Serono Delivers Strong Second Quarter Results
July 19 2005 - 5:01PM
PR Newswire (US)
Serono Delivers Strong Second Quarter Results Excellent Rebif(R)
Performance With Sales up 26.6% to $326 million ROCKLAND,
Massachusetts, July 19 /PRNewswire-FirstCall/ -- Serono (virt-x:
SEO and NYSE: SRA), the third largest biotechnology company in the
world, today reported its second quarter results for the period
ended June 30, 2005. Key Points for Second Quarter 2005 - Total
revenues up 15.2% to $676.8m (up 12.5% in local currencies) and
product sales up 13.5% to $611.5m (up 10.9% in local currencies) -
Reported net income up 32.5% to $175.1m (up 31.5% in local
currencies) with underlying net income* up 13.7% to $150.3m - Basic
EPS up 41.1% to $12.02 per bearer share and $0.30 per ADS with
underlying EPS* up 21.1% to $10.32 per bearer share and $0.26 per
ADS - Very strong Rebif(R) performance with global sales up 26.6%
to $326 million and record US market share (TRx of 19.0% and NRx of
22.8%) - Strategic alliance with Priority Healthcare in
Reproductive Health in the USA - Mylinax(R) in a strong position in
the race for the first marketed oral MS therapy - New R&D
collaborations - Phenoptin (TM) from BioMarin, HuMax-TAC from
Genmab, anti-CD3 and anti-IFN gamma from NovImmune - Positive
credit ratings issued by Moody's: A3 and Standard & Poor's: A-
"In the US, Rebif(R)'s market share gains are accelerating with
latest data showing record levels, and our strategic alliance in
the Reproductive Health area is very exciting," said Ernesto
Bertarelli, Chief Executive Officer of Serono. "Given recent news
flow regarding several other potential oral MS therapies,
Mylinax(R) is clearly in a strong position in the race to be the
first marketed oral MS treatment." "We had a fruitful quarter with
respect to R&D collaborations, with the conclusion of three new
agreements," said Stuart Grant, Chief Financial Officer of Serono.
"Rebif(R)'s continued strong performance, coupled with improvements
in operating leverage, give us confidence to deliver our guidance**
for the full year." Financial Performance Total revenues increased
by 15.2% to $676.8m in the second quarter of 2005 (Q2 2004:
$587.6m), or 12.5% in local currencies. Product sales grew 13.5% to
$611.5m (Q2 2004: $538.6m), or 10.9% in local currencies. Royalty
and license income increased by 33.3% to $65.3m (Q2 2004: $49.0m),
continuing to provide a substantial revenue stream derived from
Serono's extensive and diverse intellectual property portfolio.
Total operating expenses increased by 14.3% to $509.5m in the
second quarter of 2005 (Q2 2004: $445.7m), or 11.3% in local
currencies. This slower growth rate of operating expenses
represents an improvement over the previous two quarters and
reflects ongoing enhancements of operational efficiencies. Gross
margin increased to 87.8% of product sales (Q2 2004: 86.6%), as a
result of continuing manufacturing improvements. Serono's ability
to optimize cost of product sales over the years has resulted in
one of the highest gross margins in the biotechnology sector.
Selling, General and Administrative expenses were $222.5m, in line
with the first quarter of 2005, an increase of 15.2% (Q2 2004:
$193.1m). This increase is primarily related to the Rebif(R) share
of voice expansion program and the ongoing launch of Raptiva(R).
Research and Development expenses were $145.8m (Q2 2004: $123.2m).
R&D expenses increased by 18.4% from the second quarter of 2004
reflecting the company's expansion into oncology projects,
including Canvaxin(TM) and adecatumumab currently in Phase III and
Phase II trials respectively as well as the roll-out of a Phase III
trial with Mylinax(R) in relapsing forms of multiple sclerosis.
Other operating expenses were $66.7m (Q2 2004: $57.3m),
incorporating expenses of $4.8m related to stock options in
accordance with the IFRS 2 accounting change. The increase in
operating expenses was primarily driven by increases in royalty
expenses. Operating income increased by 17.9% to $167.3m, leading
to an improved operating leverage with a margin of 24.7% of total
revenues (Q2 2004: $141.9m or 24.1% of total revenues). Net
financial income was $9.1m (Q2 2004: $15.3m). An exceptional gain
of $30.0m was recorded in the second quarter resulting from the
sale of an equity holding in Celgene, Inc. Additionally, an
unrealized loss of $3.7m was recorded in accordance with IAS 38
revised to reflect the impairment in value of our equity stake in
CancerVax. Net income was up 32.5% to $175.1m (Q2 2004: $132.2m),
or 31.5% in local currencies. Underlying net income* was up 13.7%
to $150.3m. Basic earnings per share were up 41.1% to $12.02 per
bearer share and $0.30 per ADS. Underlying EPS* were up 21.1% to
$10.32 per bearer share and $0.26 per ADS. For the first six
months, net cash flow from operating activities before change in
working capital was $354.1m (H1 2004: $338.9m), or $177.1m after
change in working capital (H1 2004: $252.1m), reflecting milestone
payments made in the first quarter of 2005 relating to agreements
signed in 2004 with CancerVax and Micromet and timing of tax
payments. As of June 30, 2005, there were 14,569,355 outstanding
equivalent bearer shares of Serono SA, net of treasury shares.
Serono recently received positive credit ratings issued by Moody's
and Standard & Poor's, of A3 and A- respectively. These
positive external credit ratings confirm the company's underlying
strength and business prospects, positions Serono well against its
peer group, and demonstrates the company's low risk profile with a
stable outlook. Full Year 2005 Outlook In 2005, Serono continues to
expect that product sales will grow between 10% and 15%, leading to
total revenues of at least $2.6 billion, based on currency exchange
rates prevailing on February 1st 2005, when guidance was issued.
"Adjusted" net income is expected to be between $520m and $540m, as
first communicated on February 1st 2005, based on currency exchange
rates prevailing when guidance was issued. This outlook does not
include expenses related to any new business development
transactions or other exceptional items in 2005. To date known
adjustments include an exceptional charge of $725.0m ($660.5m
after-tax) related to previously reported US Attorney's Office
investigation of Serostim(R), a $30m ($28.5m after-tax) gain on
sale of investment in Celgene, and an $8.4m write-down of
investment in CancerVax. Therefore the 2005 IFRS earnings guidance
is a net loss of between $100m and $120m. Therapeutic Areas Review
In the second quarter of 2005, sales of Rebif(R) were up 26.6%
(22.9% in local currencies) to $326.0m (Q2 2004: $257.5m). Rebif(R)
leads the MS market outside the US with sales increasing by 22.3%
to $229.8m (Q2 2004: $187.9m), or 17.5% in local currencies. Sales
in the US were up 38.3% to $96.2m in the second quarter and
Rebif(R) ended the quarter with record market share. US rolling
4-week total prescription share of Rebif(R) was 19.0%, with new
prescription share of 22.8%. Gonal-f(R) sales were stable (-0.7% or
-2.8% in local currencies) at $149.9m (Q2 2004: $150.9m).
Gonal-f(R) delivered double-digit growth outside of the US due to
successful roll-out of the Gonal-f(R) FbM pre-filled pen, but sales
continued to be impacted by pricing pressure from a competitor in
the US. On June 14, Serono and Priority Healthcare Corporation
announced the formation of a strategic alliance, under which both
companies offer the US fertility marketplace expanded and
unprecedented services and support to consumers, patients,
healthcare providers and managed care organizations. Growth hormone
sales increased by 8.1% (6.1% in local currencies) to $71.1m (Q2
2004: $65.8m). Saizen(R) sales increased by 21.2% (17.8% in local
currencies) to $53.6m (Q2 2004: $44.2m), due to the devices and
services provided to patients and physicians. As a result of
continued reimbursement constraints, Serostim(R) sales decreased by
19.5% to $17.3m (Q2 2004: $21.5m). Sales of Raptiva(R), the
first-to-market biological treatment for psoriasis in the European
Union, were $7.4m in the second quarter (Q2 2004: $0.2m).
Reimbursement negotiations in the major European markets have been
concluded in only nine months since its approval in the EU.
Raptiva(R) was launched in Spain in June, and is planned to be
introduced in France and Italy in the third quarter. Regional Sales
European sales increased by 23.6% (18.3% in local currencies) to
$277.6m (Q2 2004: $224.6m). North American sales grew by 3.7% to
$216.6m (Q2 2004: $208.8m). In the rest of the world, sales grew by
11.4% (9.5% in local currencies) to $117.3m (Q2 2004: $105.3m).
R&D News In the second quarter Serono made good progress with
respect to its strategy of strengthening its pipeline through
R&D collaborations with the conclusion of in-licensing
agreements with Genmab, BioMarin and NovImmune in May 2005. Serono
signed a worldwide agreement with GenMab A/S to develop and
commercialize HuMax-TAC, a fully human monoclonal antibody
targeting the TAC antigen (CD25, the interleukin-2 receptor alpha
subunit (IL-2Ra)) which is overexpressed by activated T-cells. By
binding the TAC antigen, HuMax-TAC inhibits the proliferation of
T-cells and so may have therapeutic potential in the treatment of
T-cell mediated diseases, such as autoimmune disorders,
inflammatory and hyperproliferative skin disorders, as well as
transplant rejection. Serono entered a strategic alliance with
BioMarin Pharmaceutical Inc. to develop and commercialize Phenoptin
and Phenylase in all territories outside the United States and
Japan. Both products have shown potential in the treatment of
phenylketonuria, a rare inherited metabolic disease with
detrimental neurological effects for patients. This collaboration
has the potential to leverage Serono's existing metabolic
endocrinology sales and marketing infrastructure. Serono commenced
an exclusive worldwide collaboration to develop and commercialize
two of NovImmune's fully human monoclonal antibodies, NI-0401
(anti-CD3), and NI-0501 (anti-IFN-gamma), which may have
therapeutic potential in a broad range of autoimmune diseases.
Conference Call and Webcast Serono will hold a conference call on
July 20th, 2005, starting at 11:00 am US Eastern Time (17:00
Central European Time) during which Serono Management will present
the Company's Second Quarter 2005 Results. To join the telephone
conference please dial 1-866-291-4166 (from the US), 091-610-5600
(from Switzerland), 0207-107-0611 (from the UK) and +41-91-610-5600
(from elsewhere). The event will also be relayed by live audio
webcast, which interested parties may access via Serono's Corporate
home page, http://www.serono.com/. A link to the webcast will be
provided immediately prior to the event and will be available for
replay following the event. Some of the statements in this press
release are forward looking. Such statements are inherently subject
to known and unknown risks, uncertainties and other factors that
may cause actual results, performance or achievements of Serono and
affiliates to be materially different from those expected or
anticipated in the forward-looking statements. Forward-looking
statements are based on Serono's current expectations and
assumptions, which may be affected by a number of factors,
including those discussed in this press release and more fully
described in Serono's Annual Report on Form 20-F filed with the US
Securities and Exchange Commission on March 16, 2005. These factors
include any failure or delay in Serono's ability to develop new
products, any failure to receive anticipated regulatory approvals,
any problems in commercializing current products as a result of
competition or other factors, our ability to obtain reimbursement
coverage for our products, the outcome of government investigations
and litigation and government regulations limiting our ability to
sell our products. Serono has no responsibility to update the
forward-looking statements contained in this press release to
reflect events or circumstances occurring after the date of this
press release. About Serono Serono is a global biotechnology
leader. The Company has eight biotechnology products, Rebif(R),
Gonal-f(R), Luveris(R), Ovidrel(R )/Ovitrelle(R), Serostim(R),
Saizen(R), Zorbtive(TM) and Raptiva(R). In addition to being the
world leader in reproductive health, Serono has strong market
positions in neurology, metabolism and growth and has recently
entered the psoriasis area. The Company's research programs are
focused on growing these businesses and on establishing new
therapeutic areas, including oncology. Currently, there are
approximately 30 ongoing development projects. In 2004, Serono
achieved worldwide revenues of US$2,458.1 million, and a net income
of US$494.2 million, making it the third largest biotech company in
the world. Its products are sold in over 90 countries. Bearer
shares of Serono S.A., the holding company, are traded on the
virt-x (SEO) and its American Depositary Shares are traded on the
New York Stock Exchange (SRA). * Q2 2005 non-IFRS earnings measure
excludes a $30.0m ($28.5m after-tax) gain on sale of investment in
Celgene and a $3.7m write-down of investment in CancerVax and is
provided in order to permit assessment of the performance of the
company's underlying business for the quarter ** Full year 2005
"adjusted" earnings guidance excludes an exceptional charge of
$725.0m ($660.5m after-tax) related to previously reported US
Attorney's Office investigation of Serostim (R), a $30m ($28.5m
after-tax) gain on sale of investment in Celgene and a $8.4m
write-down of investment in CancerVax A full version of this
release, including tables, is available at http://www.serono.com/
http://www.seronousa.com/ DATASOURCE: Serono International S.A.
CONTACT: Serono in Geneva, Switzerland: Media Relations: Tel:
+41-22-739-36-00, Fax: +41-22-739 30 85. Investor Relations: Tel:
+41-22-739-36-01, Fax: +41-22-739-30-22. Serono, Inc., Rockland,
MA, Media Relations: Tel. +1-781-681-2340, Fax: +1-781-681-2935.
Investor Relations: Tel. +1-781-681-2552, Fax: +1-781-681-2912
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