UNMET NEEDS MET
`
`Serono Annual Report 2005
`
`Page 1
`
`

`
`Serono Annual Report 2005
`
`Contents
`02 Chief Executive Officer’s review
`14 Our pipeline
`16 Highlights of the year
`20 Corporate responsibility
`33 Financial report
`111 Corporate governance
`127 Investor information
`
`Page 2
`
`

`
`Serono Annual Report 2005
`
`01
`
`Financial highlights
`
`2005 product sales by therapeutic area
`(% of US$m)
`
`Total revenues
`(US$m)
`
`2003
`
`2004
`
`2005
`
`Net (loss)/income
`(US$m)
`
`2003
`
`2004
`
`2,018.6
`
`2,458.1
`
`2,586.4
`
`397.4
`
`481.3
`
`2005 -105.3*
`*Including the US$725.0 million to cover the Serostim® settlement and
`related costs.
`
`Total product sales
`(US$m)
`
`2003
`
`2004
`
`2005
`
`1,858.0
`
`2,177.9
`
`2,338.9
`
`4
`
`5
`
`1
`
`3
`
`2
`
`1. Neurology 55.3%
`2. Reproductive health 28.3%
`3. Growth and metabolism 11.9%
`4. Dermatology 1.4%
`5. Others 3.1%
`
`2005 product sales by geographic area
`(% of US$m)
`
`5
`
`1
`
`4
`
`3
`
`2
`
`1. Western Europe 44.4%
`2. North America 36.3%
`3. Middle East, Africa and Eastern Europe 7.9%
`4. Asia-Pacific, Oceania and Japan 6.0%
`5. Latin America 5.4%
`
`Page 3
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`

`
`02
`
`Serono Annual Report 2005
`
`Chief Executive Officer’s review
`
`A year of continued growth
`and business expansion
`
`Ernesto Bertarelli
`
`Page 4
`
`

`
`Serono Annual Report 2005
`
`Chief Executive Officer’s review
`
`03
`
`Total revenues
`
`$2.59 billion
`$1.5 billion
`
`Strong net cash flow and liquid assets
`
`Product sales up by 7.4%
`
`$2.34 billion
`$1.3 billion
`
`Rebif® sales extend blockbuster status
`
`•
`
`Introduction
`Serono is a global biotechnology company
`focused upon meeting unmet medical needs.
`We are dedicated to developing innovative
`treatments that improve the quality of life of our
`patients. This has been the underlying purpose
`of our company since it was founded.
`In 2005, we made good progress in
`the continued implementation of our strategy,
`which has three main elements:
`• Maximize the potential of our
`marketed products
`• Bring to market novel therapies
`from our R&D pipeline
`In-license or acquire additional
`projects to which we can apply
`our development expertise.
`Serono continued to deliver strong performance.
`We have again generated strong cash flows
`enabling us to advance and expand our product
`pipeline. We remain focused on maximizing the
`potential of our marketed products. Our gross
`margin is one of the highest in the biotech sector,
`and we have focused upon seeking sustained
`improvement in operating margin.
`2005 has been a year of opportunities
`and also of some challenges for our company.
`We again increased total revenues and product
`sales, with totals of $2.59 billion and $2.34
`billion respectively, driven by strong performance
`in our therapeutic areas. Our lead products
`continue to do well.
`
`Neurology
`We are dedicated to developing the treatments of
`the future based upon our scientific understanding
`of neurological diseases.
`In 2005, total neurology sales increased
`by 15.1% to $1,293 million, driven by Rebif®,
`which continued to extend its blockbuster status.
`Our efficacy message and the success of our
`patient support programs should continue to
`provide steady market share gains, taking Rebif®
`to global market leadership.
`We remain focused on communicating
`that Rebif® provides excellent proven efficacy both
`now and in the long term, delaying the
`progression of disability in people with multiple
`sclerosis (MS). We also continue to express
`Rebif®’s well established safety profile. Our recent
`market research confirms that on all key measures
`of efficacy (MRI lesions and activity, relapse rates
`® 44 mcg isand disability progression), Rebif
`
`perceived to be the most efficacious of all the
`disease-modifying drugs currently on the market
`in relapsing MS. During the year we substantially
`increased our field force and nurse team presence
`to better support physicians and patients.
`Serono is committed to people with MS,
`and this year we further developed our call center
`programs in terms of both number and extended
`geographical reach. Our call centers offer
`education, information and support to people with
`MS and their families, provided by MS certified
`nurses and relevant specialists. We now have
`18 call centers covering all major countries,
`including a very extensive and comprehensive
`program in the US.
`
`Page 5
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`

`
`04
`
`Serono Annual Report 2005
`
`Chief Executive Officer’s review
`
`“We are very well placed to develop the
`first MS oral treatment with cladribine.”
`
`The MS market is forecast to grow from around
`$5 billion to approximately $7 billion by 2010.
`Serono is very well positioned in this therapeutic
`area, and we are committed to developing the
`new treatments of the future.
`The first breakthrough in this respect is
`likely to be the development of oral treatments.
`We are very well placed to develop the first
`MS oral disease modifying treatment with the
`oral formulation of cladribine. Cladribine interferes
`with the behavior and proliferation of certain
`white blood cells, particularly lymphocytes,
`and the positive effect of low dose cladribine
`has been demonstrated in earlier clinical studies.
`We initiated enrollment in a 1,300 patient
`Phase 3 program designed to assess the
`effectiveness of the oral formulation of cladribine
`in people with relapsing forms of MS. Results
`are expected in 2008.
`In early 2005, we completed patient
`enrollment in the multinational Rebif® versus
`Copaxone® comparative clinical trial named
`REGARD (Rebif® versus Glatiramer Acetate in
`Relapsing MS Disease), with over 700 patients
`enrolled. This two-year trial is designed to
`compare the efficacy and safety of the two
`therapies in people with relapsing MS. The trial
`will provide comparative data that will support
`an evidence-based approach to treatment
`decisions, and we expect the results to support
`Rebif® as the foundation therapy for the treatment
`of MS. Results are expected early in 2007.
`
`We are also continuing to further develop our
`neurology therapeutic area beyond the oral
`treatments of the future. For example, we have
`licensed technologies from Syntonix that may
`enable the development of an interferon therapy
`for MS that can be administered by inhalation.
`Particularly noteworthy in a scientific
`context is the work we are doing on
`understanding the genetic basis of MS. We
`have achieved a major milestone in identifying
`for the first time many of the genes involved in
`MS. Our researchers have identified 80 genes
`that are involved in the inflammatory and
`neuro-degenerative pathways of MS, based
`upon a partial genome scan comparing the
`genetic profile of people with MS and healthy
`individuals. Our goal is to maintain this leadership
`in the field of MS genetics. In 2006, we will
`complete a higher density map of the genes
`involved in MS and will extend this work to
`primary progressive MS later in the year. This
`will lead to a comprehensive catalog of potential
`MS drug targets, thus providing a basis for the
`future development of innovative MS therapies.
`The MS marketplace is likely to develop
`further over the next few years, with the entry of
`oral products and perhaps of follow-on biologics.
`Given its leading position, Serono is very well
`placed to extend our leadership position in this
`therapeutic area.
`
`Page 6
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`

`
`UNMET NEED
`AN EFFECTIVE THERAPY FOR PEOPLE
`WITH RELAPSING FORMS
`OF MULTIPLE SCLEROSIS
`
`UNMET NEED MET
`
`REBIF® IS THE LEADING TREATMENT
`FOR RELAPSING MS OUTSIDE THE US
`IN TERMS OF SALES
`
`Page 7
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`

`
`UNMET NEED
`EFFECTIVE EASY-TO-USE TREATMENTS
`FOR MILLIONS OF COUPLES TRYING
`TO CONCEIVE
`
`UNMET NEED MET
`
`SERONO IS THE ONLY COMPANY
`WITH A FULL BIOTECH PORTFOLIO
`OF FERTILITY PRODUCTS FOR
`THE MAIN STAGES OF THE
`REPRODUCTIVE CYCLE
`
`Page 8
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`

`
`Serono Annual Report 2005
`
`Chief Executive Officer’s review
`
`07
`
`“I am pleased to report that in December we
`achieved the milestone sale of the one millionth
`Gonal-f® pen.”
`
`Reproductive health
`Serono continues to lead the world in the area
`of reproductive health with its unique and
`comprehensive portfolio. We are the only
`company to offer recombinant versions of the
`three hormones used in the treatment of infertility,
`including the most prescribed gonadotropin in the
`world: Gonal-f®.
`We have successfully phased out the
`manufacture of urine-derived products worldwide.
`Gonal-f® is proceeding through the regulatory
`process in Japan, and in January 2006 we
`received the good news that Gonal-f® is approved
`for a type of male infertility (male
`hypogonadotrophic hypogonadism). We will now
`pursue the Japanese registration of Gonal-f® for
`other indications. We believe that urine-derived
`products are anachronistic in today’s world, due to
`the higher purity of recombinant products and their
`high consistency in terms of protein content.
`In 2005, sales of Gonal-f® decreased
`4.5% to $547.0 million. This was due to the
`price discounting of a competitor product in the
`US. Excluding the US, sales grew by 10.4%
`to $401.8 million. The Gonal-f® pen, a more
`convenient way of administering Gonal-f®,
`has been launched in more than 50 countries,
`including the US and the major European
`countries, and I am pleased to report that in
`December we achieved the milestone sale of the
`one millionth Gonal-f® pen. In June, we entered
`into a strategic services agreement in the US with
`Priority Healthcare Corporation (subsequently
`acquired by Express Scripts, Inc. in October
`2005), under which both companies offer the
`fertility marketplace expanded and unprecedented
`support to patients, healthcare providers and
`caregivers. As part of the agreement, Priority’s
`Freedom Drug, which is the largest fertility
`specialty pharmacy in the US, became the
`preferred specialty pharmacy for the distribution of
`Serono fertility products dispensed in the US. The
`two companies are also developing new fertility
`awareness and patient education programs.
`
`Our overall services to patients and physicians
`have expanded significantly with the continued
`roll-out of fertility.com and fertilitylifelines.com.
`We now have 16 websites around the world
`and more to come.
`There are still many couples who do
`not receive the treatments that can realize their
`dream of having a child, and we are working
`to increase patient awareness and the availability
`of treatment to people who could benefit from it.
`Our goal is to continue to be the leader in
`reproductive health.
`Growth and metabolism
`Serono continues to be an innovator in the field of
`growth and metabolism, where the global rollout
`of our patient-friendly delivery devices continues to
`drive our sales growth.
`In January, we announced that Saizen®
`was approved by the FDA in the United States for
`use in the treatment of patients with adult growth
`hormone deficiency (AGHD), thus consolidating
`our approval in four different indications of growth
`hormone use: growth disorders in children, growth
`hormone deficiency in adults, HIV-associated
`wasting and short bowel syndrome.
`We also received a positive opinion for
`growth failure in short children born small for
`gestational age in Europe, and since then we
`have been working on the national approvals in
`the European countries in which Saizen® is
`already approved for other indications.
`Sales of Saizen® increased by 13.4% to
`$206.5 million in 2005, and sales of Serostim®
`were $70.4 million.
`We formed a strategic alliance
`with BioMarin for the development and
`commercialization of two product candidates,
`Phenoptin (sapropterin hydrochloride) and
`Phenylase (phenylalanine ammonia lyase).
`Both have potential in the treatment of
`phenylketonuria (PKU), and there is preliminary
`clinical evidence to suggest that the active
`ingredient in Phenoptin may also be useful
`
`Page 9
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`

`
`08
`
`Serono Annual Report 2005
`
`Chief Executive Officer’s review
`
`“… successful completion of a Phase 3 trial of
`recombinant growth hormone in the treatment
`of HIV-associated adipose redistribution
`syndrome (HARS).”
`
`in the treatment of other serious conditions,
`including diabetes and cardiovascular diseases.
`Phenoptin, an orally administered product, is
`currently in a Phase 3 trial for mild to moderate
`PKU, an inherited metabolic disease caused
`by a deficiency of the enzyme phenylalanine
`hydroxylase in the blood, which can result in
`serious neurological damage unless patients
`adhere to a very stringent and difficult diet.
`There is currently no drug approved to treat PKU,
`which affects at least 50,000 diagnosed patients
`under the age of 40 worldwide. Phenylase, an
`enzyme substitution therapy for the treatment of
`severe forms of PKU, is in early development.
`Early in 2006, we announced the
`successful completion of a Phase 3 trial of
`recombinant growth hormone in the treatment of
`HIV-associated adipose redistribution syndrome
`(HARS), which met all pre-specified primary and
`major secondary endpoints. We plan to submit
`the registration file to the FDA in 2006. Growth
`hormone in HARS has received orphan drug
`designation from the FDA.
`Serono continues to innovate with
`our unique delivery devices cool.click™ and
`one.click™, which are very well received by
`physicians and patients. In 2006 we intend
`to launch the first electronic device in this
`therapeutic area, bringing additional benefits to
`children with growth deficiencies.
`Dermatology
`In late 2004, Raptiva® was approved by the
`European Commission for the treatment of people
`with moderate to severe chronic plaque psoriasis,
`and we commenced our launch program.
`Raptiva® is the first product to offer effective and
`safe long-term control of psoriasis, with treatment
`on a continuous basis. People taking Raptiva®
`have the benefit of continued therapy with
`improved and sustained responses over time,
`thereby offering effective long-term control of
`their disease.
`
`Raptiva® is now approved in 49 countries
`and reimbursed at the same level in the major
`European markets. Sales of Raptiva® were
`$33.4 million.
`To date, more than 3,500 patients with
`psoriasis have been included in 14 double-blind,
`placebo-controlled clinical trials in North America
`and Europe. Data from these studies has
`demonstrated that Raptiva® provides physicians
`and patients with sustained benefit and safety
`over the long term. Serono’s CLEAR (CLinical
`Experience Acquired with Raptiva®) study
`showed that Raptiva® can be useful in some
`patients with psoriasis who did not respond to
`standard therapies.
`Oncology
`We are committed to entering oncology as a new
`therapeutic area. In 2005 we continued to enter
`into a number of important collaborations and
`further extended our approach.
`In August, we signed an agreement
`with Genmab granting Serono exclusive
`worldwide rights to develop and commercialize
`HuMax-CD4 (zanolimumab). HuMax-CD4 is a
`fully human monoclonal antibody in development
`for the treatment of cutaneous and non-cutaneous
`T-cell lymphomas. It is directed against the CD4
`antigen and causes depletion of certain T-cells.
`It is currently being evaluated in a pivotal Phase 3
`clinical trial for cutaneous T-cell lymphoma under
`the FDA’s special protocol assessment process
`and has fast track designation from the FDA.
`Outcome of the Phase 3 trial is expected in the
`first half of 2007.
`In October, we signed an agreement with
`Rigel under which Serono has an exclusive license
`to develop and commercialize product candidates
`from Rigel’s Aurora kinase inhibitor program.
`This includes R763, for which Rigel filed an
`investigational new drug application with the FDA
`in December 2005. R763 is a highly potent,
`orally available multi-Aurora kinase inhibitor that
`has been shown to inhibit proliferation and kill
`cancer cells from a variety of organs, including the
`cervix, colon, lung, pancreas and prostate.
`
`Page 10
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`

`
`UNMET NEED
`AN EASIER WAY TO TREAT
`GROWTH HORMONE DEFICIENCY
`IN THOUSANDS OF CHILDREN
`
`UNMET NEED MET
`
`THE SAIZEN® FAMILY OF DELIVERY
`DEVICES PROVIDES THE BEST
`SOLUTION FOR INDIVIDUAL
`PATIENT’S NEEDS. SAIZEN® IS
`IDENTICAL TO NATURAL GROWTH
`HORMONE PRODUCED BY
`THE BODY.
`
`Page 11
`
`

`
`UNMET NEED
`A NEW PSORIASIS TREATMENT
`FOR PATIENTS WHO CANNOT
`TAKE CONVENTIONAL THERAPIES
`
`UNMET NEED MET
`
`RAPTIVA® IS NOW APPROVED IN
`49 COUNTRIES WORLDWIDE
`
`Page 12
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`

`
`Serono Annual Report 2005
`
`Chief Executive Officer’s review
`
`11
`
`“Our goal is to build a strong oncology pipeline
`and enter this therapeutic area with innovative
`products to fight cancer.”
`
`We continue to collaborate with ZymoGenetics
`on TACI-Ig, currently in Phase 1b clinical testing
`as a potential treatment for B-cell malignancies
`and autoimmune diseases. We are also working
`with Micromet on adecatumumab, which has
`potential for the treatment of a broad range of
`tumors, including breast cancer, pancreatic cancer
`and some kinds of lung cancer.
`During 2005,we identified a lead IKK2
`inhibitor, which is now in preclinical development.
`There is increasing evidence that activation of
`NF-kappa-B, especially by the IKK2 mediated
`classical pathway, plays an important role in
`tumor development. NF-kappa-B is known to
`inhibit apoptosis.
`Our goal is to build a strong oncology
`pipeline and enter this therapeutic area with
`innovative products that fulfill unmet medical needs.
`Other developments
`We continue to make good progress in other
`areas of our R&D. Supplementing our in-house
`R&D effort is a very active program in business
`development. Our focus includes new indications
`within therapeutic areas where we already
`have a presence, as well as targeting new
`therapeutic areas with high unmet medical
`needs such as autoimmune disease and oncology.
`Our goal is to find the right value-creating deals
`that complement our existing businesses and
`in-house projects and contribute to our long-term
`growth. In the last year we entered into a number
`of significant agreements and partnerships with
`other biotech companies.
`A multi-center Phase 3 study of interferon
`beta-1a monotherapy for the treatment of chronic
`hepatitis C in Asian patients met its primary
`endpoint of sustained virological response.
`This is a large unmet medical need in Asia
`where the disease is currently underdiagnosed.
`Today the hepatitis C market is close to
`$1.2 billion. Results of a combination phase of
`this study in which interferon beta-1a is given in
`
`combination with ribavirin have recently become
`available and show a high rate of sustainable
`virological response six months after completion of
`just six months of therapy. Our clinical results can
`already be used for regulatory purposes in certain
`Asian countries, and the additional work to obtain
`approval in other countries (such as Japan) is
`currently under evaluation.
`In May, we signed an agreement with
`Genmab under which Serono acquired exclusive
`worldwide rights to develop HuMax-TAC.This
`product is a fully human monoclonal antibody
`targeting the TAC antigen – also known as
`CD25, or the interleukin-2 receptor alpha subunit
`– which is overexpressed on the surface of
`activated T-cells. By inhibiting the proliferation of
`T-cells, HuMax-TAC may have therapeutic potential
`in the treatment of T-cell mediated diseases,
`such as autoimmune diseases, inflammation,
`hyperproliferative skin disorders, as well as acute
`transplant rejection. HuMax-TAC is currently in
`preclinical development.
`We have also signed an agreement with
`NovImmune that grants us exclusive worldwide
`rights to develop and commercialize two fully
`human monoclonal antibodies, NI-0401 and
`NI-0501, which may have therapeutic potential
`in a broad range of autoimmune diseases.
`NI-0401 targets the CD3 antigen present on
`T-cells and may therefore be useful in treating
`a variety of autoimmune diseases. NI-0501,
`which targets interferon-gamma, a key cytokine
`involved in inflammatory responses and over-
`expressed in autoimmune diseases. Both are
`currently in preclinical development.
`The year also had its development
`challenges. We were disappointed that two
`products in our pipeline were discontinued:
`onercept in moderate to severe psoriasis, and
`Canvaxin™ in advanced melanoma. The decision
`to discontinue these Phase 3 clinical trials was
`based on the recommendations of the respective
`Independent Data and Safety Monitoring Boards.
`
`Page 13
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`

`
`12
`
`Serono Annual Report 2005
`
`Chief Executive Officer’s review
`
`“We are pioneering an approach to human
`genetics based on the whole genome scan.”
`
`Serono is a leader in pharmacogenomics.
`We see genetics at the heart of much of our
`discovery work – from target validation to the
`interpretation of clinical trials. It moves us beyond
`cellular and animal models of pathology. It gives
`us a window on understanding the human basis
`of disease.
`We are pioneering an approach to
`human genetics based on the whole genome
`scan. Using Affymetrix chip technology, we have
`been able to analyze 500,000 markers in our
`patients and look for those which correlate with
`disease. This approach will allow us to answer
`many questions in a variety of diseases, such as
`identifying which genes are linked to onset of a
`given disease, its severity and response to
`treatment. Since we announced the first whole
`genome scan for MS results in March, we have
`been using this information to test new molecules
`in pharmacological models of MS and to see
`how our genetics results correlate with gene
`expression in patients.
`Beyond MS, we are studying the genetics
`of other autoimmune diseases such as lupus and
`psoriasis. We are studying the response to our
`psoriasis drug, Raptiva®, to investigate whether
`there is a correlation between genetic makeup
`of patients and their response to therapy. In the
`area of metabolic endocrinology, we are taking
`a more focused “candidate gene” approach to
`understand better the factors which lead to lack of
`a functional growth hormone response in children.
`We will be launching a pharmacogenomic study
`in reproductive health in 2006.
`I look forward to seeing the results of
`several of our more advanced clinical programs
`during 2006. The progress of internal programs
`as well as in-licensing activities have resulted
`in ten ongoing late-stage (Phase 2 and Phase 3)
`clinical development programs.
`
`Overall performance
`This year we announced the comprehensive
`final settlement of the US Serostim® investigation,
`which was part of an ongoing, industry-wide
`investigation by the states and the federal
`government of commercial practices. We took
`a financial provision of $725.0 million to cover
`the settlement and related costs. As a result,
`we have reported a net loss of $106.1 million.
`If this settlement were excluded, the net income of
`our company would have been $554.4 million.
`The activities described in the settlement
`were limited to marketing practices in one unit of
`Serono’s US operations. Serono has adopted
`a rigorous compliance program in the US to
`ensure our employees meet the highest ethical
`standards, and we are implementing similar
`programs throughout the rest of the group.
`The settlement concludes a four-year investigation,
`and we are pleased to put the matter behind us.
`On April 25, 2006, the Board of
`Directors will propose to the Annual General
`Meeting a cash dividend of CHF10.0 per
`bearer share, CHF4.0 per registered share,
`and CHF0.25 per ADS, representing an
`increase of 11.1% over the 2004 dividend.
`It has been a year where we have
`continued to invest in the future of our company,
`with a number of business development
`agreements in our current and new
`therapeutic areas.
`Late in the year we confirmed that
`Goldman Sachs has been retained to
`explore various strategic alternatives for the
`company. These strategic alternatives could
`include the sale of the company. This process
`is ongoing. However, there is no assurance that
`any transaction will be consumated.
`
`Page 14
`
`

`
`UNMET NEED
`NOVEL TARGETED THERAPEUTICS
`FOR CANCER
`
`UNMET NEED MET
`
`SERONO IS COMMITTED TO
`EXPANDING ITS PORTFOLIO OF
`INNOVATIVE CLINICAL-STAGE
`PROJECTS THAT ADDRESS
`SIGNIFICANT UNMET MEDICAL
`NEEDS IN THE ONCOLOGY
`THERAPEUTIC AREA
`
`Page 15
`
`

`
`14
`
`Serono Annual Report 2005
`
`Our highest priority
`R&D projects
`
`Therapeutic areas
`
`Reproductive
`health
`
`Neurology
`
`Metabolism
`
`Autoimmune/
`inflammatory
`
`Oncology
`
`Our pipeline reflects our
`commitment to developing
`products that will address
`unmet medical needs
`
`REGARD: Post registration Phase 4 head-to-head study.
`r-hGH: On January 9, 2006, Serono announced the completion of this pivotal Phase 3 trial of its recombinant human growth hormone (r-hGH)
`in the treatment of HIV-associated adipose redistribution syndrome (HARS).
`r-interferon beta: On February 6, 2006, Serono reported the positive outcome of the combination phase of this study evaluating the effect of
`interferon beta-1a with ribavirin for the treatment of chronic hepatitis C (HCV) in Asian patients.
`
`Page 16
`
`

`
`Serono Annual Report 2005
`
`Our pipeline
`
`15
`
`Preclinical
`
`Phase 1
`
`Phase 2
`
`Phase 3
`
`CLARITY
`Oral cladribine
`in multiple sclerosis
`
`REGARD
`Rebif® vs Copaxone®
`head-to-head
`in multiple sclerosis
`Phenoptin™
`in mild to moderate
`phenylketonuria
`
`r-hGH
`in HARS/lipodystrophy
`
`r-interferon beta
`in chronic hepatitis C
`in Asian patients
`
`HuMax-CD4
`(zanolimumab)
`in cutaneous
`T-cell lymphoma
`
`Prostanoid FP
`receptor antagonist
`in pre-term labor
`
`Osteopontin
`remyelinating agent
`
`Hypergloycosylated FSH
`in infertility
`
`Oxytocin
`receptor antagonist
`in pre-term labor
`
`Anastrozole
`in ovulation induction
`and improvement of
`follicular development
`Adecatumumab
`in prostate cancer
`
`Adecatumumab
`in metastatic
`breast cancer
`
`HuMax-CD4
`(zanolimumab)
`in non-cutaneous
`T-cell lymphoma
`
`Interferon beta:Fc
`in multiple sclerosis
`
`MMP-12 inhibitor
`in multiple sclerosis
`
`PTP1b inhibitor
`in diabetes and obesity
`
`JNK inhibitor
`in multiple sclerosis
`
`Tadekinig-alfa (r-IL-18bp)
`in autoimmune diseases
`
`TACI-Ig
`in rheumatoid arthritis
`
`NI-0401 anti-CD3
`monoclonal antibody
`in autoimmune diseases
`
`TACI-Ig
`in systemic lupus
`erythematosus
`
`NI-0501
`anti-interferon gamma
`monoclonal antibody
`in autoimmune diseases
`HuMax-TAC
`in T-cell mediated diseases
`
`TACI-Ig
`in relapsed/refractory
`B-cell malignancies
`
`TACI-Ig
`in multiple myeloma
`
`FGF-18
`in osteoarthritis
`
`Adecatumumab +
`docetaxel in metastatic
`breast cancer
`
`Aurora kinase inhibitor
`R763 in oncology
`
`IKK2 inhibitor
`in oncology
`
`Page 17
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`

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`16
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`Serono Annual Report 2005
`
`Highlights of the year
`
`Innovation, strength
`and partnerships
`
`We have initiated a 1,300 patient
`Phase 3 program to assess the
`effectiveness of the oral formulation of
`cladribine in people with relapsing MS.
`Results are expected in 2008.
`
`The ready-to-use Gonal-f® pen
`for infertility treatment was
`launched in 2004 and this year
`has achieved the milestone sale
`of the one millionth pen.
`
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`

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`Serono Annual Report 2005
`
`Highlights of the year
`
`17
`
`TACI-Ig, a potential treatment
`for B-cell malignancies and
`autoimmune diseases continues to
`progress in clinical development.
`
`We have agreements with Genmab to
`develop and commercialize HuMax-CD4
`and HuMax-TAC in a range of indications,
`including cutaneous and non-cutaneous
`lymphomas and T-cell mediated diseases.
`
`Page 19
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`

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`18
`
`Serono Annual Report 2005
`
`Highlights of the year
`
`Raptiva® for moderate to severe
`psoriasis is now registered
`in 49 countries worldwide.
`
`We formed a strategic alliance with
`Biomarin for the development and
`commercialization of two product
`candidates, Phenoptin and Phenylase,
`which have potential in the treatment
`of phenylketonuria.
`
`Page 20
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`

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`Serono Annual Report 2005
`
`Highlights of the year
`
`19
`
`We are developing interferon beta-1a
`for the treatment of chronic hepatitis C
`in Asian patients, with promising results
`in Phase 3 from both monotherapy and
`in a combination with ribavirin.
`
`We are working on the genetics
`of human diseases. We have
`announced the results of the
`first-ever whole genome scan
`in MS and are studying other
`autoimmune diseases.
`
`Page 21
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`

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`20
`
`Serono Annual Report 2005
`
`Corporate responsibility
`
`Committed to
`continuous improvement
`
`Overview
`Serono has been a member of the United Nations
`Global Compact (UNGC) since 2001 and is
`committed to continuous improvement in the area
`of corporate responsibility. As you will read
`below, Serono has taken a number of steps to
`monitor and implement the 10 UNGC Principles
`relating to protection of the environment,
`upholding of labor standards and respect of
`human rights.
`These measures have resulted in
`continuous and significant improvements in our
`environmental performance, as well as enhanced
`awareness and learning with respect to social
`issues and the monitoring of social indicators.
`They have also led to the introduction of major
`initiatives in 2005, namely the ISO 14001
`certification of our main manufacturing sites,
`adoption of a group-wide code of business
`conduct, introduction of formal rules and
`guidelines in key areas such as procurement,
`harassment and discrimination, and signing
`of a European partnership agreement to reduce
`use of laboratory animals.
`
`Serono is very proud to have been recognized
`on several occasions this year for its corporate
`responsibility efforts. Serono was awarded the
`Swiss Prize of Ethics, the ASPAN-SO2005 Prize
`for our collaboration on an energy-saving
`project with the city of Geneva, and other
`industry awards.
`This section of the Annual Report provides
`a description of the measures adopted during the
`year 2005 to enhance our environmental and
`social performance, together with a detailed
`account of quantitative results obtained during this
`period. Regularly updated information and
`performance indicators pertaining to our corporate
`governance, environmental management, social
`issues, stakeholder relations, products safety and
`business ethics can be found in Fact Sheets, which
`can be accessed from the corporate responsibility
`section of our website (www.serono.com).
`
`Page 22
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`

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`Serono Annual Report 2005
`
`Corporate responsibility
`
`21
`
`Environmental performance
`Serono is a leading biotechnology company that
`specializes in the production of medicines and
`development of recombinant proteins and small
`molecules. Our activities have a very limited
`impact on the environment. It currently concerns
`water consumption, energy use for both heating
`and transportation (freight and personal), as well
`as carbon emissions from the gray energy
`generated in the production of electricity and gas
`supplied to our sites from an energy facility.
`Our research and manufacturing processes
`do not involve the production of genetically
`modified organisms for sale or release into the
`environment. They do not involve or generate,
`hazardous chemicals, heavy metals, carcinogenic
`substances or so-called persistent organic
`pollutants such as PCBs, dioxins or pesticides.
`Reactions are carried out in aqueous phase and,
`therefore, do not cause emissions of atmospheric
`pollutants or ozone-depleting substances. The
`proteins, hormones and other molecules that
`we produce are naturally occurring substances
`in living organisms. While genetic modifications
`are applied to the cells and microorganisms
`that synthesize these molecules so that they are
`obtained in required concentrations and purity,
`such cells and microorganisms are completely
`deactivated – in keeping with regulations – before
`they are released in waste effluents. Our research
`operations are regularly inspected by biological
`safety regulatory authorities and use Class 1
`microorganisms that present no health or
`environmental hazard according to internationally
`recognized standards.
`New developments
`and initiatives
`ISO 14001 certification
`Our main manufacturing sites, Serono’s Biotech
`Center in Corsier-sur-Vevey (Switzerland) and
`Industria Farmaceutica Serono in Bari (Italy),
`received ISO 14001:2004 certification in
`the first quarter of 2005. Together, these two
`sites represent 65% of Serono’s sales of
`therapeutic products. This measure will be
`extended in the future to other sites.
`
`The ISO 14001 standardization procedure
`involves several steps, including an analysis
`of the company’s environmental impact and
`management system, verification of compliance
`with local/national legislation, elaboration of
`programs for the reduction of impact of relevant
`processes, assignment of environmental
`responsibilities within the company, definition of
`monitoring and control procedures, measures to
`ensure transparency of internal and external
`communication, and an external audit by an
`accredited expertise organization.
`With the ISO 14001 certification
`procedure, Serono aims to improve its ability to
`manage energy and water consumption, as well
`as to motivate staff to care for the environment.
`We also recognize the key importance of this
`standardization tool to enhance our competitive
`advantage and relations with our stakeholders.
`Group-wide coordination of
`environmental management
`Serono organized an Environmental Management
`Seminar in April 2005 with a view to enhance
`coordination on environmental management issues
`within the group. This seminar was attended by
`representatives from all R&D and manufacturing
`sites. The main outcome was the initiation of
`action plans for a future harmonization of
`environme