expense~~ 28

(Dollars in millions)	Three Months Ended September 30,											Nine Months Ended September 30,
	2011		2010			$ Change			% Change			2011			2010			$ Change			% Change
Income tax expense	$	10.0	$	12.4		$	(2.4	)		-19	%	$	33.1		$	37.5		$	(4.4	)		-12	%
As a percent of income (loss) before income tax		N/M		31	%								52	%		32	%

new products, costs related to commercialization of products and purchases of instrument systems for placement with our customers. In addition, we may use cash for strategic purchases which may include the acquisition of businesses and/or technologies complementary to our business and for stock repurchase programs. Certain R&D costs may be funded under collaboration agreements with our collaboration partners.

~~The~~Operating ~~decrease~~activities inprovided ~~our~~net ~~income~~cash ~~tax~~of ~~expense~~$31.7 million during the ~~three~~first quarter of 2012, primarily from net income of $22.5 million and ~~nine~~non-cash ~~month~~charges ~~periods~~to ~~ended~~net ~~September 30~~income of $18.7 million, ~~2011,~~ asoffset ~~compared~~by toa ~~the~~net ~~same~~increase ~~periods~~in operating assets and liabilities of ~~the~~$9.4 ~~prior~~million. ~~year,~~Non-cash ~~was~~charges ~~the~~primarily ~~result~~consisted of ~~lower pre~~stock-~~tax~~based ~~earnings~~compensation expense of $6.2 million, ~~excluding~~depreciation ~~the~~of ~~OTTI~~$6.1 ~~loss~~million onand ~~our~~amortization ~~equity~~of ~~investment~~intangible inassets ~~Pacific~~of ~~Biosciences~~$5.3 million. The net increase in ~~the~~operating ~~third~~assets ~~quarter~~and liabilities of ~~2011,~~$9.4 ~~and~~million ~~gains~~was onprimarily ~~contingent~~due ~~consideration~~to ~~recognized during~~higher trade accounts receivable balances at the ~~prior~~end ~~year.~~of ~~Additionally,~~the ~~income~~first ~~tax~~quarter ~~expense~~of ~~declined~~2012 ~~due~~as toa ~~lower~~result ~~2011~~of ~~California~~the ~~taxes~~timing ~~resulting~~of our cash collections from aour ~~change~~product sales. The $8.4 million decrease in cash from operating activities during the ~~law,~~first ~~and~~quarter ~~benefit~~of ~~for~~2012 compared to the ~~federal~~same ~~research~~period ~~credit~~of ~~during~~the ~~2011~~prior ~~which~~year was ~~not~~primarily due to increases in ~~effect~~our inventory and trade receivables balances during the ~~three~~first ~~and~~quarter ~~nine~~of ~~month periods~~2012, ~~ended~~partially ~~September 30,~~offset ~~2010.~~by a larger increase in our income tax payable during the first quarter of 2011.

~~Liquidity~~Net cash provided by investing activities during the first quarter of 2012 was $5.7 million. We received $17.1 million in net proceeds from the sales and ~~Capital~~maturities ~~Resources~~of marketable securities, which was partially offset by purchases of property, plant and equipment of $9.3 million, purchases of capitalized software of $1.7 million and purchases of intangible assets, including license fees of $0.8 million. The $7.1 million decrease in cash from investing activities during the first quarter of 2012 compared to the same period of the prior year was primarily due to $7.6 million of higher net proceeds in 2011 from the sales and maturities of our marketable securities.

(Dollars in millions)	September 30,2011		December 31,2010
Cash, cash equivalents and current marketable securities	$	302.4	$	230.3
Working capital	$	166.4	$	93.3
Current ratio		1.5:1		1.3:1

Net cash provided by financing activities during the first quarter of 2012 was $14.4 million, primarily driven by $14.2 million in proceeds from the issuance of common stock under our equity incentive and employee stock purchase plans. The $33.9 million increase in cash from financing activities during the first quarter of 2012 compared to the same period of the prior year was primarily due to $48.0 million spent during the first quarter of 2011 to repurchase shares of our common stock under our stock repurchase program offset by $10.0 million of additional borrowings made in the first quarter of 2011 under our credit facility.

~~Our~~We ~~working~~believe ~~capital~~that asour ofavailable ~~September 30~~cash balances, ~~2011~~anticipated ~~increased~~cash ~~$73.1~~flows ~~million~~ from ~~December 31~~operations, ~~2010, primarily~~proceeds asfrom astock ~~result~~option ofexercises anand ~~increase~~borrowings inunder ~~cash~~our ~~and~~revolving ~~cash~~credit ~~equivalents~~facility ~~during~~will be sufficient to satisfy our operating needs for the ~~period~~foreseeable future. ~~During~~However, we operate in a rapidly evolving and often unpredictable business environment that may change the ~~first~~timing ~~nine~~or ~~months~~amount of ~~2011~~expected future cash receipts and expenditures. Accordingly, we ~~generated~~may ~~$127.8~~in ~~million~~the ~~and~~future ~~$50.9~~be ~~million~~required to raise additional funds through the sale of equity or debt securities or from ~~operating~~additional ~~and~~credit ~~investing~~facilities. ~~activities~~Additional capital, ~~respectively~~if needed, ~~and~~may ~~used~~not ~~$95~~be available on satisfactory terms, or at all.8 ~~million~~Further, in debt financing ~~activities~~may subject us to covenants restricting our operations. Because our current credit facility is secured by our marketable debt securities, any significant needs for cash may cause us to liquidate some or all of our marketable debt securities resulting in the need to partially or completely pay down or refinance this indebtedness.

~~The~~Contractual primary objectives of our investment policy are liquidity and safety of principal. Consistent with these objectives, investments are made with the goal of achieving the highest rate of return. The policy places emphasis on securities of high credit quality, with restrictions placed on maturities and concentration by security type and issue. Obligations

~~Our~~We ~~marketable~~did ~~securities~~not ~~include~~enter ~~equity~~into ~~securities,~~any ~~treasury~~material ~~securities,~~contractual ~~tax~~obligations ~~advantaged~~during ~~municipal~~the ~~securities~~three ~~and~~months ~~Federal Deposit~~ended ~~Insurance Corporation~~March 31, or2012. ~~FDIC,~~We ~~insured~~have ~~corporate~~no ~~bonds.~~material ~~Our~~contractual ~~investment~~obligations ~~policy~~that ~~limits~~are ~~the~~not ~~effective~~fully ~~maturity~~recorded on ~~individual~~our ~~securities~~consolidated tobalance ~~six~~sheets ~~years~~or ~~and~~fully andisclosed ~~average~~in ~~portfolio~~the ~~maturity~~Notes to ~~three~~Consolidated ~~years~~Financial ~~with~~Statements aincluded ~~minimum~~elsewhere ~~Moody’s~~in ~~credit~~this ~~rating~~Quarterly ~~of A3 or a Standard & Poor’s credit rating of A-~~Report. ~~As of September 30, 2011, our portfolios had an average maturity of three years and an average credit quality of AA1 as defined by Moody’s.~~

31Off-Balance Sheet Arrangements

~~Table~~We do not currently have and have never had any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of ~~Contents~~facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

(Dollars in millions)	Nine Months Ended September 30,
	2011			2010			$ Change
Cash provided by (used in):
Operating activities	$	127.8		$	125.6		$	2.2
Investing activities		50.9			15.8			35.1
Financing activities		(95.8	)		(73.7	)		(22.1	)
Purchases of property, plant and equipment (included in investing activities above)		(34.4	)		(22.1	)		(12.3	)

Available Information

~~Our~~Copies ~~primary source~~ of liquidity has been cash from operations, which includes the collection of accounts and other receivables related to product sales, collaborative research agreements, and royalty and license fees. Additionally, our ~~liquidity~~public ~~was~~filings ~~enhanced~~are inavailable ~~2009~~on by our ~~credit~~Internet ~~facility~~website ~~with~~at ~~Bank of America, N~~http://www.Agen-probe.,com oras ~~Bank~~soon ofas ~~America,~~reasonably ~~described~~practicable ~~in Note~~after 7we —electronically ~~Borrowings,~~file ofsuch ~~the~~material ~~Notes to the Consolidated Financial Statements included elsewhere in this Quarterly Report. Our primary short-term cash needs~~with, ~~which~~or ~~are~~furnish ~~subject~~it to ~~change~~, ~~include~~the ~~continued~~Securities ~~R&D spending to support new products, costs related to commercialization of products~~ and ~~purchases~~Exchange ~~of instrument systems for placement with our customers. In addition~~Commission, weor ~~may use cash for strategic purchases which may include~~ the ~~acquisition of businesses and/or technologies complementary to our business and for stock repurchase programs~~SEC. ~~Certain R&D costs may be funded under collaboration agreements with our collaboration partners.~~

Operating activities provided net cash of $127.8 million during the first nine months of 2011, primarily from net income of $30.3 million and non-cash charges to net income of $97.5 million. Non-cash charges primarily consisted of an OTTI loss on our equity investment in Pacific Biosciences of $39.5 million, stock-based compensation expense of $19.2 million, depreciation of $19.3 million and amortization of intangibles of $15.7 million. 29

~~Net~~Item ~~cash provided by investing activities during the first nine months of 2011 was $50~~3.9 ~~million.~~Quantitative ~~We received $99.6 million in net proceeds from the sale~~ and ~~maturities~~Qualitative ofDisclosures ~~marketable~~about ~~securities,~~Market which was offset by purchases of property, plant and equipment of $34.4 million, purchases of capitalized software of $5.0 million, purchases of intangible assets, including license fees, of $5.0 million, and a $4.0 million investment in Roka Bioscience, Inc. Risk

~~Net~~Interest ~~cash~~Rate used in financing activities during the first nine months of 2011 was $95.8 million, primarily driven by $150.0 million used to repurchase and retire approximately 2.5 million shares of our common stock under our February 2011 stock repurchase program. This use of cash was offset by $43.4 million in proceeds from the issuance of our common stock under equity incentive and employee stock purchase plans, $8.0 million in additional net borrowings under our credit facility and $4.4 million in excess tax benefits from stock-based compensation. Risk

WeOur ~~believe~~exposure ~~that~~to ~~our~~market ~~available~~risk ~~cash~~for ~~balances,~~changes ~~anticipated~~in ~~cash~~interest ~~flows~~rates ~~from~~relates ~~operations, proceeds~~primarily ~~from~~to ~~stock~~interest ~~option~~earned ~~exercises~~on our investment portfolio and ~~borrowings~~the ~~under~~amount of interest payable on our senior secured revolving credit facility ~~will~~with beBank ~~sufficient~~of toAmerica. ~~satisfy~~As ~~our~~of ~~operating~~March 31, ~~needs~~2012, ~~for~~the total principal amount outstanding under the ~~foreseeable~~revolving ~~future~~credit facility was $248.0 ~~However~~million. At our option, weloans ~~operate~~accrue ininterest at a ~~rapidly~~per ~~evolving~~annum ~~and~~rate ~~often~~based ~~unpredictable~~on, ~~business environment~~either: ~~that~~the ~~may~~base ~~change~~rate (the ~~timing~~base orrate ~~amount~~is ofdefined ~~expected~~as ~~future~~the ~~cash~~greatest ~~receipts~~of ~~and~~(i) the ~~expenditures.~~federal ~~Accordingly,~~funds werate ~~may~~plus ina ~~the~~margin ~~future~~equal beto ~~required~~0.50%, to(ii) Bank ~~raise~~of ~~additional~~America’s ~~funds~~prime ~~through~~rate and (iii) the ~~sale~~London ofInterbank ~~equity~~Offered Rate, or ~~debt~~LIBOR, ~~securities~~plus ora ~~from~~margin ~~additional~~equal ~~credit facilities~~to 1.00%); ~~Additional~~or ~~capital,~~LIBOR ifplus ~~needed~~a margin equal to 0.60%, ~~may~~in ~~not~~each becase ~~available~~for oninterest ~~satisfactory~~periods ~~terms~~of 1, 2, 3 or at6 ~~all~~months as selected by us. ~~Further,~~We ~~debt~~do ~~financing~~not ~~may~~believe ~~subject~~that uswe are exposed to ~~covenants~~significant ~~restricting~~interest ~~our~~rate ~~operations.~~risk ~~Because~~with ~~our~~respect ~~current~~to our credit facility isbased ~~secured~~on by our ~~marketable~~option ~~debt securities,~~to ~~any~~select ~~significant~~the ~~needs~~rate ~~for~~at ~~cash~~which ~~may~~interest ~~cause~~accrues usunder tothe ~~liquidate~~credit ~~some~~facility, orthe ~~all~~short-term nature of the borrowings and our ~~marketable~~ability ~~debt~~to ~~securities~~pay ~~resulting~~off the outstanding balance in a timely manner if the ~~need~~applicable tointerest ~~partially~~rate under the credit facility increases above the current interest rate yields on our investment portfolio. A 100 basis point increase or ~~completely~~decrease ~~pay~~in ~~down~~interest rates would increase or ~~refinance~~decrease ~~this~~our ~~indebtedness~~interest expense by approximately $2.5 million on an annual basis.

~~Contractual~~Our ~~Obligations~~risk associated with fluctuating interest income is limited to our investments in interest rate sensitive financial instruments. Under our current policies, we do not use interest rate derivative instruments to manage this exposure to interest rate changes. We seek to ensure the safety and preservation of our invested principal by limiting default risk, market risk, and reinvestment risk. We mitigate default risk by investing in investment grade securities with an average portfolio maturity of no more than three years. A 25 basis point increase or decrease in interest rates would increase or decrease our current investment balance by approximately $1.6 million on an annual basis. While changes in interest rates may affect the fair value of our investment portfolio, any gains or losses are not recognized in our consolidated statements of income until the investment is sold or if a reduction in the fair value of the investment is determined to be other-than-temporary.

WeEquity ~~did~~Price not enter into any material contractual obligations during the three months ended September 30, 2011. We have no material contractual obligations that are not fully recorded on our consolidated balance sheets or fully disclosed in the Notes to our Consolidated Financial Statements. Risk

32In connection with a collaboration agreement we entered into with Pacific Biosciences of California, Inc., or Pacific Biosciences, in June 2010, we purchased $50.0 million of Pacific Biosciences’ Series F preferred stock as a participant in Pacific Biosciences’ Series F preferred stock round of financing, which raised a total of approximately $109.0 million. In October 2010, Pacific Biosciences completed an initial public offering of its common stock at a price of $16.00 per share, and the stock now trades on the NASDAQ Global Select Market under the symbol “PACB.” As a result of the initial public offering, our Pacific Biosciences’ preferred stock was converted into common stock.

~~Table~~Our investment in Pacific Biosciences is subject to market price volatility. Fluctuations in the market price of ~~Contents~~publicly traded securities may result from perceived changes in the underlying economic characteristics of the issuer, the relative price of alternative investments, general market conditions and other factors.

~~Off~~We originally recorded our $50.0 million investment in Pacific Biosciences’ preferred stock on a cost basis in our consolidated financial statements. Since Pacific Biosciences completed its initial public offering, our investment in Pacific Biosciences has been marked to fair market value each reporting period. We periodically review our marketable equity securities for other-~~Balance~~than-temporary ~~Sheet~~declines ~~Arrangements~~in fair value below their cost basis, or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. In the third quarter of 2011, we recorded a $39.5 million other-than-temporary impairment, or OTTI, loss on our investment in Pacific Biosciences. As of March 31, 2012, our investment in Pacific Biosciences had a market value of $11.2 million.

WeA do10% ~~not~~percent ~~currently~~increase ~~have~~or ~~and~~decrease ~~have~~in ~~never~~the ~~had~~fair ~~any~~value ~~relationships~~of ~~with~~our ~~unconsolidated~~investment ~~entities~~in orPacific ~~financial~~Biosciences ~~partnerships,~~would ~~such~~result asin ~~entities often~~an ~~referred~~increase ~~to as structured finance~~ or ~~special~~decrease ~~purpose~~to ~~entities,~~the ~~which~~fair ~~would~~value ~~have~~of ~~been~~our ~~established~~investment ~~for the purpose~~ of ~~facilitating~~approximately ~~off-balance~~$1.1 ~~sheet arrangements or other contractually narrow or limited purposes~~million. InBecause ~~addition,~~the wemarket doprice ~~not~~for ~~engage~~our investment in ~~trading~~ ~~activities~~Pacific ~~involving~~Biosciences ~~non-exchange~~is ~~traded~~subject ~~contracts.~~to Asongoing ~~such~~fluctuation, wethe ~~are~~amount ~~not~~we ~~materially~~may ~~exposed~~eventually torealize ~~any~~from ~~financing,~~a ~~liquidity,~~subsequent ~~market~~sale orof ~~credit~~our ~~risk~~investment ~~that~~may ~~could~~differ ~~arise~~significantly iffrom wethe ~~had~~reported ~~engaged~~market ~~in these relationships~~value.

~~Available~~Foreign ~~Information~~Currency Exchange Risk

~~Copies~~Although the majority of our ~~public~~revenue ~~filings~~is ~~are~~realized ~~available~~in onU.S. dollars, some portions of our ~~Internet~~revenue ~~website~~are atrealized ~~http://www~~in foreign currencies.~~gen-probe.com~~ asAs ~~soon~~a asresult, ~~reasonably~~our ~~practicable~~financial ~~after~~results ~~we electronically~~could ~~file~~be affected by factors such ~~material~~as ~~with,~~changes in foreign currency exchange rates or ~~furnish~~weak iteconomic ~~to,~~conditions in foreign markets. We translate the ~~Securities~~financial statements of our non-U.S. operations using the end-of-period exchange rates for assets and ~~Exchange~~liabilities ~~Commission,~~and orthe ~~SEC~~average exchange rates for each reporting period for results of operations. Net gains and losses resulting from the translation of foreign financial statements and the effect of exchange rates in intercompany

~~Item 3. Quantitative and Qualitative Disclosures about Market Risk~~ 30

~~Interest~~receivables ~~Rate~~and ~~Risk~~payables of a long-term investment nature are recorded as a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income (loss).” These adjustments will affect net income upon the sale or liquidation of the underlying investment.

~~Our~~Under ~~exposure~~our tocollaboration ~~market~~agreement ~~risk~~with ~~for~~Novartis, ~~changes~~a ingrowing ~~interest~~portion ~~rates relates primarily to interest earned on our investment portfolio and the amount~~ of ~~interest~~blood ~~payable~~screening onproduct ~~our~~sales ~~senior~~is ~~secured~~from ~~revolving~~western ~~credit facility~~European ~~with Bank of America~~countries. As ofa ~~September 30~~result, ~~2011,~~our ~~the~~international ~~total~~blood ~~principal~~screening ~~amount~~product ~~outstanding~~sales ~~under~~are ~~the~~affected ~~revolving~~by ~~credit~~changes ~~facility~~in ~~was~~the ~~$248.0 million.~~foreign Atcurrency ~~our~~exchange ~~option,~~rates ~~loans~~of ~~accrue~~those ~~interest~~countries atwhere aNovartis’ ~~per~~business ~~annum~~is ~~rate~~conducted ~~based~~in ~~on,~~Euros ~~either:~~or ~~the~~other ~~base rate~~local ~~(the~~currencies. ~~base~~Based ~~rate~~on isinternational ~~defined~~blood asscreening ~~the~~product ~~greatest~~sales ofduring ~~(i)~~ the ~~federal~~first ~~funds~~three ~~rate~~months ~~plus~~of 2012, a ~~margin~~10% ~~equal~~increase toor ~~0.50%,~~decrease ~~(ii) Bank~~ of ~~America’s~~currency ~~prime~~exchange ~~rate~~rates ~~and~~would ~~(iii) the~~result ~~London~~in ~~Interbank~~a ~~Offered~~blood ~~Rate,~~screening orproduct ~~LIBOR,~~sales ~~plus~~increase aor ~~margin~~decrease ~~equal~~of toapproximately 1$5.~~00%);~~0 ~~or LIBOR~~million ~~plus~~annually. Similarly, a ~~margin equal to 0.60~~10%, inincrease ~~each~~or ~~case~~decrease ~~for interest periods~~ of 1,currency 2,exchange 3rates orwould 6result ~~months~~in asa ~~selected~~clinical bydiagnostic ~~us.~~product Wesales doincrease ~~not~~or ~~believe~~decrease ~~that~~of weapproximately ~~are~~$7.2 ~~exposed~~million toannually. ~~significant~~A ~~interest~~10% ~~rate~~movement ~~risk~~of ~~with~~currency ~~respect~~exchange torates ~~our~~would ~~credit~~result ~~facility~~in ~~based~~a onresearch ~~our~~products ~~option~~and toservices ~~select the~~sales ~~rate~~increase ator ~~which~~decrease ~~interest~~of ~~accrues~~approximately ~~under~~$1.1 ~~the~~million ~~credit~~annually. ~~facility,~~The ~~the~~majority ~~short-term~~of ~~nature~~our ofcollaborative ~~the~~research ~~borrowings~~revenues and ~~our~~royalty ~~ability~~and tolicense ~~pay~~revenues ~~off~~are ~~the~~denominated ~~outstanding balance~~ in aU.S. ~~timely~~dollars ~~manner~~and, ifas ~~the~~such, ~~applicable~~are ~~interest~~not ~~rate~~subject ~~under~~to ~~the~~exchange ~~credit~~rate ~~facility~~exposure. ~~increases~~Our ~~above~~exposure ~~the current~~for ~~interest~~both ~~rate~~blood ~~yields~~screening onand ~~our~~clinical ~~investment~~diagnostic ~~portfolio.~~product Asales ~~100~~is ~~basis~~primarily ~~point increase or decrease~~ in ~~interest~~the ~~rates~~U.S. ~~would~~dollar ~~increase~~versus orthe ~~decrease~~Euro, ~~our~~British ~~interest~~pound, ~~expense~~Australian bydollar ~~approximately~~and ~~$2.5~~Canadian ~~million on an annual basis~~dollar.

Our ~~risk~~total ~~associated~~accounts ~~with~~payable ~~fluctuating~~denominated ~~interest income is limited to our investments~~ in ~~interest~~foreign ~~rate~~currencies ~~sensitive~~as ~~financial~~of ~~instruments. Under our current policies~~March 31, we2012 dowere not ~~use interest rate derivative instruments to manage this exposure to interest rate changes~~material. WeOur ~~seek~~trade toaccounts ~~ensure~~receivable ~~the~~by ~~safety~~currency ~~and~~as ~~preservation~~ of ~~our invested principal by limiting default risk~~March 31, ~~market~~2012 ~~risk,~~reflected ~~and reinvestment risk. We mitigate default risk by investing~~ in ~~investment grade securities with an average portfolio maturity of no more than three years~~U. ~~A 25 basis point increase or decrease in interest rates would increase or decrease our current investment balance by approximately $1~~S.7 ~~million~~dollar onequivalents anwere ~~annual~~as ~~basis.~~follows ~~While changes~~ (in interest rates may affect the fair value of our investment portfolio, any gains or losses are not recognized in our consolidated statements of income until the investment is sold or if a reduction in fair value is determined to be other-than-temporary. millions):

Equity Price Risk




U.S. dollar	$	52.7
Euro	6.9
British pound	4.4
Canadian dollar	2.2
Other	1.3
Total gross trade accounts receivable	$	67.5

InItem ~~connection with a collaboration agreement we entered into with Pacific Biosciences in June 2010, we purchased $50~~4.~~0 million~~ ofControls Pacific Biosciences’ Series F preferred stock as a participant in Pacific Biosciences’ Series F preferred stock round of financing, which raised a total of approximately $109.0 million. In October 2010, Pacific Biosciences completed an initial public offering of its common stock at a price of $16.00 per share, and the stock now trades on the NASDAQ Global Select Market under the symbol “PACB.” As a result of the initial public offering, our Pacific Biosciences’ preferred stock was converted into common stock. Procedures

~~Our~~We ~~investment~~maintain indisclosure ~~Pacific~~controls ~~Biosciences~~and isprocedures ~~subject~~that are designed to ~~market price~~ensure ~~volatility.~~that ~~Fluctuations~~information required to be disclosed in ~~the~~our ~~market~~current ~~price~~and ofperiodic ~~publicly~~reports ~~traded~~is ~~securities~~recorded, ~~may~~processed, ~~result~~summarized ~~from~~and ~~perceived~~reported ~~changes~~within the time periods specified in the ~~underlying~~SEC’s ~~economic~~rules ~~characteristics~~and offorms, ~~the~~and ~~issuer~~that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the ~~relative~~disclosure ~~price~~controls ofand ~~alternative~~procedures, ~~investments~~management recognized that any controls and procedures, ~~general~~no ~~market~~matter ~~conditions~~how well designed and ~~other~~ ~~factors~~operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

WeIn ~~originally~~addition, ~~recorded~~the ~~our~~design ~~$50.0~~of ~~million~~any ~~investment~~system of controls is also based in ~~Pacific~~part ~~Biosciences’~~upon ~~preferred~~certain ~~stock~~assumptions onabout athe ~~cost basis~~likelihood inof ~~our~~future ~~consolidated~~events, ~~financial~~and ~~statements. Since~~there ~~Pacific~~can ~~Biosciences~~be ~~completed~~no assurance that any design will succeed in achieving its ~~initial~~stated ~~public~~goals ~~offering~~under all potential future conditions; over time, ~~our~~controls ~~investment~~may become inadequate because of changes in ~~Pacific~~conditions, ~~Biosciences~~or ~~has~~the ~~been~~degree ~~marked~~of tocompliance ~~fair~~with ~~market~~policies ~~value~~or ~~each~~procedures ~~reporting~~may ~~period~~deteriorate. We ~~periodically~~Because ~~review~~of ~~our~~ the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

33As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2012.

~~Table~~An evaluation was also performed under the supervision and with the participation of ~~Contents~~our management, including our Chief Executive Officer and Chief Financial Officer, of any change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control over financial reporting that occurred during our latest fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

marketable equity securities for other-than-temporary declines in fair value below their cost basis, or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. In the third quarter of 2011, we recorded a $39.5 million OTTI loss on our investment in Pacific Biosciences. As of September 30, 2011, our investment in Pacific Biosciences had a fair market value of $10.5 million. 31

APART ~~10%~~II ~~percent~~— ~~increase~~OTHER or decrease in the fair value of our investment in Pacific Biosciences would result in an increase or decrease to the fair value of our investment of approximately $1.1 million. Because the market price for our investment in Pacific Biosciences is subject to ongoing fluctuation, the amount we may eventually realize from a subsequent sale of our investment may differ significantly from the reported market value. INFORMATION

~~Foreign~~Item ~~Currency~~1. ~~Exchange~~Legal ~~Risk~~ Proceedings

~~Although~~We ~~the~~are ~~majority~~a ofparty ~~our~~to ~~revenue~~the isfollowing ~~realized~~litigation inand ~~U.S.~~may ~~dollars,~~also ~~some~~be ~~portions~~involved ofin ~~our~~other ~~revenue~~legal ~~are~~proceedings ~~realized~~arising in ~~foreign~~the ~~currencies.~~ordinary Ascourse ~~a result,~~of ~~our~~business ~~financial~~from ~~results~~time ~~could~~to betime. ~~affected~~We byintend ~~factors~~to ~~such~~vigorously asdefend ~~changes~~our ininterests ~~foreign currency exchange rates or weak economic conditions~~ in ~~foreign~~these ~~markets~~matters. We ~~translate~~expect that the ~~financial~~resolution ~~statements~~ of ~~our~~

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