Serono Delivers Second Quarter EPS of $12.92, Up 25.2% on Adjusted(1) Basis
July 26 2006 - 4:01PM
PR Newswire (US)
Strong Operating Margin of 29.0% of Revenues GENEVA, Switzerland,
July 26 /PRNewswire-FirstCall/ -- Serono (virt-x: SEO and NYSE:
SRA), today reported its second quarter results for the period
ended June 30, 2006. Key Points for Second Quarter 2006 - Record
total revenues of $699.2m with product sales of $628.7m - Rebif(R)
worldwide sales up 10.9% (+11.4% in local currencies) to $361.6m -
Reported net income of $189.2m up 25.9% on an adjusted(1) basis -
Basic EPS of $12.92 per bearer share and $0.32 per ADS - H1 2006
product sales growth of 8.0% in local currencies, in line with
full-year guidance of high single-digit growth - 2006 EPS guidance
of $45.00 per bearer share reiterated - Decision to move atacicept
(TACI-Ig) into Phase 2 in rheumatoid arthritis and preliminary
positive Phase 1b results in systemic lupus erythematosus "We have
a solid business platform generating strong cash flow, as well as
the financial strength and capability to execute value-creating
transactions," said Ernesto Bertarelli, Chief Executive Officer.
"We are entering an exciting, new chapter at Serono and I am
confident that we will achieve our strategy for growth." "Given our
financial performance in the first half of 2006, we are on track to
achieve our EPS guidance of $45.00," said Stuart Grant, Chief
Financial Officer. "Our EPS growth is driven by the strength of our
operating margin which increased by an impressive eight percentage
points in the first half of the year to 29.5% of total revenues."
Financial Performance Total revenues increased by 3.3%, or 3.9% in
local currencies, to $699.2m in the second quarter of 2006 (Q2
2005: $676.8m). Product sales grew 2.8%, or 3.3% in local
currencies, to $628.7m compared to a strong quarter last year (Q2
2005: $611.5m). Excluding the impact on sales of the Bourn Hall
clinic management buyout and the sale of a non-core business,
TerraCell S.A., in 2005, as well as the introduction of generics of
Novantrone(R) in early April 2006, sales growth was 7.0% in local
currencies in the second quarter of 2006. Royalty and license
income increased by 8.0% to $70.5m (Q2 2005: $65.3m). Gross margin
was strong at 88.2% of product sales (Q2 2005: 87.8%). Selling,
General and Administrative expenses were up 5.1% to $233.7m (Q2
2005: $222.5m). Research and Development expenses were down 10.6%
to $130.3m (Q2 2005: $145.8m) reflecting the completion of a number
of Phase 3 trials last year, the transfer of the Serono Genetics
Institute and the Bourn Hall clinic management buyout. Other
operating expenses were down 12.2% to $58.2m (Q2 2005: $66.3m),
largely due to lower royalty expense related to Novantrone(R).
Operating income in the second quarter of 2006 was up 21.1% to
$203.0m (Q2 2005: $167.7m) with an operating margin of 29.0% of
total revenues (Q2 2005: 24.8% of total revenues). Financial income
was $18.5m (Q2 2005: $43.7m) and financial expense was $6.1m (Q2
2005: $10.0m). The second quarter of 2005 included an exceptional
gain of $30.0m resulting from the sale of an equity holding in
Celgene, Inc. and a write-down of $3.7m related to impairment in
value of an equity stake in CancerVax. Net income in the second
quarter of 2006 was $189.2m up 8.1% or 25.9% on adjusted(2) basis
(Q2 2005: $175.1m reported, $150.3m adjusted(2)). Basic earnings
per share in the second quarter of 2006 were up 7.5%, or 25.2% on
adjusted(2) basis, to $12.92 per bearer share (Q2 2005: $12.02,
$10.32 adjusted(2) and $0.32 per American Depositary Share (Q2
2005: $0.30, $0.26 adjusted(2)). For the first six months, net cash
flow from operating activities before change in working capital was
$495.3m (H1 2005: $354.1m), or $355.3m after change in working
capital (H1 2005: $177.1m). The company's liquid financial assets
were $1.8 billion at the end of the second quarter 2006. As of June
30, 2006, there were 14,647,162 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
14,645,802 for the three months ending June 30, 2006. Key Product
Sales In the second quarter of 2006, Rebif(R) had a solid
performance with sales of $361.6m, up 10.9%, or 11.4% in local
currencies (Q2 2005: $326.0m). Rebif(R) continues to be the
best-selling therapy for multiple sclerosis outside the US, with
sales of $242.5m, growing 5.5%, or 6.0% in local currencies (Q2
2005: $229.8m). Four years after launch in the US, Rebif(R)
maintains its strong growth and reached US sales of $119.0m, up
23.7% (Q2 2005: $96.2m). In July 2006, Serono announced that the
European Commission has approved an update of the Summary of
Product Characteristics of Rebif(R) in order to align it with
current medical practice. Throughout Europe, Rebif(R) is now
approved for use after the diagnosis of multiple sclerosis has been
confirmed based on one attack and subsequent positive magnetic
resonance imaging scans. Sales of Gonal-f(R) were $139.3m (Q2 2005:
$149.9m), in line with the first quarter of 2006. Global sales of
supporting products (Ovidrel(R), Cetrotide(R), Crinone(R) and
Luveris(R)) were up 6.9%, or 7.5% in local currencies to $23.8m (Q2
2005: $22.2m). Saizen(R) sales were $53.8m (Q2 2005: $53.6m), a
growth of 7.6% over the first quarter of 2006. Serostim(R) sales
were stable at $17.3m (Q2 2005: $17.3m). In Q2 2006, Serono
submitted a Supplemental New Drug Application to the U.S. Food and
Drug Administration for recombinant human growth hormone in
HIV-associated adipose redistribution syndrome. Sales of
Raptiva(R), the only biological therapy specifically developed for
the treatment of psoriasis, were $17.0m in the second quarter 2006
(Q2 2005: $7.4m), a growth of 24.3% over the first quarter of 2006.
The focus for 2006 is on increasing market penetration by
leveraging the strong clinical data including the recently
published CLEAR study and differentiating Raptiva(R) from TNF
blockers. In July the first large-scale pharmaco-epidemiological
study in psoriasis in Europe, CLEARESTTM, was initiated. This
prospective, seven-year study in 7,000 patients with
moderate-to-severe plaque psoriasis is further assessing the
long-term safety of Raptiva in clinical practice. Novantrone(R)
sales in the second quarter of 2006 were $5.4m, down 70.4%,
consequent to the introduction of generics of mitoxantrone in the
US in April 2006 (Q2 2005: $18.3m). R&D News In June, favorable
results from a Phase 1b clinical trial with atacicept (TACI-Ig) in
rheumatoid arthritis were presented at the 7th Annual European
Congress of Rheumatology. Atacicept was well tolerated across the
full range of dose levels and schedules tested, and clear biologic
effect was observed. Based on these promising results, Serono and
ZymoGenetics expect to begin the Phase 2 clinical program of
atacicept in patients with rheumatoid arthritis in the second half
of 2006. In July, preliminary results of two Phase 1b studies in
systemic lupus erythematosus indicate that atacicept demonstrated a
favorable tolerability profile and that biological activity
consistent with the mode of action was observed. Full results of
these studies are planned to be presented at a medical meeting
later this year. Lastly, during the quarter it was announced that
the novel fully human anti-CD3 monoclonal antibody, NI-0401, being
developed in collaboration with NovImmune, has moved into a
proof-of-concept trial in patients suffering from
moderate-to-severe Crohn's Disease. This study is looking at the
safety, tolerability and pharmacokinetics of intravenously
administered NI-0401. Conference Call and Webcast Serono will hold
a conference call on July 27, 2006, starting at 11:00 am US Eastern
Time (17:00 Central European Time) during which Serono Management
will present the Company's Second Quarter 2006 Results. To join the
telephone conference please dial 1-412-858-4600 (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 August 31,
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). For more information, please contact: Serono in
Geneva, Switzerland: Media Relations: Tel: +41-22-739-36-00 Fax:
+41-22-739-30-85 http://www.serono.com/ Serono, Inc., Rockland, MA
Media Relations: Tel. +1-781-681-2340 Fax: +1-781-681-2935
http://www.seronousa.com/ Investor Relations: Tel: +41-22-739-36-01
Fax: +41-22-739-30-22 Reuters: SEO.VX / SRA Bloomberg: SEO VX / SRA
US Investor Relations: Tel. +1-781-681-2552 Fax: +1-781-681-2912 On
the following pages, there are: - Tables detailing sales in dollars
by therapeutic area, geographic region and the top 10 products for
the 3 and 6 months ended June 30, 2006 and 2005. - Consolidated
income statements for the 3 and 6 months ended June 30, 2006 and
2005; adjusted net income and adjusted earnings per share for the 3
and 6 months ended June 30, 2006 and 2005; the consolidated balance
sheets as of June 30, 2006 and December 31, 2005; the consolidated
statements of changes in equity as of June 30, 2006 and 2005; the
consolidated statements of cash flows for the 6 months ended June
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. A full version of this release,
including tables, is available at http://www.serono.com/. (1)
Non-IFRS financial measures included in order to permit assessment
of the performance of the company's underlying business for the
quarter were a $30.0m ($28.5m after-tax) gain on sale of investment
in Celgene and a $3.7m write-down of investment in CancerVax in Q2
2005. (2) Non-IFRS financial measures included in order to permit
assessment of the performance of the company's underlying business
for the quarter were a $30.0m ($28.5m after-tax) gain on sale of
investment in Celgene and a $3.7m write-down of investment in
CancerVax in Q2 2005. DATASOURCE: Serono International S.A.
CONTACT: For more information, please contact: Serono in Geneva,
Switzerland: Media Relations: Tel: +41-22-739-36-00, Fax:
+41-22-739-30-85, http://www.serono.com/. Serono, Inc., Rockland,,
MA, Media Relations: Tel. +1-781-681-2340, Fax: +1-781-681-2935,
http://www.seronousa.com/. Investor Relations: Tel:
+41-22-739-36-01, Fax: +41-22-739-30-22, Reuters: SEO.VX
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