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Sinovac Biotech Ltd. (SVA) Reports Unaudited Third Quarter 2016 Financial Results



11/28/2016 9:17:05 AM

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BEIJING, Nov. 28, 2016 /PRNewswire/ -- Sinovac Biotech Ltd. (NASDAQ: SVA), a leading provider of biopharmaceutical products in China, announced today its unaudited third quarter ended September 30, 2016.

Mr. Weidong Yin, Chairman, President and CEO of the Sinovac, commented, "Our third quarter revenue rebounded from a slower first half of the year, increasing 71.4% to $28.7 million from $16.8 million from the same period of 2015. The sales improvement was mainly attributable to the newly introduced EV71 vaccine product sales, which contributed approximately $16.5 million to our quarterly revenue, partially offset by Bilive and Anflu revenue decreases."

"Vaccine deliveries resumed in the third quarter after the interpretation of new government regulation was issued in June, however we expect the market for conventional vaccines to take longer to fully recover. Our Bilive sales decline was due to increased sales returns as the delayed supply reduced the shelf life of the vaccine in the channel, while our Anflu sales decline was a result of less vaccine produced during this challenging environment."

"We continued to make progress on our pipeline programs with the continuation of clinical trials of our varicella vaccine, Sabin IPV (sIPV) and pneumococcal polysaccharide vaccine (PPV). Heading into the fourth quarter, we expect EV71 vaccine sales to remain our leading revenue contributor," concluded Mr. Yin.

Third Quarter 2016 Business Highlights

Marketing and Sales

As in prior years, Sinovac submitted bids of its Healive in Beijing, Shanghai, and Jiangsu Province, and Anflu in Beijing. Sinovac won the tenders to supply Beijing with Healive over the course of 2016 to 2018 and Anflu for 2016. The total value of the tenders was RMB 32 million ($4.8 million) for Healive and RMB 6.6 million ($1.0 million) for Anflu. Sinovac was selected to be the sole supplier of Healive to Shanghai for 2016 and the value of the contract is RMB 14.1 million ($2.1 million). Sinovac won the tender to supply Healive to Jiangsu for 2016 and the total value of the tender was RMB 13.2 million ($2.0 million).

Research and Development

Varicella - The vaccine candidate was approved to commence human clinical trials in 2015. The phase I trial was completed and the results demonstrated a positive safety profile of the vaccine candidate. The phase III trial commenced in the third quarter. A phase III trial measures efficacy and immunogenicity with a randomized, double-blind, parallel-treatment, placebo-controlled study in addition to safety. Over 6,000 subjects aged one to twelve years old were enrolled as volunteers for the phase III clinical trial. We expect the phase III clinical trial to be completed in the third quarter of 2017, after which the production license application will be filed with the CFDA.

sIPV - The Company initiated the phase I clinical trial in October 2016. The preliminary results show a positive safety profile of the vaccine candidate. After the results were collected, Sinovac recently commenced the phase II trial, which is designed to study the immunogenicity of vaccine candidates with different levels of dosage content for the dose selection, and to further observe the safety of the vaccine. The phase II clinical trial is expected to be completed in the third quarter of 2017.

Unaudited Financial Results for Third Quarter 2016



2016Q3

% of Sales

2015Q3

% of Sales

(In $000 except percentage data)





Hepatitis A - Healive

6,872

23.9%

4,800

28.6%

Hepatitis A&B - Bilive

103

0.4%

3,701

22.1%






Hepatitis vaccines subtotal

6,975

24.3%

8,501

50.7%

Influenza vaccine

5,285

18.4%

8,032

47.9%

Enterovirus 71 vaccine

16,471

57.3%

-

-

Mumps vaccine

4

0.0%

231

1.4%

Regular sales

28,735

100.0%

16,764

100.0%

H5N1

-

-

-

-

Total sales

28,735

100.0%

16,764

100.0%

Cost of sales

5,705

19.9%

5,549

33.1%

Gross profit

23,030

80.1%

11,215

66.9%

Quarterly sales from continuing operations were $28.7 million compared to $16.8 million in the prior year period. Sales increased primarily due to revenue generated by the Company's EV71 vaccine.

Gross profit from continuing operations was $23.0 million, compared to gross profit of $11.2 million in the prior year period. The increase was primarily due to the contribution of EV71 vaccine sales in the third quarter of 2016. Gross margin was 80.1%, compared to 66.9% in the prior year period.

Selling, general and administrative expenses in the third quarter of 2016 were $12.3 million, compared to $10.0 million in the same period of 2015. The Company's selling, general and administrative expenses increased with the higher level of sales activity, and the Company also incurred a cost of $733 thousand relating to the proposed privatization of Sinovac.

R&D expenses in the third quarter of 2016 were $4.2 million, compared to $2.2 million in the same period of 2015. The increase was mainly due to higher R&D expenses on the varicella and sIPV vaccine projects in the third quarter of 2016.

Income from continuing operations was $4.3 million compared to a loss of $1.8 million in the prior year period. In addition, the third quarter of 2015 included a loss from discontinued operations of $183 thousand whereas no such income or loss was received in the third quarter of 2016.

Net income attributable to common shareholders was $3.2 million, or $0.06 per basic and diluted share, compared to net loss attributable to common shareholders of $1.6 million, or ($0.03) per basic and diluted share in the prior year period.

Non-GAAP EBITDA was $7.7 million in the third quarter of 2016, compared to $721 thousand in the prior year period. Non-GAAP net income from continuing operations in the third quarter of 2016 was $4.6 million, compared to a net loss of $1.2 million in the prior year period. Non-GAAP diluted earnings per share from continuing operations in the third quarter of 2016 was $0.06, compared to net loss of $0.01 per share in the prior year period. Reconciliations of non-GAAP measures to the nearest comparable GAAP measures are included at the end of this earnings announcement.

Unaudited Financial Results for nine months ended September 30, 2016



2016.1-9

% of Sales

2015.1-9

% of Sales

(In $000 except percentage data)





Hepatitis A - Healive

11,397

27.8%

16,185

36.4%

Hepatitis A&B - Bilive

(1,040)

(2.5)%

17,972

40.4%






Hepatitis vaccines subtotal

10,357

25.3%

34,157

76.8%

Influenza vaccine

5,995

14.6%

9,144

20.6%

Enterovirus 71 vaccine

18,033

43.9%

-

-

Mumps vaccine

289

0.6%

1,161

2.6%

Regular sales 

34,674

84.4%

44,462

100.0%

H5N1

6,392

15.6%

-

-

Total sales

41,066

100.0%

44,462

100.0%

Cost of sales

14,068

34.3%

11,140

25.1%

Gross profit

26,998

65.7%

33,322

74.9%

Sales from continuing operations were $41.1 million for the nine months ended September 30, 2016, a decrease of 7.6% from $44.5 million in the prior year period. Excluding H5N1 revenue, sales from continuing operations were $34.7 million for nine months ended September 30, 2016, a decrease of 22.0% from $44.5 million in the prior year period. The sales decrease was due to lower sales to customers in the first half of 2016 and an increase in sales returns as a result of the vaccine incident in Shandong province.

Gross profit from continuing operations was $27.0 million, a decrease of 19.0% from $33.3 million in the prior year period. Gross margin was 65.7%, compared to 74.9% in the prior year period. Excluding H5N1, gross margin was 67.0% for the nine months ended September 30, 2016, compared to 75.5% in the prior year period. The decrease was mainly due to a higher inventory provision provided for hepatitis A&B and mumps vaccines, higher idle capacity costs charged to cost of sales, and a negative gross profit for the hepatitis A&B vaccine due to higher sales returns provision provided in the period.

Selling, general and administrative expenses for the nine months ended September 30, 2016 were $26.7 million, compared to $25.8 million in the same period of 2015.

R&D expenses for the nine months ended September 30, 2016 were $9.1 million, compared to $6.6 million in the same period of 2015. The increase was mainly due to higher R&D expenses on the varicella and sIPV vaccines and the MMR vaccine project.

Net loss from continuing operations was $9.9 million, compared to $749 thousand in the prior year period. Net income from discontinued operations was $2.3 million, compared to a net loss of $619 thousand in the prior year period.

Net loss attributable to common shareholders was $5.0 million or ($0.09) per basic and diluted share for the nine months ended September 30, 2016, compared to net loss attributable to common shareholders of $1.6 million, or ($0.03) per basic and diluted share for the nine months ended September 30, 2015.

Non-GAAP EBITDA was negative $4.3 million for nine months ended September 30, 2016, compared to $6.7 million in the prior year period. Non-GAAP net loss from continuing operations for the nine months ended September 30, 2016 was $8.5 million, compared to a net income of $168 thousand in the prior year period. Non-GAAP diluted net loss per share from continuing operations for the nine months ended September 30, 2016 was $0.11, compared to $0.00 per share in the prior year period. Reconciliations of non-GAAP measures to the nearest comparable GAAP measures are included at the end of this earnings announcement.

As of September 30, 2016, cash and cash equivalents totaled $54.3 million, compared to $63.8 million as of December 31, 2015. For the nine months ended September 30, 2016 net cash used in operating activities was $15.5 million. Net cash used in investing activities was $7.4 million, which was for the purchase of equipment. Net cash provided by financing activities was $13.9 million, including loan proceeds of $35.0 million and loan repayment of $21.3 million. As of September 30, 2016, the Company had $29.4 million of bank loans due within one year. The Company expects that its current cash position will be able to support its operations for at least the next 12 months. The Company will seek new commercial bank loans to finance the commercialization of its pipeline products and for other operational purposes when appropriate.

Update on Consideration of "Going Private" Proposals

An independent special committee of the Company's Board of Directors is continuing its work to consider and evaluate competing proposals to privatize the Company. As disclosed previously, the Company's Board of Directors formed the special committee following the receipt of a non-binding "going private" proposal, dated January 30, 2016, from Mr. Weidong Yin, chairman, president and chief executive officer of the Company, and SAIF Partners IV L.P. and/or its affiliates. Subsequently, the special committee received a non-binding competing "going private" proposal, dated February 3, 2016, from a consortium comprised of PKU V-Ming (Shanghai) Investment Holdings Co., Ltd., Shandong Sinobioway Biomedicine Co., Ltd., CICC Qianhai Development (Shenzhen) Fund Management Co., Ltd., Beijing Sinobioway Group Co., Ltd., Heng Feng Investments (International) Limited and Fuerde Global Investment Limited.

The special committee has implemented a customary process to ensure a fair assessment of both proposals. The special committee continues to carefully consider and evaluate both proposals with the assistance of the special committee's financial and legal advisors.

No final decisions have been made with respect to either proposal, and there can be no assurance that any definitive and binding offer will be made, that any agreement will be executed or that either proposal or any other transaction will be approved or consummated. The Company does not undertake any obligation to provide any updates with respect to these or any other transactions, except as required under applicable law.

Conference Call Details

Sinovac will host a conference call on Monday, November 28, 2016, at 8:00 a.m. EDT (Monday, November 28 at 9:00 p.m. China Standard Time) to review the Company's financial results and provide an update on recent corporate developments.

To access the conference call, please dial 1-877-407-9039 (USA) or 1-201-689-8470 (International). A replay of the call will be available after the earnings call through December 12, 2016. To access the replay, please dial 1-877-870-5176 (USA) or 1-858-384-5517 (International) and reference the replay pin number 13650180.

About Sinovac

Sinovac Biotech Ltd. is a China-based biopharmaceutical company that focuses on the research, development, manufacturing, and commercialization of vaccines that protect against human infectious diseases. Sinovac's product portfolio includes vaccines against hepatitis A and B, seasonal influenza, H5N1 pandemic influenza (avian flu), H1N1 influenza (swine flu), mumps and canine rabies. In 2009, Sinovac was the first company worldwide to receive approval for its H1N1 influenza vaccine, which it has supplied to the Chinese Government's vaccination campaign and stockpiling program. The Company is also the only supplier of the H5N1 pandemic influenza vaccine to the government stockpiling program. Sinovac's newly developed innovative vaccine against HFMD caused by EV71 is ready for market launch. The Company is currently developing a number of new products including a Sabin-strain inactivated polio vaccine, pneumococcal polysaccharides vaccine, pneumococcal conjugate vaccine and varicella vaccine. Sinovac primarily sells its vaccines in China, while also exploring growth opportunities in international markets. The Company has exported select vaccines to Mexico, Mongolia, Nepal, Tajikistan, Bangladesh, Chile and the Philippines, and was recently granted a license to commercialize its influenza vaccine in Guatemala. For more information, please visit the Company's website at www.sinovac.com.

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