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|  |  Serono Delivers Strong Second Quarter ResultsPress Release July 19, 2005 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 biotech nology 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® 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® 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®'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® 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®'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. 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®, 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. About Serono Serono is a global biotechnology leader. The Company has eight biotechnology products, Rebif®, Gonal-f®, Luveris®, Ovidrel(R )/Ovitrelle®, Serostim®, Saizen®, Zorbtive(TM) and Raptiva®. 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 ®, 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
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