Gen-Probe (GRPO): Pipeline of profits from genetic testing

"Gen-Probe Incorporated (NASDAQ: GPRO) creates nucleic acid tests that identify disease-causing agents directly through their genetic fingerprints," says Dave Dyer.

In his Dave Dyer's Newsletter, he explains "The firm's most established market is screening donated blood for HIV and hepatitis viruses. Now, we expect it to be the first to have a gene-based test to detect prostate cancer."

"The current PSA test for prostate cancer --  the most common cancer in men -- is unreliable, in part, because a lot of things other than cancer can affect PSA levels. In addition, men dread the current testing method; without going into graphic details, it is done in a 'very inconvenient place'.

"Wouldn’t it be wonderful if someone came up with a more accurate test? Welcome to the promise of Gen-Probe,  the company who should replace the PSA test with the world’s first gene-based urine test to detect prostate cancer.

"The company's PROGENSA PCA3 assay uses a urine sample to detect overexpression of the PCA3 gene which is common in most prostate cancer. The FDA is still evaluating it, but it has been approved in Europe since 2006 and the results have been super.

"In HIV blood testing, they estimate that they screen 80% of the US blood supply. As a result, this is a stable, long-term business segment and a near monopoly.

"GPRO’s other tests detect West Nile Virus, tuberculosis, strep throat, pneumonia, and various sexually transmitted diseases. I guess if you have any of these, it is best to find out about it. Their tests are faster, more accurate, and less labor-intensive.

"As a pioneer in this field, GPRO is in an excellent position to develop new tests while growing the profits from their current ones. They have excellent fundamentals to support their story. Their rate of EPS growth shows the kind of acceleration that I love to see in a growth company.

"The last 3 quarters have grown at 4%, 16%, and then 45%. The recent 45% EPS gain came on a 21% quarterly revenue increase. All this growth is funded by the revenue from current tests; they have almost no debt. GPRO also raised guidance for the rest of the year.

"Since any disease-causing virus or bacteria will have its own unique genetic fingerprint, GPRO’s fundamental expertise can be easily extended to new areas. This makes their pipeline both exciting and realistic.

"In addition to the more effective prostate cancer test that every American male over 50 will probably take, they are working on tests for the human papillomavirus, which causes cervical cancer, and for drug-resistant hospital infections. Opportunities should also be plentiful in testing food and looking for industrial contamination.

"The stock had a long run of almost 1000% from its IPO in 2002 until last October. It sold off hard during the recent market downturn for about a 35% loss. However, it has now turned around and another good run is underway."