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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