Significant Revenue Growth and Gross Margin Improvement Propel Net Profit
up 26.0% to $135.8m

    ROCKLAND, Massachusetts, July 21 /PRNewswire-FirstCall/ --
    Serono (virt-x: SEO and NYSE: SRA), the world's third largest
biotechnology company, today reported its second quarter results for the
period ended June 30, 2004.
    Key Points for Second Quarter 2004
    - Total revenues up 15.6% to $587.6m (up 11.2% in local currencies)
    - Product sales up 15.2% to $538.6m (up 10.6% in local currencies)
    - Gross margin of 86.6% of product sales
    - Net income up 26.0% to $135.8m (up 21.5% in local currencies)
    - Basic EPS up 28.5% to $8.75 per bearer share and $0.22 per ADS
    - Significant expansion in Rebif(R)'s global sales and marketing
activities initiated
    - Unanimous positive opinion from the CHMP recommending approval of
Raptiva(R) in the EU
    - Phase III study of Serostim(R) in HARS initiated
    "Our second quarter results are excellent with strong EPS growth of
28.5%," said Ernesto Bertarelli, Chief Executive Officer of Serono. "I am
very pleased with the recent recommendation for Raptiva(R) made by the
scientific committee of Europe's regulatory agency (CHMP). Raptiva(R) will
further diversify our product portfolio and contribute to our future growth."
    Second Quarter Financial Performance
    Total revenues increased by 15.6% to $587.6m in the second quarter of
2004 (Q2 2003: $508.4m), or 11.2% in local currencies. Sales of marketed
products climbed 15.2% to $538.6m (Q2 2003: $467.4m), or 10.6% in local
currencies, despite the continued tightening of the pricing and reimbursement
climate in some European countries. Royalty and license income increased by
19.4% to $49.0m (Q2 2003: $41.0m) primarily due to higher sales by various
licensees.
    Gross margin increased to 86.6% of product sales (Q2 2003: 84.8%), as a
result of the improvement of product mix and continued productivity gains.
    Selling, General and Administrative expenses were $193.1m or 32.9% of
total revenues (Q2 2003: $158.1m or 31.1% of total revenues). The relative
increase in SG&A as a percentage of revenues reflects the investment in
promotional activities for the Gonal-f(R) prefilled pen, as well as
pre-launch costs for Raptiva(R). Research and Development expenses were
$123.2m or 21.0% of total revenues (Q2 2003: $108.5m or 21.3% of total
revenues). Other operating expenses were $53.7m (Q2 2003: $50.9m).
    Operating income increased by 21.2% to $145.5m or 24.8% of total revenues
(Q2 2003: $120.0m or 23.6% of total revenues) and net financial income was
$15.3m (Q2 2003: $12.8m), benefiting from foreign exchange hedging gains as a
result of the strengthening of the Swiss franc against the Euro.
    Total taxes were $25.7m, representing an overall tax rate of 16.0% of
profit before tax (Q2 2003: $20.6m, or 16.0% of profit before tax).
    Reported net income jumped 26.0% to $135.8m (Q2 2003: $107.7m), or 21.5%
in local currencies. Basic earnings per share (EPS) were up 28.5% to $8.75
per bearer share (Q2 2003: $6.81) and $0.22 per American Depositary Share
(ADS) (Q2 2003: $0.17).
    For the first six months, net cash flows from operating activities
increased 36.1% to $252.1m (H1 2003: $185.2m).
    On May 25, 2004, a new share buy-back program was authorized for up to
CHF 750 million, and following regulatory approval this program started in
June 2004. The shares are purchased on the open market via a second trading
line (security code SEOE), and will be subsequently cancelled.
    As of June 30, 2004, there were 16,140,341 outstanding equivalent bearer
shares of Serono S.A. including 708,271 treasury shares available for general
corporate purposes.
    Neurology
    Given the multiple sclerosis market's significant growth potential,
coupled with Rebif(R)'s long-term efficacy and unsurpassed ability to
significantly delay accumulation of disability, Serono believes there is an
opportunity to further grow Rebif(R)'s share. Serono is therefore increasing
the size of its sales and medical teams, as well as introducing new field
nurse programs, and extending call centers to many countries, to further
support Rebif(R) patients.
    In the second quarter, neurology sales were $266.2m (Q2 2003: $205.5m),
up 29.5% or 23.6% in local currencies. Sales of Rebif(R) were up 29.2% (23.1%
in local currencies) to $257.1m (Q2 2003: $199.0m) and Novantrone(R) sales in
MS increased by 39.3% to $9.1m (Q2 2003: $6.6m).
    In the US, sales of Rebif(R) jumped 65.0% to $69.6m in the second quarter
(Q2 2003: $42.2m). Rebif(R) is market leader outside the US with sales
increasing by 19.6% to $187.5m (Q2 2003: $156.8m), or 12.3% in local
currencies.
    Serono continues to lead the way in developing patient-friendly injection
devices, with advanced functionality. In May, the new Rebiject II(TM)
auto-injector was launched. This device is specifically designed to make
self-injection of Rebif(R) more convenient for multiple sclerosis patients.
    Reproductive Health
    Sales of Gonal-f(R) rose in the second quarter by 8.1% (4.0% in local
currencies) to $150.9m (Q2 2003: $139.6m). Serono's core reproductive health
portfolio consisting of three recombinant hormones (Gonal-f(R),
Ovidrel(R)/Ovitrelle(R), Luveris(R)) and two complementary products
(Cetrotide(R), Crinone(R)) grew by 8.2% (4.0% in local currencies) to $168.6m
(Q2 2003: $155.9m).
    The phase-out of urine-derived products was completed in Europe by the
end of 2003, and in the United States this quarter. By the end of 2004, the
phase-out of these products will be completed on a global basis, except in
Japan where recombinant gonadotropins are not yet approved.
    In May, the FDA approved the Gonal-f(R) prefilled pen, a ready-to-use pen
for the treatment of infertility. The Gonal-f(R) prefilled pen, which
combines the efficacy of the most consistent FSH with enhanced accuracy of
dosing, is already available in many European countries as well as in
Australia, and will be introduced in the US shortly. Serono recently
announced that in a phase IIIb study that compared the Gonal-f(R) prefilled
pen with another pen available on the market, twice as many of the treated
patients preferred the Gonal-f(R) prefilled pen, as it required less time for
training, less time and fewer steps to prepare a daily injection and also
gives patients more confidence that they have injected the right dose of FSH.
    Metabolic Endocrinology
    In the second quarter, Saizen(R) sales increased by 12.7% (7.4% in local
currencies) to $44.2m (Q2 2003: $39.2m). Serostim(R) sales continue to be
stable at $21.5m (Q2 2003: $23.0m). Sales of Serono's recombinant growth
hormone products rose by 5.8% to $65.8m (Q2 2003: $62.2m).
    During the second quarter Serono submitted an application for a new
indication for Saizen(R) in the treatment of growth disturbance in children
born small for gestational age to the health authorities in Europe, and the
regulatory review has commenced.
    Dermatology
    On June 23rd, Raptiva(R) (efalizumab) was granted a unanimous positive
opinion from the Committee of Medicinal Products for Human Use (CHMP)
recommending approval. Serono expects the European Commission's Marketing
Authorisation during the third quarter of this year, which would give
Raptiva(R) a first mover advantage. Raptiva(R) will be launched in some EU
countries shortly thereafter.
    Serono received approval for Raptiva(R) in moderate-to-severe psoriasis
in Switzerland in March and in Argentina in May, as well as a positive
recommendation in Australia. Outcomes of marketing applications in a number
of other territories for which Serono is responsible are awaited and launch
in some of these countries will take place by the end of the year.
    Regional Sales
    North American sales grew by 21.0% to $208.8m (Q2 2003: $172.5m). Despite
pricing and reimbursement pressures notably in Germany, European sales
increased by 8.5% (0.2% in local currencies) to $215.6m (Q2 2003: $198.7m).
In the rest of the world, sales grew by 18.9% (15.4% in local currencies) to
$114.3m (Q2 2003: $96.2m).
    R&D News
    On May 1st, results from the CLEAR trial, the first randomized
placebo-controlled study with Raptiva(R) conducted outside of the US, were
presented at the EADV (European Academy of Dermatology and Venerology)
Congress in Budapest. The results of CLEAR demonstrate that Raptiva is safe
and efficacious in patients whose psoriasis cannot be controlled by, are
intolerant to or are contraindicated to other currently available systemic
therapies. The results in these high need patients were also consistent with
the results in the broader moderate-to-severe population.
    On May 4th, 4SC and Serono entered into an exclusive worldwide agreement
to develop and commercialize 4SC's program of dihydroorotate dehydrogenase
(DHODH) inhibitors. This series consists of small molecules with potential as
orally active treatments in autoimmune disorders, such as rheumatoid
arthritis and multiple sclerosis and includes a lead compound, which is
currently completing Phase I.
    In June, Serono announced the start of a Phase III trial of Serostim(R)
in HIV-associated adipose redistribution syndrome (HARS). HARS is a
potentially debilitating medical condition experienced by people being
treated for HIV for which there is currently no medical treatment.
    Conference Call and Webcast
    Serono will hold a conference call on July 22nd, 2004, starting at 10:00
am Eastern Time (4:00 pm Central European Time) during which Serono
Management will present the Company's Second Quarter 2004 Results. To join
the telephone conference please dial +1-412-858-4600 (from the US), +41-91-
610-5600 (from Switzerland), +44-207-107-0611 (from the UK) and +41-91-610-
5600 (from elsewhere). Telephone playback will be available one hour after
the conference call and until close of business 6:00 pm ET on July 30th,
2004. To access this playback please dial the following numbers: +1-412-317-
0088 (from the US), +41-91-612-4330 (from Switzerland), +44-207-866-4300
(from the UK) and +41-91-612-4330 (from elsewhere) and enter the PIN code
483# from a touch tone telephone.
    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.
    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
U.S. Securities and Exchange Commission on March 25, 2004. 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, 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)
(Luveris(R) is not approved in the USA). 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. Currently, there are approximately 30
ongoing development projects.
    In 2003, Serono achieved worldwide revenues of US$2,018.6 million, and a
net income of US$390.0 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).
    Background material
    For free B-roll, video and other content about Serono, please visit the
Serono Media Center http://www.thenewsmarket.com/Serono. You can download
print-quality images and receive broadcast-standard video digitally or by
tape from this site. Registration and video is free to the media.
    A full version of this release, including tables, is available at
http://www.serono.com

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