Proposed Tepnel Life Sciences acquisition Conference Call - Final.(Broadcast transcript)

OPERATOR: Welcome and thank you for standing by. (Operator Instructions). Also, today's conference is being recorded. If you have any objections, you may disconnect at this time, and now I will turn today's call over to Mike Watts. Thank you. You may begin.

MIKE WATTS, SENIOR DIRECTOR, IR & CORPORATE COMMUNICATIONS, GEN-PROBE: Thank you, Candy, and good morning, everyone. On behalf of our management team, I'm very pleased to welcome you to this conference call to discuss our offer to acquire Tepnel Life Sciences. A press release announcing our acquisition was issued today at about 2:15 AM Eastern time and is posted on our website at www.Gen-Probe.com. In addition, we plan to post our prepared remarks on our website as soon as we finish this call.

In our call today, Hank Nordhoff, our CEO, will first summarize our proposed transaction in a strategic rationale. Then Herm Rosenman, our CFO, will review the financial aspects. We will take your questions at the end and wrap up within an hour before the market opens.

Before we begin, let me first review our Safe Harbor policy. Forward-looking guidance, financial or otherwise, is only provided on conference calls or in our press releases. Any statements in this conference call about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often but not always made through the use of words and phrases such as believe, will, expect, anticipate, estimate, intend, plan, foresee, could, should and would. For example, statements concerning future earnings accretion or dilution, the closing of this transaction or acceptance of our offer by Tepnel shareholders, revenue or expense synergies, financial conditions, regulatory approvals and timelines, possible or assumed future results of operations, growth opportunities, industry ranking, and plans and objectives of management are all forward-looking statements. Forward-looking statements are not guarantees of performance. They involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied. Factors that might cause such differences include, but are not limited to, those discussed in today's press release and in our SEC filings, including our report on Form 10-K for the year ended December 31, 2007 and all subsequent periodic reports.

Please note that risks specifically associated with this proposed transaction have not yet been included in our SEC filings. Nonetheless, copies are available on our website at www.SEC.gov and on request from our IR department. Gen-Probe assumes no obligation and expressly disclaims any duty to update any forward-looking statements to reflect events or circumstances after the date of this call or to reflect the occurrence of unanticipated events.

With that detail out of the way, I will turn the call over to Hank Nordhoff, Gen-Probe's CEO.

HANK NORDHOFF, CHAIRMAN, PRESIDENT & CEO, GEN-PROBE: Thank you, Mike, and good morning, everyone. Thanks for joining us to discuss our acquisition of Tepnel, our rapidly growing UK-based molecular diagnostics and pharmaceutical services companies. This is an exciting transaction for Gen-Probe, one that we believe makes both strategic and financial sense, and we're pleased to discuss it with you despite the early hour here in San Diego.

As described in our press release, we are offering to acquire all the outstanding shares, options and warrants of Tepnel for 27.1p per share or GBP92.8 million in gross fully diluted value. At an exchange rate of GBP1 to $1.424, this equates to $132.2 million in total. Net of cash and debt currently on Tepnel's balance sheet plus cash we expect to receive from the exercise of options and warrants, our offer has an enterprise value of approximately GBP83.2 million or $118.5 million. Tepnel's most recent published financial results are through the first half of 2008, but if you extrapolate from those results, you will see that this enterprise value even on a trailing basis is about 3.5 times revenue.

At the same time however, we are offering a very nice 127% premium to Tepnel shareholders over the unaffected share price on January 21 before the Company announced it was engaged in acquisition discussions. So we believe this is a win-win situation.

Gen-Probe gets excellent value, consistent with a very disciplined analysis we conducted on the Company, while Tepnel shareholders get a healthy premium that reflects the Company's significant accomplishments and growth prospects.

As you might expect, we intend to fund this acquisition with some of the more than $500 million of cash currently on our balance sheet. In this difficult economic environment, we're very pleased that our balance sheet gives us the flexibility to acquire attractive growing assets without tapping the capital markets. Tepnel's board has unanimously approved the transaction and intends to recommend that shareholders vote in favor of it. In fact, directors and certain institutional investors representing approximately 40% of Tepnel's shares already have pledged to vote in favor of the transaction.

With that as an introduction, let me explain why we believe Tepnel is a very good strategic fit for Gen-Probe. First, Tepnel would diversify our product sales base by providing immediate access to two attractive growth areas within molecular diagnostics, transplant diagnostics and genetic testing. In some respects Tepnel is doing today what we have done historically, identifying niche markets with high growth potential and develop innovative products to satisfy unmet customer needs in them. Tepnel is a pioneer in transplant diagnostics, having introduced the first commercial molecular typing kit for human leukocyte antigens or HLAs in 1992. Today the Company remains a strong player in the field out of its business base in Connecticut, selling a portfolio of molecular and protein-based assays to test for single and multiple antigens.

HLA testing is done in transplant centers to determine compatibility for organ and bone marrow transplants and is also increasingly used for posttransplant monitoring. We estimate the total global market for HLA testing at roughly $260 million in 2008 and believe it is growing at a low double-digit rate, in part due to a shift toward molecular …