When I was growing up, I was always the last kid picked to play on the dodgeball court. So when biopharmaceutical company Serono (NYSE:SRA) put itself up for sale last year and nobody bought it, I could really empathize.

After you see Serono's second-quarter earnings numbers, which came out on Wednesday, you understand why the company wanted to sell itself last year. The numbers weren't terrible, but competitive pressures loom large for the future.

Earnings for the quarter increased 8% versus the same time last year to $189 million. Most of the growth in net income, though, can be attributed to reduced taxes and lower spending on research and development. Even though the market sometimes hates increased R&D spending, getting multiple drug candidates into the clinic is really the only way a large biopharma such as Serono can invest in its future, aside from making expensive acquisitions. And now that Serono has taken down the "for sale" sign and is looking to make some purchases or license new products, we have further evidence that the company's preclinical drug pipeline is running on empty.

I think the revenue numbers tell most of the story for Serono's behavior in the past year. Year-over-year Q2 revenues increased by only 3.3% to $699 million. And much of that increase was due to 11% year-over-year sales growth, to $362 million, in Rebif, the company's flagship product for treating multiple sclerosis. Serono's other lead product, Gonal-F, a product to treat infertility, is slowly on the decline -- sales have dropped 7% to $139 million versus the second quarter of 2005.

It's always good to see sales for your company's lead product growing, but Rebif sales growth is starting to abate (see below), and with the market debut in the past week of Biogen Idec (NASDAQ:BIIB) and Elan's (NASDAQ:ELN) rival MS drug, Tysabri, competition in this space is only going to heat up.


Rebif Sales

Year-Over-Year Growth

Q2 06



Q1 06



Q4 05



Q3 05



Q2 05



Q1 05



Q4 04



Trading at roughly 15 times the company's estimated 2006 earnings per American Depositary Share of $1.11, Serono isn't exactly cheap for a company with a nearly empty pipeline and no marketed drugs to drive meaningful future revenue growth.

With Rebif and Gonal-F accounting for nearly 80% of the company's revenues and facing competitive threats, Serono is a stock I'll avoid unless I see some great acquisitions or a big decline in the share price.

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Fool contributor Brian Lawler does not own shares of companies mentioned above. He welcomes your feedback. The Motley Fool has a disclosure policy .