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Serono is muscling its way into the US market with head-to-head trials and big marketing partners.


Pharmaceutical Executive


President Fereydoun Firouz has big plans for Serono's US division.
From its origins as a small company making reproductive hormones to its current status as market leader in multiple sclerosis, Serono has always done things in a big way. The company created the infertility market with two early products: Pergonal (menotropins), used for the in vitro fertilization (IVF) of the first test-tube baby, and Profasi (chorionic gonadatropin), collected from the urine of 100,000 postmenopausal women. Serono later boldly put its MS drug Rebif (interferon beta1a) up against Biogen's Avonex, a similar interferon, in a head-to-head trial and proved Rebif's superiority.

Now the company's US division, led by President Fereydoun Firouz, has more grand ambitions: to make the Swiss company a global market leader in its three main therapeutic franchises—reproductive health, metabolic disorders, and neurology—and to make the name Serono top-of-mind when physicians and patients in the United States think about biotech companies.

Firouz is confident his team can make it happen. "We deliver on the promise," he says. "And we deliver on the financial numbers, too. In the United States, this company is operating at 20 percent growth top line and 20 percent growth bottom line. Three years ago, we were doing half of those sales."

But in terms of corporate branding, the company still has some work cut out for it. Although Serono is a household name in Europe, in the United States it is battling for recognition against the big biotechs based here—Amgen, Genentech, and Biogen-Idec. But with eight recombinant products to sell and a powerful marketing partner (Pfizer), the company is quickly catching up. (See "On the Market,") In 2003, Serono's global sales passed the $2 billion mark for the first time, and sales for 2004 are on track to hit $2.4 billion.


Paul Lammers (left), chief medical officer; Stuart Grant, chief financial officer; and Pamela Williamson Joyce, VP, regulatory affairs and quality assurance, are top members of Seronos US management team leading the companys push into the US market.
Global Base Serono's brand recognition in Europe is rooted in longevity. The company was founded in Rome in 1906 by Cesare Serono, a doctor in chemistry and medicine, who extracted lecithin from egg yolks to create a tonic called bioplastina. In the 1960s Serono began to extract female hormones from urine to create the first infertility drugs (Pergonal and Profasi). In 1988 it brought its first recombinant product, Saizen (somatropin), to market.

Serono has been under steady leadership since 1965, when Fabio Bertarelli came on board as chief executive officer. Thirty years later, Bertarelli's son, Ernesto, took the helm and runs the company today—the third generation of the Bertarelli family to do so.

Stuart Grant, chief financial officer, describes Serono's structure this way: "The Bertarelli family owns 63 percent of the capital of the company and 74 percent of the voting rights. Around 37 percent of the capital is available for external institutional and private investors."


At a Glance
The United States—40 percent of the world market—is key to the company's future growth, so Serono's US division is critical. Firouz, who has been with Serono for his entire pharma career, worked his way up the ranks to become its president. Earning his BS in political science and business from George Washington University, Firouz went to work for Serono as a government affairs associate in the company's Washington, DC, office in 1989. From there he moved to International Business Operations, where he helped set up subsidiaries in Greece, Turkey, and Israel. In 1998 he was promoted to vice-president, Latin America, where he launched many products and oversaw a 43 percent sales growth. In 2001 Firouz was assigned to lead the reproductive health unit of Serono's US division, and in March 2003 he was named president.

Firouz credits much of his management style to his international background and experience. "I've been able to create and manage very small companies, and with very small budgets was able to drive business," he says. "In America, where the resources are available, there's an opportunity to really employ what I've learned, and to be innovative and differentiate our products." Firouz also looks for international experience when he interviews candidates for management positions.

"I'm not a micromanager," he says. That is evident in his creation of a management team, which meets monthly to systematically review operations and strategize about how to improve them. "We have expertise around the table with a dialogue every month at a senior management meeting, which I have the honor to chair," he says. "I believe in giving delegation and empowerment to the people who have the expertise."


Priority Pipeline
Firouz is quick to point out that he is a decision maker at only one level of the company. He describes the relationship between Geneva and the US division as "a joint operation, a joint decision making process," but he says the big moves—such as acquisitions—are decided at the company's corporate headquarters in Switzerland by the executive team, of which he is a member.

Structural Support In keeping with that collaborative style, Firouz has also organized Serono's US division in a way that gives the franchises strength, autonomy, and room to grow. The therapeutic areas, each headed by an executive vice-president, have their own marketing divisions, sales forces, and administrative functions. The EVPs—James Pusey (neurology), James Sapirstein (metabolic endocrinology) and Bharat Tewarie (reproductive health)—function much like general managers.


Serono's therapeutic EVPs—(l-r) James Sapirstein (metabolic endocrinology); Bharat Tewarie (reproductive health); and James Pusey (neurology)—function much like general managers, with their own marketing divisions, sales forces, and administrative functions.
This structural separation is atypical in the industry, but the franchise heads are united in their support of the arrangement. They contend that the expertise developed in one area—whether injectable technology or a human resources solution—quickly becomes the province of all. Here's a look at the company's therapeutic areas:

Reproductive Health. This franchise is Serono's founding cornerstone and the basis for its expertise in recombinant biological products. Serono developed its first hormone to help infertile women in the early 1960s and has been a global market leader ever since. Although the infertility market may ultimately be limited, Gonal-F (follitropin alpha) experienced 17 percent growth in 2003, with sales totaling more than half a billion. The unit's other products—Cetrotide (cetrorelix), Crinone (progesterone gel), Ovridrel (choriogonadotropin), and Luveris (lutropin alpha)—together generated another $67.5 million in 2003 sales.

Says Tewarie: "By providing patient-friendly products, such as the Gonal-F RFF Pen—the first and only prefilled and ready-to-use multidose FSH (follicle stimulating hormone) in the US—as well as patient services such as Fertility LifeLines, Serono continues to demonstrate our commitment to improving the patient experience."


On the Market
Serono's commitment to its reproductive patients can also be seen in its development of Luveris, which is used to treat infertile women with severe deficiencies of both luteinizing and follicle stimulating hormones—and took 12 years to gain FDA approval. The number of women who will benefit from this drug is only 2,800-5,600, but Firouz says return on investment was never a factor in the decision to bring it to market. Tewarie adds, "We recognized the additional endocrine needs of this special population of patients and developed recombinant human LH specifically for them as part of our continued commitment to advancing infertility treatment."

Metabolic Endocrinology. Although based on a single off-patent growth hormone, this franchise still represents about 12 percent of Serono's revenue. Saizen (somatropin) for pediatric growth hormone deficiency (GHD) was approved in Europe in 1988 and in the United States in 1996, generating $151.4 million in sales in 2003. The franchise got a big boost in 1996 when the drug was approved for AIDS-associated wasting under the name Serostim. In 2003 Serostim had global sales of $88.8 million. The growth hormone also earned two new FDA approvals in 2003: for adult GHD and for short bowel syndrome under the name Zorbtive.

"Serono is the only growth hormone manufacturer that serves three distinct therapeutic areas—pediatric and adult endocrinology, HIV/AIDS, and gastroenterology," says Sapirstein. "In gastroenterology, we have orphan protection for Zorbtive's use in short bowel syndrome. This orphan drug has truly changed some patients' lives this year, allowing them, in some cases, to go off intravenous parenteral nutrition completely."


Head to Head
In spite of a handful of competitors that already market a form of somatropin, the biggest threat to Serono's leadership position in this franchise could be a generic growth hormone from Sandoz/Novartis. Although the European Commission (EC) rejected Omnitrop, the generic somatropin had been recommended by the European Agency for the Evaluation of Medicinal Products, and Sandoz is appealing the EC decision.

Dermatology. Serono's newest product, Raptiva (efalizumab), is its first foray into psoriasis, an emerging therapeutic area for the company. The drug was developed by Genentech and Xoma, and Serono signed an agreement with Genentech in 2002 to market the product internationally outside the United States and Japan. "We think peak sales of Raptiva for Serono could be anywhere between $250 and $400 million three to four years from now," says Grant.

Neurology. This franchise—with the greatest sales—is Serono's newest area of expertise and is based on one main product: Rebif. The drug has been approved for the treatment of relapsing-remitting multiple sclerosis in more than 80 countries and had $819.3 million in sales in 2003.

The treatment was launched in Europe in 1998. In March 2002 FDA approved Rebif, overriding Avonex's orphan drug status, the first time the agency has done so based on efficacy. The head-to-head data from its comparison study with Avonex were compelling enough that FDA decided patients needed the new option. (See "Head to Head,")

"We changed the mindset of consumers," says Paul Lammers, the US unit's chief medical officer. "They used to have the idea that, 'Well, let's try this for a while, and if it doesn't work, let's go up a bit.' Now the concept of treating early and with higher doses has really been established with Re-bif. For patients, this means long-term efficacy now and less disability later."

The franchise also includes Novantrone (mitoxantrone), indicated for reducing neurological disability in patients with worsening MS. Pusey sums up the franchise this way: "Our overarching goal is to make a profound difference in the daily lives of people with MS. In 2004 we made great strides toward this goal with the launch of Rebif product enhancements, including the Rebiject II and 29-gauge needle, and the addition of MS LifeLines Nurse Educators, a program that provides education and in-home training."

The franchise is expected to continue to grow. Rebif's sales increased 49 percent in 2003, and they are projected to top $1 billion in 2004. But Serono's brightest star could also be its greatest vulnerability. Recently approved by FDA is a multiple sclerosis product called Tysabri (natalizumab) from Biogen and Elan that could take some wind out of Rebif's sails.

MS Market Shakeup So far the buzz for Tysabri (previously know as Antegren) is based on data from clinical trials that compare the drug with placebo. In those studies, Tysabri reduced the rate of relapses (temporary worsening of symptoms) by 66 percent compared with no treatment. Biogen/Elan researchers also tested the drug in combination with Avonex against placebo, and together they reduced relapse rates by 54 percent.

What the research did not do was to test Tysabri in head-to-head studies against other products. MS experts point out that each control group is unique and that the only way to determine a product's superiority is by direct comparison.

When asked about Tysabri, Serono's US executives are quick to note several things: 1) Biogen's Amevive (alefacept) failed to live up to its claims, 2) Biogen and Elan only released partial data for Tysabri, and 3) prevention of relapses is not the only measure of how well a MS drug—and its patients—are doing; a drug must also slow the progression of the disease.

"We welcome any new product for MS patients because there is still unmet medical need out there," Firouz says. "But are we afraid of the competition? No. We entered the market here two years ago as the number-four player, and we now have nearly 20 percent of new-prescription share. We had three competitors to go after, and we're going to deal with natalizumab in the same way—step by step, with the right resources at the right time. I am confident that we will achieve market leadership with Rebif by 2006."

The multiple sclerosis market has been a hard-fought battle among four competitors: Serono's Rebif, Biogen's Avonex, and Schering AG's Betaseron (all a form of recombinant interferon beta 1a) and Teva's Copaxone (glatiramer). After Rebif was approved in Europe, it quickly gained market leadership there. Serono muscled its way into the US market in 2002 by overcoming the orphan drug status of Avonex, and it soon partnered with Pfizer to sell Rebif in the United States. In its first year here, sales grew 165 percent, quickly earning it a 17 percent share in the MS arena.

Putting Rebif up against Avonex—two biologics based on the same protein—was another bold move for Serono. Says Lammers: "The company felt really confident about what we had seen so far in terms of profiles. Therefore we were willing to take this calculated risk, and it paid off." In another confident move, Serono has head-to-head studies under way comparing Rebif with Copaxone.

Canaccord Capital reports: "Even if Tysabri takes 75 percent of new patients and almost half of those switching between treatments, revenues from Rebif in the US should continue to grow at our forecast level—$558 million in 2008." One mitigating factor for the newcomer is that the drug is a monthly infusion, which may not be convenient for some patients. Some analysts also point out that there aren't enough MS infusion centers to meet a high patient demand, if it arises.

Nick Turner, an analyst with Jeffries, says, "Neurologists are not accustomed to switching patients off their existing medications if those medications are working. We have to conclude that Tysabri will take the patient population that have failed on, or are unwilling to take, existing drugs."

Pipeline Projects Although Serono is a currently a biotech company with three therapeutic franchises, its pipeline looks more like that of a full-scale pharma company's. In addition to new and better biologics, the company has small molecules, oral agents, and whole new therapeutic areas in development, including autoimmune diseases, gastroenterology, and oncology. "We don't define products by market; we define products by complementing the portfolio, market leadership, and addressing unmet medical needs," says Firouz. (See "Priority Pipeline,") Here are four of its most promising projects:

Oral cladribine. This R&D compound is still in Phase II, but it has stirred some interest from investors. Cladribine, in its current form, is an antineoplastic used to treat hairy cell leukemia, a cancer of the blood and bone marrow, but Serono's R&D team is developing an oral version for multiple sclerosis patients. "Early clinical trial results have shown an impressive reduction in brain lesions on MRI scans with this compound," says Lammers.

TACI-Ig. This Phase I project is a crossover drug that may someday treat autoimmune diseases such as lupus and rheumatoid arthritis, as well as some cancers such as B-cell malignancies. TACI-Ig is a fusion protein inhibitor of B-cell activation.

Lammers explains how it works: "B lymphocytes develop in bone marrow and then transfer to the spleen, where final cell maturation takes place. The latter leads, for example, to the production of plasma cells that, in turn, produce antibodies. During this maturation phase is when the cells get some of their 'immunological instructions' that could affect the type of antibodies they are going to produce. If these instructions are wrong, they could, for example, start producing so-called autoantibodies directed against otherwise healthy tissue cells. So with this drug, we are trying to attack and disturb that incorrect instruction process without touching what happens in the bone marrow."

Onercept. To complement Raptiva and bolster its new psoriasis franchise, Serono is developing this binding protein of tumor necrosis factor alpha (TNFa) to treat moderate-to-severe psoriasis. In Phase II trials, 50 percent of patients treated three times a week had a "major response" to therapy. "With psoriasis, it's all immune system driven," Lammers notes. "It is just a matter of where in the process you pick your place to interact." He also estimates that between 2 and 3 percent of the population has psoriasis and says, "It is a phenomenal business opportunity for us." The company also plans to test the drug in endometriosis as a potential addition to its reproductive health franchise.

Anastrozole. In development for ovulation induction, this treatment is intended to help infertile women in the first phase of trying to become pregnant and perhaps save them the expense and trouble of completing IVF (in vitro fertilization) cycles. "A product like anastrozole fits into the early stages of treatment and is further demonstration of our commitment to provide a complete portfolio of infertility treatments," Lammers says. "It works almost the same as clomiphene in initiating ovulation induction, but it's more focused and is expected to induce a higher pregnancy rate."

Pipeline Partners To bolster R&D even further, Serono entered into two significant deals in 2004, one with ZymoGenetics, valued at $81.5 million, and the other with Micromet, potentially valued at $148 million. The partnership with ZymoGenetics will develop and commercialize novel protein and antibody therapeutics based on ZG's discoveries, and it gives Serono exclusive worldwide rights to fibroblast growth factor 18 and interleukin receptor 22, both still in early development.

About the alliance, Steve Arkinstall, head of worldwide discovery for Serono, says, "ZymoGenetics is a company with which we already had an established and highly successful collaboration. When scouting for new high-value alliances, we looked again to ZymoGenetics and were struck by the depth of biological and disease understanding it had accumulated around these new proteins. We are optimistic about the therapeutic promise these molecules bring to our development pipeline."

At the end of 2004, Serono entered into a deal with Micromet, which will boost its portfolio of novel anticancer agents. Under the agreement, Micromet will complete ongoing Phase II clinical trials of MT201, a pan-carcinoma monoclonal antibody that is being tested for the treatment of prostate and metastatic breast cancer. When the Phase II trials are over, Serono will be responsible for the further development and commercialization of the product.

"We are very excited about the therapeutic potential of MT201 in cancer," says Arkinstall. "This fully human antibody targets a cell surface glycoprotein found on the majority of epithelial-derived tumor types. Binding of MT201 triggers activation of the body's immune system to destroy cancer cells, offering promise of a highly effective, unique targeted therapy with activity in many cancer types."

Serono is also building a broad understanding of genetics. In 2002, the company acquired Genset, which has since evolved into Serono Genetics Institute.

Going Forward Serono is well positioned with what it calls its "war chest" to continue to make such deals or even to purchase another company. "On our balance sheet, we had $2.2 billion in liquid financial assets at the end of the third quarter last year," says Grant. "We consider that a resource to help us develop growth externally. So the key question will be: How do we use that asset to grow our business? We will continue to collaborate with the right partners, to develop our existing franchises, and open other franchises. Acquisitions are also an option."

For Serono, the future—the "bigger picture"—according to Firouz, centers on how to expand its presence in the United States. But before the biotech can focus on that issue, Firouz says it must first meet its immediate goals: "operational excellence and market leadership in each of our therapeutic areas."

As Serono builds its presence in the United States, the company considers itself unique among its peers. Firouz explains why: "After discovery and preclinical, many biotech companies outsource pieces of business, including development, scale-up, and sales. We are totally beyond that. We drive all our own critical projects."

He also believes Serono is the only true global biotech. "Serono has 40 subsidiaries," Firouz says. "We are present in Latin America, China, and emerging markets. Other major biotech players don't have that presence." As medicine moves more and more to biological drugs, and countries such as China become major market forces, Serono's long-term global presence may give it a critical advantage.

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