NEW YORK, Jan. 31, 2018 /PRNewswire/ -- SVA recently announced that it would hold its 2017 Annual Meeting of Shareholders (the "Annual Meeting") in Antigua and Beijing on February 6, 2018 to, among other things, approve the re-election of SVA's current directors. However, for the reasons described in this letter, amongst others, Shandong Sinobioway Biomedicine Co., Ltd. (SZSE: 002581) ("Shandong Sinobioway") believes that the current members of SVA's Board of Directors (the "Board") are not qualified to and should not be re-elected. Before voting at the Annual Meeting, Shandong Sinobioway, on behalf of Sinobioway Consortium, believes that all shareholders of SVA should carefully consider the issues described in this letter.
I. Mr. Yin, chairman and CEO of SVA, bribed a senior official of the China Food and Drug Administration ("CFDA"), and is not qualified to serve as a director or senior officer of SVA
Beijing No.1 Intermediate People's Court issued two written judgments in late 2016 and early 2017 -- the Criminal Judgment on Guo's Acceptance of Bribes and the Criminal Judgment on Hongzhang Yin's Acceptance of Bribes, respectively. Such judgments disclosed that Mr. Yin, as the general manager of Sinovac Biotech Co., Ltd. ("Beijing Sinovac"), SVA's principal operating entity, bribed Mr. Hongzhang Yin, the then-vice director of the Center for Drug Evaluation ("CDE") of the CFDA, and his wife in an aggregate amount of RMB550,000 (approximately $85,000) to assist in a vaccine clinical trial and approval.
Mr. Yin is no longer qualified to serve as general manager of Beijing Sinovac. Therefore, the board of directors of Beijing Sinovac removed Mr. Yin as general manager of Beijing Sinovac on April 24, 2017. However, Mr. Yin has not yet resigned from his posts, nor has the Board taken any action to remove him -- in fact, the Board has, re-nominated Mr. Yin to continue to serve on the Board. Additionally, the Board has not taken any other measures against Mr. Yin to protect the legitimate rights and interests of SVA and its shareholders from this behavior.
II. The Board of Directors of SVA (the "Board") has failed to perform its duties to SVA's shareholders by, among other things, failing to disclose SVA's financial statements in a timely manner1, which has resulted in material losses to SVA's shareholders and subjected SVA to intensive regulatory oversight and warnings from the United States Securities and Exchange Commission (the "SEC")
SVA failed to disclose its financial condition in a timely manner. Specifically, SVA's 2016 annual financial report was not released until late November 2017, which subjected the Company to a de-listing notice and intensive regulatory oversight and warnings from the SEC and Nasdaq for non-compliance with SEC reporting requirements and Nasdaq's listing rules. As a result, the share price of the Company plummeted during this period.
III. Sinobioway Consortium believes that there are major discrepancies in SVA'sfinancial reporting
According to the annual report of SVA, Beijing Sinovac is the core subsidiary and main operating entity of SVA. The financial statements disclosed by the other shareholder of Beijing Sinovac, Shandong Sinobioway, an A-share listed company (SZ:002581), show that the net profits of Beijing Sinovac exceeded RMB82 million (approximately $12.6million) in 2016, and exceeded RMB230 million (approximately $35.4million) in the first half of 2017. However, notwithstanding the other shareholder of Beijing Sinovac disclosing that Beijing Sinovac is profitable, SVA reported a net loss in 2016 and net profits for the first half of 2017 of only approximately RMB70 million (approximately $10.7million). SVA's shareholders should ask the Board to explain why there is such a disparity in the financial data.
IV. Sinobioway Consortium does not understand why the Board has not taken action to accelerate the production and sale of SVA's blockbuster product, EV71. It has resulted in SVA having a significantly lower market share and sales volume than its competitors
SVA has spent eight years and invested RMB600 million (approximately $92.3 million) in developing a vaccine for hand-foot-mouth disease(EV71), which is one of SVA's core products. Such vaccine was in short supply around the time of SVA's initial market launch. Currently, only three companies are approved to sell this vaccine in China. According to the data released by the NIFDC2, only 2,804,475 doses of hand-foot-and-mouth vaccines were sold by SVA during the year ended December 31, 2017, while SVA's two latecomer competitors sold 7,978,000 and 4,140,370 doses, respectively, during this time period. Sinobioway Consortium questions the Board and SVA's management for failing to increase the production and sale of this blockbuster product.
V. The ability of the Board to make decisions has been seriously questioned by Sinobioway Consortium, and SVA has suffered defeats in domestic vaccine market
The 13 valent pneumococcal conjugate vaccine (PCV-13) can be used to prevent invasive diseases caused by 13 types of serotype Streptococcus pneumoniae and is mainly used for active immunization of infants and young children. It is applicable to children under 2 years old. In 2016, the sales of 13 valent pneumococcal conjugate vaccine worldwide was as high as $5.718 billion. Based on 20 million newborns in China every year and the current medication duration and cost, it is estimated that the China's market has a total value of RMB10 billion (approximately $1.54 billion).
The first clinical trial application was submitted by SVA for 13 valent pneumococcal conjugate vaccine in 2011 and the clinical trial approval was obtained in February 2015. Until now, only two companies (Walvax Biotechnology Co., Ltd. and Minhai) have completed the Phase III domestic clinical trial of 13-valent pneumococcal conjugate vaccine, and many other companies have completed Phase II clinical trials. However, even though it was an early mover, SVA just started Phase I clinical trials, significantly lagging behind in terms of the huge pneumonia vaccine market.
VI. The Special Committee, consisting of purported independent directors of the Board, has, in fact, not acted in the best interest of its shareholders by undervaluing SVA and not seeking to maximize the price that SVA's shareholders receive in such a transaction
On February 1, 2016, SVA's management submitted an offer of $6.18 per share to acquire SVA.
On February 4, 2016, Sinobioway Consortium, made a competing offer to acquire SVA's management at $7.00 per share. Despite the facts that (i) Sinobioway Consortium is backed by a number of reputable Chinese state-owned and international institutional investors with immediate available offshore funds, and (ii) Sinobioway Consortium has made its efforts to continuously improve the Special Committee's understanding of our funding certainty by submitting various supporting documents, including all bank proof to the Special Committee, the Special Committee and the Board still questioned Sinobioway Consortium's funding certainty.
On June 26th, 2017, the Board of Directors and the Special Committee suprrisingly approved SVA's management's $7.00 share without any notice or any effort to negotiate with Sinobiowary Consortium. Sinobioway Consortium immediately submitted a "Restate Offer" at $8 per share to Sinovac's Board of Directors and the Special Committee on June 28th, 2017.
The Special Committee and the Board remain committed to sell SVA to SVA's management at $7.00 per share even though (i) the current market price of SVA's shares is US$8.49 per share (a 21% premium over the Management Consortium's price); (ii) the Sinobioway Consortium has made clear to the Board and the Special Committee on various occasions that it stands ready to increase its offer price which will be always higher than the one offered by SVA's management.
As such, the Special Committee failed to properly comply with their fiduciary duties to SVA's shareholders and Sinobioway Consortium.
VII. The voting card prepared by the Board for the Annual Meeting might deprive SVA's shareholders of their right to vote against the current directors, infringing the basic voting right of shareholders
SVA's voting card prepared for its Annual Meeting might take away its shareholders' fundamental right to elect its board members, and disenfranchises SVA's shareholders. Specifically, the voting card provides no option to "vote against" to the re-election of the current directors, and only allows shareholders to "agree" or "abstain".3
According to the voting instructions provided in the proxy statement, because abstentions do not count as votes cast, the current Board is ensured to be re-elected because there is no way to vote against, and even one "yes" vote is sufficient to carry the slate, namely the current Board would be re-elected.
To give a stark example, if 100 shares are voted but the holders of 99 shares wish to vote against the re-election of the directors, such holders cannot block the directors being re-elected since there is no option to object under the current voting card. At best, these holders could abstain from voting, but, even then, the Board's voting process would result in their votes not being counted and the single share voting in favor of re-election would decide the makeup of the board.
Given such disenfranchising provisions, Sinobioway Consortium concludes that, rather than allow the shareholders to fairly vote for the directors that represent them on the board, the Board has decided to ignore its fiduciary duties to the SVA shareholders and has decided to protect Mr. Yin and further entrench themselves in SVA to the detriment of SVA's shareholders.
The current Board and Mr. Yin, are not qualified to continue to serve. If the Board is unwilling to allow the shareholders to exercise their basic rights as owners of SVA, how can they be expected to protect the shareholders' other interests?
Suggestions to the shareholders of SVA to protect your investments and defend your rights
The Sinobioway Consortium believes that the current members of the Board have proven themselves incapable of acting in the best interests of SVA's development and its shareholders' interests, nor faithfully and diligently protecting the interests of all shareholders, especially the minority shareholders. All SVA shareholders can protect their investment and defend their rights by (1) requesting the Board to amend the voting card to allow votes "against" the re-election of the current Board (Email: ir@sinovac.com), and/or (2) attending the Annual Meeting in person to oppose the re-election of the current Board.
References:
| 3. There are three options regarding the proposal to re-elect directors: FOR ALL, WITHHOLD ALL, VOTE INDIVIDUALLY according to SEC's explanation: https://www.sec.gov/spotlight/proxymatters/voting_mechanics.shtml#definitions |
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