Excellent Performance of Rebif(R) With Sales Up 18.7% to $374.8m

    GENEVA, Switzerland, October 19 /PRNewswire-FirstCall/ -- Serono
(virt-x: SEO and NYSE: SRA) today reported its third quarter results for
the period ended September 30, 2006.
    Key Points for Third Quarter 2006
    - Total revenues of $699.1m, up 9.5%
    - Product sales up 8.4% to $619.2m
    - Rebif(R) sales up 18.7% to $374.8m worldwide and up 30.1% to $133.3m
in USA
    - Operating margin of 28.6% of total revenues, up from 25.0% in Q3 2005
    - Reported net income of $170.6m, up 19.8%
    - Reported basic EPS of $11.64 per bearer share and $0.29 per ADS
    - Continued good progress in several R&D programs:
    - In-licensing of safinamide in early Phase 3 in Parkinson's Disease
    - Fast Track designation for oral cladribine in relapsing forms of
multiple sclerosis
    - Rebif New Formulation (RNF) 12-month results presented -
substantially improved tolerability and much lower immunogenicity compared
with historical data **
    * Non-IFRS earnings measure which excludes a $13.0m charge related to
the revised carrying value of the convertible bond in Q3 2006.
    ** The new formulation of Rebif(R) is currently under regulatory review
by the European Medicines Agency, the US Food and Drug Administration and
other healthcare authorities.
    - Aurora kinase inhibitor oncology project moved to Phase 1
    "We have delivered an excellent quarter with strong performance of our
leading product, Rebif(R), and our company has again generated strong cash
flow," said Ernesto Bertarelli, Chief Executive Officer. "Our investment in
R&D has yielded good progress in several clinical programs."
    "During the third quarter of 2006, we sustained the operating leverage
we established over the last 18 months resulting in higher operating margin
and strong growth on the bottom line," said Stuart Grant, Chief Financial
Officer.
    Financial Performance
    Total revenues increased by 9.5%, or 7.0% in local currencies, to
$699.1m in the third quarter of 2006 (Q3 2005: $638.3m). Product sales grew
8.4%, or 5.7% in local currencies, to $619.2m (Q3 2005: $571.5m). Royalty
and license income increased by 19.4% to $79.8m (Q3 2005: $66.9m),
representing 11.4% of revenues.
    Gross margin continues to be strong at 88.6% of product sales (Q3 2005:
88.6%). Selling, General and Administrative expenses were $226.1m (Q3 2005:
$201.3m) while Research and Development expenses were $141.3m (Q3 2005:
$146.9m). Other operating expenses were down 6.4% to $61.7m (Q3 2005:
$65.9m).
    Operating income in the third quarter of 2006 was up 25.2% to $199.6m
(Q3 2005: $159.4m). Continued operational leverage has delivered an
operating margin of 28.6% of total revenues compared to 25.0% of total
revenues in the same period last year.
    Financial income was $23.2m (Q3 2005: $17.3m) and financial expense was
$19.7m (Q3 2005: $5.9m) including a $13.0m charge related to the revised
carrying value of the convertible bond as a consequence of the anticipated
change of control.
    Reported net income in the third quarter of 2006 was $170.6m up 19.8%
(Q3 2005: $142.4m), leading to a net margin of 24.4% of total revenues (Q3
2005: 22.3% of total revenues). Basic earnings per share in the third
quarter of 2006 were up 19.1% to $11.64 per bearer share (Q3 2005: $9.77)
and $0.29 per American Depositary Share (Q3 2005: $0.24).
    On an adjusted basis, net income increased 15.5% to $183.5m from
$158.9m in the prior year. Adjustments included an $18.3m charge related to
the transfer of the Serono Genetics Institute in the third quarter 2005 and
a $13.0m charge related to the convertible bond taken in the third quarter
2006.
    For the first nine months, net cash flow from operating activities
before change in working capital was $750.0m (YTD 2005: $555.0m), or
$622.7m after change in working capital (YTD 2005: $439.5m). The company's
liquid financial assets were $2.1 billion at the end of the third quarter
2006.
    As of September 30, 2006, there were 14,661,190 outstanding equivalent
bearer shares of Serono S.A., net of treasury shares. The total weighted
average number of equivalent bearer shares of Serono S.A. was 14,654,546
for the three months ending September 30, 2006.
    Key Product Sales
    In the third quarter of 2006, Rebif(R) had an excellent performance
with worldwide sales of $374.8m, up 18.7%, or 15.4% in local currencies (Q3
2005: $315.6m). Rebif(R) continues to be the best-selling therapy for
multiple sclerosis outside the US, with sales of $241.5m, growing 13.3%, or
8.2% in local currencies (Q3 2005: $213.2m). More than four years after
launch in the US, Rebif(R) continues to grow strongly and reached US sales
of $133.3m, up 30.1% (Q3 2005: $102.5m).
    Novantrone(R) sales in the third quarter of 2006 were $2.8m, down
84.6%, consequent to the introduction of generics of mitoxantrone in the US
in April 2006 (Q3 2005: $18.2m).
    Sales of Gonal-f(R) were $122.8m in line with the third quarter of 2005
(Q3 2005: $125.6m). Global sales of supporting products (Ovidrel(R),
Cetrotide(R), Crinone(R) and Luveris(R)) were up 11.5%, or 9.5% in local
currencies to $21.9m (Q3 2005: $19.6m).
    Saizen(R) sales were $50.5m (Q3 2005: $50.8m), while Serostim(R) sales
grew 9.5% to $19.5m (Q3 2005: $17.8m).
    Sales of Raptiva(R) were up 80.6% to $18.1m in the third quarter 2006
(Q3 2005: $10.0m).
    R&D News
    Serono has reported notable progress in its Neurology R&D pipeline
during the last three months:
    - Serono has recently announced an agreement with Newron
Pharmaceuticals SpA under which Serono is granted exclusive worldwide
rights for the development of safinamide in Parkinson's disease,
Alzheimer's disease, and other cognitive disorders. Positive results from a
Phase 3 study of safinamide in Parkinson's disease were reported in June
2006.
    - In September 2006, oral cladribine was designated a Fast Track
product for patients with relapsing forms of multiple sclerosis by the US
Food and Drug Administration. Under Fast Track designation oral cladribine
is eligible for Priority Review. Patient enrollment into the ongoing Phase
3 pivotal trial is planned to be completed by the end of 2006.
    - Data on a new formulation of Rebif(R) demonstrating a substantial
improvement in tolerability and reduction in antibody formation at one
year, compared with historical data from patients, were recently presented
at the 22nd ECTRIMS congress.
    In the third quarter of 2006, Serono further advanced its R&D
initiatives in oncology:
    - Serono began enrolling patients in a Phase 1 study evaluating the
safety and tolerability of R763, a highly potent, orally available
multi-Aurora kinase inhibitor, for the treatment of patients with
refractory solid tumors in September 2006.
    - With respect to adecatumumab, final data from two Phase 2 clinical
trials showed activity in both metastatic breast cancer and prostate
cancer. While neither study reached its primary endpoint, good tolerability
and encouraging trends towards higher activity for patients with high
levels of EpCAM overexpression and treated at higher doses were observed.
Serono and Micromet continue to investigate opportunities for further
development.
    In September 2006, Serono and Syntonix Pharmaceuticals Inc. entered
into an agreement to pursue the development of a long-acting FSH therapy
for the treatment of infertility that can be inhaled and dosed less
frequently, instead of injected daily.
    Conference Call and Webcast
    Serono will hold a conference call on October 19, 2006, starting at
3.00 pm Central European Time (9.00 am U.S. Eastern Time) during which
Serono Management will present the Company's Third 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 and will be available for replay following
the event. Additionally, the webcast will be available for replay until
close of business on November 24, 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 any government
investigations and litigation. Serono is providing this information as of
the date of this press release, and 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.
    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).
    Reuters: SEO.VX / SRA
    Bloomberg: SEO VX / SRA US
    This release, including tables, is available at http://www.serono.com .
On the website, there are:
    - Tables detailing sales in dollars by therapeutic area, geographic
region and the top 10 products for the 3 and 9 months ended September 30,
2006 and 2005.
    - Consolidated income statements for the 3 and 9 months ended September
30, 2006 and 2005; adjusted net income and adjusted earnings per share for
the 3 and 9 months ended September 30, 2006 and 2005; the consolidated
balance sheets as of September 30, 2006 and December 31, 2005; the
consolidated statements of changes in equity as of September 30, 2006 and
2005; the consolidated statements of cash flows for the 9 months ended
September 30, 2006 and 2005; the selected explanatory notes to the
consolidated financial statements. These consolidated financial statements
have been prepared on the basis of International Financial Reporting
Standards.

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