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

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