Adjusted* EPS Increased by 75.2% and 2006 EPS Outlook Raised to $45.00

    GENEVA, Switzerland, April 20 /PRNewswire-FirstCall/ -- Serono (virt-x:
SEO and NYSE: SRA), today reported its first quarter results for the period
ended March 31, 2006.
    Key Points for First Quarter 2006
    - Strong underlying top-line performance with total revenues up 11.0%
(+16.4% in local currencies) to $667.5m and product sales up 7.9% (+13.4%
in local currencies) to $594.9m
    - Reported net income of $179.9m and basic EPS of $12.29 per bearer
share and $0.31 per ADS
    - Adjusted* net income up 76.1% to $171.6m and adjusted* basic EPS up
75.2% to $11.72 per bearer share and $0.29 per ADS
    - Rebif(R) worldwide sales up 11.7% (+17.7% in local currencies) to
$327.0m
    - Gonal-f(R) sales of $139.1m increased vs both Q1 2005 and Q4 2005
    - Good progress in late-stage clinical programs:
    - Rebif(R) new formulation filed in USA and Europe
    - Positive outcome from Phase III study of Phenoptin for PKU
    - 2006 EPS outlook raised to $45.00 per bearer share
    "Our strong first quarter top-line performance reflects a healthy
business across the board. I am pleased with the performance of our
Reproductive Health franchise, particularly in the US, as well as with the
underlying growth of our Rebif(R) worldwide sales of 17.7%," said Ernesto
Bertarelli, Chief Executive Officer. "Moving forward we will continue to
invest in our existing businesses and R&D pipeline, and we intend to
actively pursue opportunities for growth through acquisitions."
    "Given the strength of our financial performance in the first quarter,
we now raise our EPS guidance to $45.00," said Stuart Grant, Chief
Financial Officer.
    Financial Performance
    Total revenues increased by 11.0%, or 16.4% in local currencies, to
$667.5m in the first quarter of 2006 (Q1 2005: $601.4m). Product sales grew
7.9%, or 13.4% in local currencies, to $594.9m (Q1 2005: $551.4m). Sales
were adversely influenced by the strengthening of the US dollar versus the
Euro year-over-year. Royalty and license income increased by 45.3% to
$72.6m (Q1 2005: $50.0m), continuing to provide a substantial revenue
stream derived from Serono's intellectual property rights.
    Gross margin remains solid at 88.4% of product sales (Q1 2005: 89.2%).
Selling, General and Administrative expenses remained stable at $211.5m (Q1
2005: $214.6m) reflecting operational leverage. Research and Development
expenses were $122.9m (Q1 2005: $156.3m), reflecting the completion of a
number of phase III trials in the last 12 months. Other operating expenses
were $64.3m (Q1 2005: $788.4m).
    Operating income in the first quarter of 2006 was $200.0m compared to a
loss of $617.4m in the first quarter of 2005. On an adjusted* basis this
represents an increase of 85.9% and led to an operating margin of 30.0% of
total revenues (Q1 2005: $107.6m or 17.9% of total revenues on an adjusted*
basis), reflecting steady underlying revenue growth, tight control over
SG&A and R&D expenses and continued solid gross margin.
    Financial income was $23.9m (Q1 2005: $12.0m), reflecting a net gain of
$8.4m from the sale of 1,434,607 shares of ZymoGenetics, Inc. in March
2006. Financial expense decreased to $6.3m (Q1 2005: $10.6m), as a result
of last year's first quarter write-down of $4.7m related to impairment in
value of an equity stake in CancerVax.
    Reported net income in the first quarter of 2006 was $179.9m compared
to a loss of $567.7m in the first quarter of 2005. Adjusted* net income was
up 76.1% to $171.6m (Q1 2005: $97.4m), or 77.4% in local currencies.
    Reported basic earnings per share in the first quarter of 2006 were
$12.29 per bearer share and $0.31 per American Depositary Share (ADS).
Adjusted* basic earnings per share were up 75.2% to $11.72 per bearer share
(Q1 2005: $6.69) and $0.29 per ADS (Q1 2005: $0.17).
    For the first quarter, net cash flow from operating activities before
change in working capital was $237.8m (Q1 2005: $146.4m), or $189.0m after
change in working capital (Q1 2005: $53.3m). The company's liquid financial
assets were $1.7 billion at the end of the first quarter 2006.
    As of March 31, 2006, there were 14,641,246 equivalent bearer shares of
Serono S.A. issued and 14,639,138 equivalent bearer shares of Serono S.A.
outstanding.
    Full Year 2006 Outlook
    Given the strength of the first quarter 2006 results, Serono now raises
its outlook for 2006 earnings per bearer share to $45.00. This outlook does
not include expenses related to any new business development transactions
or other non-recurring items in 2006.
    Therapeutic Areas Review
    In the first quarter of 2006, Rebif(R) had a solid performance with
sales up 11.7%, 17.7% in local currencies, to $327.0m (Q1 2005: $292.8m)
further consolidating its position as a foundation therapy. Rebif(R)
continues its market leadership outside the US with sales growing 3.1%, or
10.8% in local currencies, to $222.7m (Q1 2005: $216.1m). Rebif(R), the
fastest growing brand for the treatment of relapsing forms of multiple
sclerosis in the US in 2005, reached sales of $104.2m, up 35.8% in the
first quarter (Q1 2005: $76.8m).
    Sales of Gonal-f(R) increased by 0.8%, or 6.3% in local currencies, to
$139.1m (Q1 2005: $138.0m). This is an encouraging performance reflecting
high single-digit growth in local currencies outside of the US and marking
a change in trend in the US. Contrary to usual seasonal patterns,
Gonal-f(R) sales increased 4.2% in the first quarter of 2006 compared with
the fourth quarter of 2005. Global sales of supporting products
(Ovidrel(R), Cetrotide(R), Crinone(R) and Luveris(R)) were up 11.3%, or
16.6% in local currencies, to $22.6m.
    Saizen(R) sales increased by 4.4%, or 10.0% in local currencies, to
$49.9m (Q1 2005: $47.8m). Saizen(R) continues to be differentiated using
the innovative devices, cool.click and one.click, as well as services, such
as patient registries, call centres and nurse trainers, as well as
educational programs. Serostim(R) sales decreased by 13.7% to $15.8m (Q1
2005: $18.3m).
    Sales of Raptiva(R) were $13.6m in the first quarter 2006 (Q1 2005:
$4.5m). The focus for 2006 is on increasing market penetration by
differentiating Raptiva(R) from other biologicals and further establishing
the new progressive way of treating psoriasis to achieve long-term control
of this chronic disease.
    R&D News
    On March 15, Serono and BioMarin Pharmaceutical Inc. announced positive
results of a Phase 3, double-blind, placebo-controlled clinical study of
Phenoptin(TM) (sapropterin dihydrochloride), an investigational oral small
molecule for the treatment of phenylketonuria. All pre-specified primary
and secondary endpoints were met and data demonstrate a statistically
significant reduction at six weeks in blood phenylalanine levels (p<0.0001)
in patients receiving Phenoptin, compared with those receiving placebo.
    On April 4, Serono announced the submission of a supplemental Biologics
Licence Application to the US Food and Drug Administration and a variation
to the current Marketing Authorization to the European Medicines Agency for
a new formulation of Rebif(R) as a treatment of multiple sclerosis. The
applications are supported by data from a Phase III clinical trial in
patients with relapsing forms of MS which show that the new formulation of
Rebif(R) results in a substantial improvement in overall tolerability, as
well as a reduction in the incidence of antibody formation. This most
recent Rebif(R) lifecycle management initiative further exemplifies
Serono's commitment to developing and launching a wide range of product
enhancements in support of MS patients worldwide.
    Conference Call and Webcast
    Serono will hold a conference call today, April 20th, 2006, starting at
15:00 Central European Time (9:00 am US Eastern Time) during which Serono
Management will present the Company's First Quarter 2006 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. Additionally, the webcast will be available
for replay until close of business on May 26, 2006.
    Forward-looking statements
    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 S.A. 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 U.S. Securities and Exchange Commission
on February 28, 2006. 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 and autoimmune diseases. Currently, there are
more than 25 on-going development projects.
    In 2005, Serono, whose products are sold in over 90 countries, achieved
worldwide revenues of US$2,586.4 million. Reported net loss in 2005 was
US$106.1 million, reflecting a charge of US$725 million taken relating to
the settlement of the US Attorney's Office investigation of Serostim.
Excluding this charge as well as other non-recurring items, adjusted net
income grew 28.4% to US$565.3 million in 2005. 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).
    A full version of this release, including tables, is available at
http://www.serono.com
    - Tables detailing sales in dollars by therapeutic area, geographic
region and the top 10 products for the 3 months ended March 31, 2006 and
2005.
    - Consolidated statements of income for the 3 months ended March 31,
2006 and 2005; adjusted net income and adjusted earnings per share for the
3 months ended March 31, 2006 and 2005; the consolidated balance sheets as
of March 31, 2006 and December 31, 2005; the consolidated statements of
recognized income and expense for the 3 months ended March 31, 2006 and
2005; the consolidated statements of changes in equity as of March 31, 2006
and 2005; the consolidated statements of cash flows for the 3 months ended
March 31, 2006 and 2005; and the selected explanatory notes to the
consolidated financial statements. These consolidated financial statements
have been prepared on the basis of International Financial Reporting
Standards.
    * Non-IFRS financial measures included in order to permit assessment of
the performance of the company's underlying business for the quarter
include: In Q1 2006 an $8.4m gain on sale of investment in ZymoGenetics. In
Q1 2005 a charge of $725.0m ($660.5m after tax) related to previously
reported US Attorney's Office investigation of Serostim (R) and a $4.7m
write-down of investment in CancerVax.
    http://www.serono.com
    http://www.seronousa.com
    Reuters: SEO.VX / SRA
    Bloomberg: SEO VX / SRA US

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