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Unexpected loss forces Serono shares down

The extra charge at Serono came out of the blue

(Keystone)

Biotechnology company Serono has been hit by a deep first-quarter loss, after setting aside money to cover potential legal costs from a probe in the United States.

Serono, which is based in Geneva, booked an unexpected $725 million (SFr855.9 million) provision relating to an investigation about marketing practices of its Serostim Aids drug.

The news sent the share price down by seven per cent at the opening of the stock market. By the close of trade, it had recovered slightly to SFr794.50, a decline of 5.36 per cent.

A statement from the US Attorney’s office in Boston eight days ago said four former company sales and marketing executives had been charged in connection with a conspiracy to offer and pay kickbacks to doctors in return for writing prescriptions for Serostim.

The company has declined to comment on the statement.

The exceptional charge exceeded the forecast for its entire net profit for this year and meant that Serono incurred a net loss of $567.7 million in the first quarter.

Friday’s news followed an announcement earlier this month that the company had cancelled two late-stage clinical trials for new products, prompting some analysts to reduce their ratings and price targets for Serono stock.

Extremely disappointing

"This is extremely disappointing – we expected this case to be closed – the issue is a complete surprise, not at all transparent to the market," commented analyst Tilman Dumrese at Bank Vontobel, which downgraded the stock.

Serono said in a statement that it had cooperated fully with the investigation and was continuing to do so.

The company said discussions with the US Attorney’s office had reached a point where it was appropriate to take the provision.

Management said it believed it would be sufficient to cover resolution of the investigation.

The first-quarter figure excluding the exceptional charge fell below analysts’ expectations.

But Serono said that – excluding the provision – net income of $92.7 million was in line with expectations, adding that it was on track to meet its forecast this year.

"Serono’s strong fundamentals in each of its therapeutic areas give us confidence to deliver our top and bottom-line guidance for the full year, excluding the one-time exceptional charge," commented chief executive Ernesto Bertarelli.

swissinfo with agencies

Key facts

Serono is Europe's largest biotechnology company with over 4,900 employees and worldwide revenues of $2.46 billion. Its net income last year was $494 million.
It says it has eight biotechnology products on the market and a strong pipeline based on both proteins and small molecules.

end of infobox

In brief

Geneva-based Serono has put aside $725 million ($855.9 million) to cover potential legal costs resulting from a probe in the United States.

Investigators are looking into the marketing practices of Serono’s Serostim, a drug used in the treatment of Aids.

Serono recorded a first-quarter loss of $567.7 million because of the charge.

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