Q4 2004 Serono S.A. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good morning. This is the Chorus Call conference operator. Welcome and thank you for Serono's full year 2004 results conference call.

As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. [OPERATOR INSTRUCTIONS].

At this time I would like to turn the conference over to Dr. Andrew Galazka, Senior Vice President of Scientific Affairs. Please go ahead sir.

DR ANDREW GALAZKA, SVP SCIENTIFIC AFFAIRS, SERONO SA: Good day ladies and gentlemen. Welcome to Serono's conference call. We are going to be reviewing our results for the full year and fourth quarter of the year ended December 31, 2004, as well as providing guidance for 2005.

With me here today is Ernesto Bertarelli, Chief Executive Officer of Serono; Stuart Grant, Chief Financial Officer and Fereydoun Firouz, President of our US operations.

Before we start I must advise all participants that our discussions may contain forward-looking statements that reflect our current views on all aspects of the Company's business. These forward-looking statements include uncertainties and other risks that are detailed in Serono's filings with the SEC, including Serono's annual report on Form 20-F filed on March 25, 2004. Actual results could differ materially from these forward-looking statements.

I'll now hand over to Ernesto for his comments on the full year results.

ERNEST BERTARELLI, CEO, SERONO SA: Thank you Andrew and good day ladies and gentlemen. Welcome to our conference call. 2004 was a record year for Serono in which we delivered strong top and bottom line growth while making significant investment for our future.

In 2004 total revenue grew 21.8% to $2,460m. That's a growth of 16.1% in local currency and our net income increased by 26.7% to $494m.

Our EPS grew by an impressive 31.3%.

We had excellent achievement in all our 4 therapeutic areas. In Neurology, Rebif achieved blockbuster status with sales up 33% to $1,100m.

In Dermatology, Raptiva received EMEA approval and the European launch is progressing well.

In Reproductive Health, our state of the art Gonal-f pen has been launched in both Europe and the USA.

Lastly, in Metabolic Endocrinology, the global rollout of Saizen devices was successfully completed.

Our R&D pipeline has made significant progress during 2004. We now have 6 late stage clinical development programs ongoing.

We will be initiating a Phase III clinical trial of oral Mylinax in relapsing Multiple Sclerosis patients in the first quarter of this year.

Our Rebif versus Copaxone head-to-head trial progressed well in 2004 with enrollment of over 700 patients completed at the end of the year.

2 Phase III trials with Canvaxin are ongoing in stage III and IV melanoma.

Our Phase III program of Onercept in the treatment of moderate to severe Psoriasis has got off to a great start with all 3 trials initiated.

We completed enrollment into our Phase III trial of Serostim in HARS at the end of 2004 and we expect the result of this trial by the end of the year.

Lastly, our Phase III trial of Interferon Beta in chronic Hepatitis C is fully enrolled and we expect result at the end of this year.

2004 was a great year for business development with the signature of several significant new external R&D collaborations. In September, building on our existing very successful collaboration regarding TACI-Ig, we entered into a broad strategic alliance with ZymoGenetics which gives us access to their portfolio of protein and genes. This includes product based on FGF18, the IO22 receptor and IO31.

In December we signed an agreement with Micomet for Adecatumumab, a novel anti-cancer drug which is currently in Phase II for metastasic breast cancer as well as prostate cancer.

We also entered into an agreement with CancerVax for Canvaxin for the treatment of advanced stage melanoma. This is currently in Phase III trials and has the potential to be the first cancer vaccine to reach the market.

Moving to slide 5. Our 2004 performance is clearly in line with our impressive track record of organic growth and proven ability to grow our business.

Over the last 5 years we have more than doubled both the top line and the bottom line giving compounded annual growth rate of 17% for total revenue and 22% for our net income.

We will now give a more specific update on our business. During 2004 Rebif achieved blockbuster status with sales of $1.1b, taking Rebif well on its way to global market leadership by 2006.

Rebif continued its strong performance, being the fastest growing product for Multiple Sclerosis with 2004 sales growing at 33%, or 25.4% in local currency.

In the US, Rebif's performance was outstanding with 56.8% growth to $296m in 2004. Clearly overtaking Betaseron.

Rebif finished the year with a US market share of 16.4% in total prescription and 18.6% in new prescription.

Outside the US, Rebif grew 26% to $795m in 2004 and maintained its leadership in the market.

Going forward, our strategy is to capture, switch and retain patients on Rebif and we feel strong about Rebif's long-term efficacy and proven ability to delay disability.

We're focusing not only on capturing new patients, but also on switching patients from other MS treatments and retaining those patients who start Rebif treatment. As you know, during 2004 we expended our sales and marketing share of voice. We increased the number of people in our medical liaison team and sales force. We also introduced a number of new visiting nurse educator and enhance our call center support.

In addition, we have a new consumer campaign which includes a patient focused Internet strategy.

We also continued to deliver product improvement. Recent enhancement for Rebif patients include the new Rebiject II auto-injector, as well as the thinnest needle for a pre-filled syringe, making self-injection even more convenient and more comfortable.

Finally, in December, the FDA approved our new titration pack which will go a long way to simplify initiation of therapy for new patients.

Moving to slide 8, I'm delighted to tell you that on January 11 we announced our plan to move straight into Phase III with Mylinax. This is a major step towards Mylinax becoming for the first oral Cladribine to reach the market for the treatment of Multiple Sclerosis.

Serono intends to maintain its leadership position in the treatment of MS and is committed to bringing new therapy to patients.

Now let me turn you to Reproductive Health on slide 9. Gonal-f had a good performance in 2004 with sales up 8.7% to $573m. If you exclude Germany, which faced pricing and reimbursement issues as you know, sales increased in the rest of the world by 17.5%.

Our new Gonal-f pre-filled pen has been a key growth driver in 2004. In 2005 we expect to get registration of Gonal-f in Japan which will allow us to complete our global phase out of urinary device products.

In 2004, sales of Saizen, our product indicated for growth disorder grew 20% to $182m.

Recently we have achieved approval in the US for Adult Growth Hormone Deficiency and we expect approval for Small for Gestational Age children in Europe later this year.

Turning to Serostim, our high dose growth hormone indicated for the treatment of AIDS …