11 www.taipanonline.com MARCH 2004 Serono breaks US$2 billion…        While reproductive drug sales grew handily,
neurology remains Serono’s main field. A 55%
surge in neurology sales to US$850 million in 2003
helped Serono achieve a record year as total sales
blasted through the US$2 billion barrier. That’s a
31% rise from 2002. Pretty impressive when you
consider Serono only has two neurology products.        Profits increased by 21.6% to US$390 million,
while operating income jumped 24.4% to US$435
million. For the investor, that translated to a very
healthy 22.7% rise in earnings per share (US$3.18). …   and hunts for more profits from a lucrative US$2.5 billion
market Accounting for around 45% of the company’s annual income, there’s no question that multiple
sclerosis drug Rebif is Serono’s best and fastest-
growing product. Global sales rocketed 49% to
US$819 million last year as the drug’s market share
more than doubled from 6% to 14%. “Rebif is the
fastest-growing product in its category,”  according
to Pfizer CEO Henry McKinnell.        And McKinnell should know. His heavyweight
company is responsible for selling Rebif in the US.
The drug hit American shores in 2002, and after a
sluggish start it is now grabbing a bigger slice of
market share. Fourth-quarter 2003 US sales soared
60% to US$55 million, bringing full-year sales to
US$188.5 million—  more than double 2002’s
numbers.        Given that multiple sclerosis treatment is a
US$2.5 billion market, such rapid progress is key
for Serono. And while it faces some competition
from Biogen’s Avonex and Schering’s Betaferon,
McKinnell believes Rebif will become the leading
MS drug. With Pfizer on board, Serono likes its
chances of gaining further US exposure. Its goal is
to attain worldwide market leadership by 2006. To
overtake the competition, Serono estimates it will
need to increase Rebif’s market share from 14% to
30%. It’s certainly headed in the right direction and
offers plenty of upside potential. Breaking into dermatology Last year’s results put Serono in a strong financial position to expand in other areas. One of those
involves branching into the field of dermatology with
its Raptiva product—  a medicine that combats mod-
erate to severe cases of psoriasis. This represents a
new and strategically important step for Serono, as it will take some pressure off Rebif sales.        By paying Genenech US$25 million for the
licensing rights to Raptiva in Europe, Serono has
actually speeded the product’s launch. It gained
FDA approval in October 2003 and is expected to
launch in the second half of 2004.        Serono CFO Allan Shaw says the company has
territorial rights to market the product across the
world, except in the US and Japan. Despite compe-
tition from Biogen, annual sales of Raptiva are
expected to be strong—  between US$250 and
US$300 million. Past profits provide for
future expansion With US$1.4 billion in cash, an overall profit margin of 19.3% and an operating margin of 21.5%,
Serono’s performance to date has put it in a strong
position to continue the development of its 30
ongoing projects in 2004. Bear in mind, the biotech
industry is actually losing money hand over fist,
with a net profit margin of minus 25%.        Serono also enjoys a healthy return on assets of
9.6% (again, the wider industry reports a negative
figure, minus 7%), and the management team
squeezes out a robust 14.3% return on equity as well.        For the near future, it’s all about the "Three R’s"
for Serono: Rebif, Reproduction and Raptiva.
Company revenues are projected to rise another
12% this year. That, coupled with the company’s
existing solid balance sheet, has resulted in insiders
owning 55% of the company. I recommend you join
them. Buy Serono (SRA:NYSE) under US$20.   In order to devote more of our limited print space to
bringing you profitable news and information, we are moving the  Taipan  classified ads to our website, www.taipanonline.com. If you are interested in advertising with us, please      email Sara Nunnally at
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