Sinovac Reports Unaudited Third Quarter 2011 Financial Results

BEIJING, November 14, 2011 /PRNewswire-Asia/ -- Sinovac Biotech Ltd. (NASDAQ: SVA), a leading provider of biopharmaceutical products in China, announced today its unaudited third quarter financial results for the period ended September 30, 2011.

Financial Highlights

• Sales in the third quarter increased 60.8% year-over-year to $15.4 million, compared to $9.6 million, and year-to-date sales increased 47.2% to $35.7 million.
• Net loss attributable to stockholders in the third quarter was $2.1 million, or $0.04 per basic and diluted share. Year-to-date net loss attributable to stockholders was $3.6 million, or $0.07 per basic and diluted share.
• Cash and cash equivalents and short-term investments with guaranteed income totaled $94.2 million at September 30, 2011, compared to $92.7 million at June 30, 2011 and $103.1 million at December 31, 2010.

Recent Business Highlights

• In November 2011, Sinovac reported positive top-line results from its phase II clinical trial for its proprietary inactivated vaccine against human enterovirus 71 (EV71), which causes hand, foot and mouth disease (HFMD). The preliminary phase II results for the EV71 vaccine showed good immunogenicity and a favorable safety profile with no vaccine-related serious adverse events and adverse reaction rate has no significant difference between the vaccinated group and control group.
• In October 2011, Sinovac was selected by the Beijing Centers for Disease Control and Prevention (Beijing CDC) as one of the four manufacturers to supply seasonal influenza vaccine to the citizens of Beijing for the fourth time in recent years.
• In September 2011, Sinovac's inactivated animal rabies vaccine RabEnd received the final regulatory approval required to commence commercial sales when China's Ministry of Agriculture issued the production license.

Dr. Weidong Yin, Chairman, President and CEO of Sinovac, commented, "Our third quarter 2011 sales reflected the continued demand for our hepatitis vaccines, which represent about two-thirds of the sales this quarter. Bilive revenue growth still remains significant in this quarter.The vaccine is sold in the private pay market, and recently went through a price increase that improved its margin contribution and represents a key opportunity for sales expansion. We are making significant progress in growing public market sales of Healive, which represented 24% of total third quarter sales, compared to 8% in the same period in 2010. And this year, Sinovac successfully won the Beijing Governmental tender to supply our seasonal influenza vaccine to the citizens of Beijing for the fourth time in recent years, which shows that our flu vaccines are trusted by the CDCs."

Dr. Yin continued, "We are moving forward with the launch of our animal rabies vaccine RabEnd following the receipt of the production license in September 2011. Our Tangshan Yian production facility is fully operational and the first few batches of animal rabies vaccine have been released by the China Institute of Veterinary Drug Control, the national laboratory for animal drugs. Those vaccines are ready for sale. We have established a dedicated sales force and are teaming up with distributors to make this inactivated animal rabies vaccine available to pet owners through the animal CDCs and veterinary hospitals. The team is actively working on penetrating the public market and selecting the regional distributors to enter the private pay market for our RabEnd.

Dr. Yin concluded, "We are particularly pleased with the progress that we are making with the EV71 vaccine development as we recently reported positive top-line results from our Phase a？？ trial. The Phase a？？clinical results provided the reference data for Phase a？￠ clinical trial, including the vaccination schedule and dosage selection, based on which the proper dosage can be selected to enter into the phase a？￠ study. We started preparations for the Phase a？￠ trial, including drafting the trial proposal, selecting the clinical sites and manufacturing the vaccines to be used in the trial. We anticipate commencing the phase a？￠ clinical trial in the coming months, and aim to complete it within one year."

Financial Review for Third Quarter Ended September 30, 2011

Sales for the third quarter 2011 were $15.4 million, up 60.8% from $9.6 million for the third quarter of 2010. The third quarter 2011 hepatitis vaccines sales included delivery of the Xinjiang CDC order for 568,700 doses of Healive received in July 2011. The current quarter sales increase was driven by the significant growth of Bilive sales to the private market and Healive sales to the public market.

Sinovac's sales breakdown by product was as follows.

Gross profit for the third quarter 2011 was $8.7 million, with a gross margin of 56.8%, compared to $6.5 million and a gross margin of 68.3% for the same period of 2010. After deducting depreciation of land use rights, amortization of licenses, permits, the gross margin was 56.5% and 67.2% for the third quarter of 2011 and 2010, respectively. The average unit price of Healive was lowered in order to effectively expand sales in the public market, which adversely affected the gross margin. The gross profit margin was also adversely affected by higher unit cost of sales which was caused by the lower plant utilization, inventory provisions and write-offs of hepatitis vaccines in the third quarter 2011. .

Selling, general and administrative expenses for the third quarter 2011 were $8.9 million, compared to $4.4 million in the same period of 2010. SG&A expenses as a percentage of third quarter 2011 sales were 57.7%, compared to 46.2% during the third quarter of the prior year. Excluding pandemic flu vaccine sales, SG&A as a percentage of sales was 57.7% and 55.6% for the current quarter and prior year quarter, respectively. Selling expenses as a percentage of third quarter 2011 sales were 31.9%, compared to 26.3% during the third quarter of the prior year. The increased selling expenses were mainly related to the expansion of the sales team for the existing products and products to be launched in the future in the private pay and public markets and increased marketing activities in the private pay market. The general and administrative expenses of the third quarter 2011 included bad debt provision of $1.5 million with nil in the same period of prior year.

Net research and development expenses for the third quarter 2011 were $2.4 million, compared to $2.5 million in the same period in 2010. The R&D expenses in the third quarter 2011 were primarily spent on the continued development of the pipeline vaccines, including the expenses for the EV71 vaccine with the phase II clinical trial recently completed and phase III trial planning underway, the trial production of the mumps vaccine, and other R&D projects.

Depreciation of property, plant and equipment and amortization of license and permits for the third quarter 2011 were $225,000, compared to $374,000 for the same period of last year. The change compared to 2010 was primarily attributable to the expiration of the amortization period of inactivated hepatitis vaccines, which accounted for $89,000 of the 2010 expense.

Total operating expenses for the third quarter of 2011 were $11.4 million, compared to $7.2 million in the comparative period in 2010.

The operating loss for the three months ended September 30, 2011 was $2.7 million, compared to $670,000 for the same period of the prior year. The change in operating loss in the third quarter of 2011 was primarily attributable to the increased cost of sales and SG&A expenses.

Net loss attributable to stockholders for the third quarter of 2011 was $2.1 million, or $0.04 per diluted share, as compared to $298,000, or $0.01 per diluted share, in the same period of 2010.

As of September 30, 2011, Sinovac's cash and cash equivalents, and Short-term investments totaled $94.2 million, compared to $103.1 million at December 31, 2010. The Company has sufficient cash and short-term investments to support its planned research and development activities, and its anticipated investment in manufacturing facility expansion initiatives.

Financial Review for the Nine Months Period Ended September 30, 2011

Sales for the nine-month period of 2011 were $35.7 million, up 47.2% from $24.3 million for the same period quarter of 2010. During the nine-month period of 2011, Sinovac recorded $7.7 million in pandemic influenza vaccine sales on prior year order. The growth in revenue was driven by the significant growth in Bilive sales to the private pay market.

Sinovac's sales breakdown by product was as follows.

Gross profit for the nine-month period of 2011 was $22.6 million, with a gross margin of 63.3%, compared to $18.6 million and a gross margin of 76.5% for the same period of 2010. After deducting depreciation of land use rights, amortization of licenses, permits, the gross margin was 60.3% and 72.9% for the nine month periods of 2011 and 2010, respectively. The average unit price of Healive was lowered in order to effectively expand sales in the public market, which adversely affected the gross margin, The lower plant utilization and inventory provision and write-off also contributed to the lower gross profit margin.

Selling, general and administrative expenses for the nine-month period of 2011 were $18.0 million, compared to $11.5 million in the same period of 2010. SG&A expenses as a percentage of the nine-month period 2011 sales were 50.3%, compared to 47.5% during the same period of the prior year. Excluding pandemic flu vaccine sales, SG&A as a percentage of sales were 64.2% and 58.3% for the nine-month periods of the current year and prior year, respectively. The increased SG&A was mainly related to the bad debt provision of $1.5 million made in the third quarter, and the expansion of the sales team for existing and recently launched products in the private pay and public markets, increased sales team compensation and increased spending on marketing activities in the private pay market.

Net research and development expenses for the nine-month period of 2011 were $6.7 million, compared to $5.3 million in the same period in 2010. The increased R&D expenses in the 2011 period were primarily related to the continued development of the pipeline vaccines, including the expenses for the EV71 vaccine with the phase II clinical trial recently completed and the phase III trial planning underway, the trial production of mumps vaccine and animal rabies vaccine.

Depreciation of property, plant and equipment and amortization of license and permits for the nine-month period of 2011 were $1.1 million, compared to $886,000 for the same period of last year. The change compared to 2010 was primarily attributable to amortization on the Changping production facility, for which there was only one month of depreciation in the first nine months of 2010.

Total operating expenses for the nine-month period of 2011 were $25.6 million, compared to $17.5 million in the comparative period in 2010.

The operating loss for the nine months ended September 30, 2011 was $3.0 million, compared to operating income of $1.1 million for the same period of the prior year. The year over year change was primarily attributable to lower gross margin due to the product mix, increasing cost of sales and SG&A expenses.

Net loss attributable to stockholders for the nine-month period of 2011 was $3.6 million, or $0.07 per diluted share, as compared to net income of $440,000, or $0.01 per diluted share, in the same period of 2010.

Other Developments

In October 2011, Sinovac Hong Kong's holdings in Sinovac Beijing increased from 71.56% to 73.09%.

Conference Call Details

The Company will host a conference call on Monday, November 14, 2011 at 8:00 a.m. EST (November 14, 2011 at 9:00 pm China Standard Time) to review the Company's financial results for the third quarter ended September 30, 2011 and provide an update on recent corporate developments. To access the conference call, please dial 1-877-407-4018 (USA) or 1-201-689-8471 (international). A replay of the call will be available from 11 a.m. EST on November 14, 2011 to November 28, 2011 at midnight. To access the replay, please dial 1-877-870-5176 (USA) or 1-858-384-5517 (international) and reference the replay pin number 382617.

A live audio webcast of the call will also be available from the Investors section on the corporate web site at http://www.sinovac.com . A webcast replay can be accessed on the corporate website beginning November 14, 2011 and the replay will remain available for 30 days.

About Sinovac

Sinovac Biotech Ltd. is a China-based biopharmaceutical company that focuses on the research, development, manufacture and commercialization of vaccines that protect against human infectious diseases including hepatitis A, seasonal influenza, H5N1 (bird flu) pandemic influenza and H1N1 influenza. In 2009, Sinovac was the first company worldwide to receive approval for its H1N1 influenza vaccine, PANFLU.1, and has sold vaccine to the Chinese Central Government pursuant to the government stockpiling program. The Company is developing a number of new vaccine products, including vaccines for pneumococcal conjugate, enterovirus 71 (EV71) (against hand, foot and mouth disease), pneumococcal polysaccharides, human rabies, HIB, rotavirus and epidemic meningitis, chickenpox and mumps and rubella. Its wholly owned subsidiary, Tangshan Yian, focuses on the research, development, manufacturing and commercialization of animal vaccines, and has launched its internally developed inactivated rabies vaccine in China.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by words or phrases such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the business outlook and quotations from management in this press release contain forward-looking statements. Statements that are not historical facts, including statements about Sinovac's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Sinovac does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

Helen Yang/Chris Lee
Sinovac Biotech Ltd.
Tel: +86-10-8279-9871/9659
Fax: +86-10-6296-6910
Email: ir@sinovac.com

Investors:
Stephanie Carrington
The Ruth Group
Tel: +1-646-536-7017
Email: scarrington@theruthgroup.com

Media:
Victoria Aguiar
The Ruth Group
Tel: +1-646-536-7013
Email: vaguiar@theruthgroup.com