Sinovac Reports Unaudited Second Quarter 2011 Financial Results

2011-08-12

Beijing – August 12, 2011 – Sinovac Biotech Ltd. (NASDAQ: SVA), a leading provider of biopharmaceutical products in China, announced today its unaudited second quarter financial results for the period ended June 30, 2011.

Second Quarter 2011 Financial Highlights

► Sales increased 52.5% year-over-year to .7 million, compared to .3 million.

►Net income attributable to shareholder reached .32 million and EPS was {value}.02 per share.

►Cash and cash equivalents and short-term investments, which the principal and income were guaranteed, totaled .7 million at June 30, 2011, compared to 3.1 million at December 31, 2010.

Recent Business Highlights

►In July 2011, Sinovac was selected by the Xinjiang Centers for Disease Control and Prevention (Xinjiang CDC) to supply 568,700 doses of Healive, its inactivated hepatitis A vaccine. The bidding result was subject to a public notification period from August 1 to August 8, and the delivery is anticipated to be commenced before the end of this year.

►In April and July 2011, Sinovac received the official bidding notices from the Hunan Department of Health that it was selected to supply 100,000 doses of Anflu, its seasonal flu vaccine and 40,000 doses of Healive, respectively.

►In August 2011, Sinovac obtained the GMP certificate for both of its Healive and Anflu from COFEPRIS, the regulatory authority of Mexico’s Ministry of Health.

►In May 2011, Sinovac unblinded the Phase I clinical trial results for its proprietary inactivated vaccine against human enterovirus 71 (EV71), which causes hand, foot, and mouth disease (HFMD). The safety observation results for the EV71 vaccine for all three age groups (adult, children and infant) showed good safety and tolerance profiles and the preliminary immunogenicity study results showed the vaccines can induce good immune responses.

►In June 2011, Sinovac commenced the Phase II clinical trial for its proprietary inactivated EV71 vaccine against hand, foot and mouth disease. The Phase II clinical trial is designed as a single center, randomization, double blinded, and placebo controlled study. The objective of the Phase II clinical trial is to determine the dosage level by evaluating the immunogenicity and safety with different level of dosages of Sinovac's EV71 vaccine candidate, and to provide reference data for Phase III clinical trial.

Dr. Weidong Yin, Chairman, President and CEO of Sinovac, commented, “Demand for our hepatitis vaccines is rebounding in China as demonstrated by our second quarter sales. We are gaining traction in the public market as we recently received two provincial government orders in additional to our ongoing public market sales activity in Beijng, Shanghai, Tianjin and part of Jiangsu. This shows that our revised sales strategy focused on the public market and restructured sales team is producing favorable results. We will continue to strengthen our efforts in public market presence, and stabilize sales in the private market.”

Dr. Yin continued, “Over the past quarter, we have made substantial progress with our vaccine development pipeline. Our Phase II trial for our EV71 vaccine is progressing on schedule as dosing is underway and is on track to be completed within the year as planned. We are optimistic about the potential for this vaccine as inquiries are increasing across Asia in the face of the current epidemic in Vietnam. The registration for animal rabies vaccine is moving forward on schedule, which is anticipated to be launched within the year.”

Dr. Yin continued, “We are excited to obtain the Mexico GMP certificate for our seasonal flu and hepatitis A vaccines. This is the significant milestone as we advance our global commercialization strategy to register our vaccines. We anticipate that the Certificate of Approval for Anflu will be granted in the coming months as we prepare for the commercial launch of the vaccine in Mexico.”

Dr. Yin concluded, “We are encouraged by the second quarter sales activity and public market orders received in recent months. We believe that the ongoing execution of our revised sales strategy and seasonal flu vaccine sales that typically take place in the second half of the year will enable continued revenue growth. We look forward to updating you on the continued progress across our vaccine development pipeline.”

Financial Review for the Second Quarter Ended June 30, 2011

Sales for the second quarter 2011 were .7 million, up 52.5% from .3 million for the second quarter of 2010. During the second quarter 2011, Sinovac recorded .7 million in pandemic influenza vaccine sales on prior year order.

Sinovac’s sales breakdown by product was as follows.

	Three months ended June 30,
	2011	2010
Sales
Hepatitis vaccines	8,097,941	8,676,883
Influenza vaccines	7,558,158	1,586,823
Total	$ 15,656,099	$ 10,263,706

Gross profit for the second quarter 2011 was .8 million, with a gross margin of 68.8%, compared to .5 million and a gross margin of 82.7% for the same period of 2010. After deducting depreciation of land use rights and amortization of licenses and permits, the gross margin was 67.9% and 81.7% for the second quarter of 2011 and 2010, respectively. The gross profit margin was adversely affected by the revenue recognition in the second quarter 2011 of the prior pandemic flu vaccine order that had a lower gross margin than other vaccine products.

Selling, general and administrative expenses for the second quarter 2011 were .0 million, compared to .0 million in the same period of 2010. SG&A expenses as a percentage of second quarter 2011 sales were 31.8%, compared to 38.9% during the second quarter of the prior year. Excluding pandemic flu vaccine sales, SG&A as a percentage of sales were 62.5% and 46.0% for the current quarter and prior year quarter, respectively. The increased SG&A was mainly related to the sales team expansion and increased spending on sales promotion in the private pay market.

Net research and development expenses for the second quarter 2011 were .3 million, compared to .7 million in the same period in 2010. The increased R&D expenses in the second quarter 2011 were primarily related to the continued development of the pipeline vaccines, including the expenses for the EV71 vaccine with the Phase II clinical trial underway, the trial production of the animal rabies vaccine and mumps vaccine, and other R&D projects.

Depreciation of property, plant and equipment and amortization of license and permits for the second quarter 2011 were 2,000, compared to 2,000 for the same period of last year. The change compared to 2010 was primarily attributable to amortization on the Changping production facility, which started to amortize in September 2010 and higher depreciation for Tangshan Yian’s new animal production line.

Total operating expenses for the second quarter of 2011 were .6 million, compared to .9 million in the comparative period in 2010.

The operating income for the three months ended June 30, 2011 was .1 million, compared to .6 million for the same period of the prior year. The increased operating income in the second quarter of 2011 was primarily attributable to the revenue recognition for the prior order on pandemic flu vaccine in current reported quarter.

Net income for the second quarter 2011 included 0,000 of interest income, 3,000 of interest and financing expenses, ,000 gain on disposal of equipment, ,000 of other income and .5 million of income tax expenses. Net income for the same period of 2010 included 4,000 of interest income, 3,000 of interest and financing expenses, 2,000 loss on disposal of equipment, ,000 of other income and 1,000 of income tax expense. Net income attributable to stockholders for the second quarter of 2011 was .3 million, or {value}.02 per diluted share, as compared to .0 million, or {value}.02 per diluted share, in the same period of 2010.

As of June 30, 2011, Sinovac’s cash and cash equivalents totaled .3 million, compared to 1.6 million at December 31, 2010. Short-term investments were .4 million, compared to .5 million at December 31, 2010. The Company invests in short-term investments with principal and income guaranteed.

Financial Review for the Six Months Ended June 30, 2011

Sales for the six-month period of 2011 were .3 million, up 38.3% from .7 million for the same period quarter of 2010. During the six-month period of 2011, Sinovac recorded .7 million in pandemic influenza vaccine sales on prior year order.

Sinovac’s sales breakdown by product was as follows.

	Six months ended June 30,
	2011	2010
Sales
Hepatitis vaccines	12,562,124	11,757,576
Influenza vaccines	7,774,567	2,950,029
Total	$ 20,336,691	$ 14,707,605

Gross profit for the six month period of 2011 was .9 million, with a gross margin of 68.2%, compared to .0 million and a gross margin of 81.9% for the same period of 2010. After deducting depreciation of land use rights and amortization of licenses and permits, the gross margin was 66.9% and 80.5% for the six-month period of 2011 and 2010, respectively. The gross profit margin was adversely affected by the revenue recognition in the six-month period of 2011 of the prior pandemic flu vaccine order that had a lower gross margin than other vaccine products.

Selling, general and administrative expenses for the six-month period of 2011 were .1 million, compared to .1 million in the same period of 2010. SG&A expenses as a percentage of sales for the six-month period of 2011 were 44.7%, compared to 48.3% during the same period of the prior year. Excluding pandemic flu vaccine sales, SG&A as a percentage of sales were 71.9% and 60.2% for the first half year and prior year same period, respectively. The increased SG&A was mainly related to the expansion of sales team and increased spending on sales promotion on the private pay market.

Net research and development expenses for the six-month period of 2011 were .4 million, compared to .8 million in the same period of 2010. The increased R&D expenses in the six-month period of 2011 were primarily related to the continued development of the pipeline vaccines, including the expenses for the EV71 vaccine with the Phase II clinical trial underway, the trial production of the animal rabies vaccine and mumps vaccine, and other R&D projects.

Depreciation of property, plant and equipment and amortization of license and permits for the six-month period of 2011 were 6,000, compared to 1,000 for the same period of last year. The change compared to 2010 was primarily attributable to amortization on the Changping production facility, which started to amortize in September 2010 and higher depreciation for Tangshan Yian’s new animal production line.

Total operating expenses for the six-month period of 2011 were .2 million, compared to .3 million in the comparative period of 2010.

The operating loss for the six months ended June 30, 2011 was 0,000, compared to an operating income of .8 million for the same period of the prior year. The year over year change was primarily attributable to the lower gross margin due to the product mix. Excluding the recognition of revenue coming from pandemic flu vaccines of prior order, the year over year change was primarily attributable to the increased R&D expenses, SG&A expenses and depreciation of property, plant and equipment.

Net loss for the six-month period of 2011 included 5,000 of interest income, 3,000 of interest and financing expenses, ,000 of gain on disposal of equipment, ,000 of other income and .8 million of income tax expenses. Net income for the same period of 2010 included 5,000 of interest income, 7,000 of interest and financing expenses, 9,000 of loss on disposal of equipment, ,000 of other income and 1,000 of income tax expense. Net loss attributable to stockholders for the six-month period of 2011 was .5 million, or {value}.03 per diluted share, as compared to net income of 8,000, or {value}.01 per diluted share, in the same period of 2010.

Other Developments

In May 2011, Mr. Kenneth Lee, Principal at SAIF Partners, was appointed a member of the Board of Directors.

As announced on August 5, 2011, Jacob Ho, Sinovac’s Chief Financial Officer, has resigned for personal reasons. The Company has initiated an executive search for a new Chief Financial Officer to replace Mr. Ho, who has agreed to remain with the Company until August 16, 2011. Ms. Nan Wang, Vice President of Sinovac, has been appointed as the Interim Chief Financial Officer.

Conference Call Details

The Company will host a conference call on Friday, August 12, 2011 at 8:00 a.m. EDT (August 12, 2011 at 8:00 pm China Standard Time) to review the Company's financial results for the second quarter ended June 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. EDT on August 12, 2011 to May 26, 2011 at midnight. To access the replay, please dial 1-877-870-5176 (USA) or 1-858-384-5517 (international) and the replay pin number 376092.

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 August 12, 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 received orders from 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 & mouth disease), mumps, rubella, HIB, epidemic meningitis, chickenpox and human rabies. Its wholly owned subsidiary, Tangshan Yian, is focusing on the research, development, manufacturing and commercialization of animal vaccines and has completed the field trials for an independently developed inactivated animal rabies vaccine, which is anticipated to be launched in 2011.

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

SINOVAC BIOTECH LTD.
Incorporated in Antigua and Barbuda
Consolidated Balance Sheets
(Unaudited)
(Expressed in U.S. Dollars)
		June 30, 2011		December 31, 2010
ASSETS

Current assets
Cash and cash equivalents	$	70,287,280	$	101,585,490
Short-term investments		22,431,931		1,512,447
Accounts receivable – net		18,483,216		22,370,296
Inventories		16,096,706		14,541,554
Due from related party		-		3,397,522
Prepaid expenses and deposits		1,159,484		887,187
Deferred tax assets		1,164,156		2,682,069

Total current assets		129,622,773		146,976,565

Property, plant and equipment		67,500,625		64,036,228
Long-term inventories		1,843,109		395,516
Long-term prepaid expenses		477,766		517,957
Prepayment for acquisition of equipment		697,952		576,232
Deferred tax assets		427,052		507,062
Licenses and permits		1,549,371		1,348,364
Total assets	$	202,118,648	$	214,357,924

LIABILITIES AND EQUITY

Current liabilities
Loans payable	$	9,282,178	$	10,435,887
Accounts payable and accrued liabilities		18,850,194		22,091,190
Income tax payable		1,219,242		958,411
Deferred revenue		2,470,777		9,707,688
Deferred tax liability		375,272		1,005,186
Deferred research grants		1,384,746		1,559,589

Total current liabilities		33,582,409		45,757,951

Deferred government grants		2,381,680		2,464,565
Loans payable		12,193,626		10,057,775
Long-term payable for acquisition of assets		3,539,941		4,842,509
Deferred revenue		7,656,180		3,478,629
Total long term liabilities		25,771,427		20,843,478

Total liabilities		59,353,836		66,601,429

Commitments and contingencies

EQUITY
Preferred stock				-
Authorized 50,000,000 shares at par value of {value}.001 each
Issued and outstanding: nil
Common stock		54,641		54,306
Authorized: 100,000,000 shares at par value of {value}.001 each
Issued and outstanding: 54,641,304 (2010 –54,305,961 )
Additional paid-in capital		104,797,508		104,152,182
Accumulated other comprehensive income		8,583,856		6,883,834
Statutory surplus reserves		11,473,110		11,473,110
Retained earnings		2,404,769		3,876,084

Total stockholders' equity		127,313,884		126,439,516

Non-controlling interests		15,450,928		21,316,979

Total equity		142,764,812		147,756,495

Total liabilities and equity	$	202,118,648	$	214,357,924

SINOVAC BIOTECH LTD.
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
Three Months and Six Months Ended June 30, 2011 and 2010
(Unaudited)
(Expressed in U.S. Dollars)
		Three months ended				Six months ended
		June 30				June 30
		2011		2010		2011		2010

Sales	$	15,656,099	$	10,263,706	$	20,336,691	$	14,707,605

Cost of sales - (exclusive of depreciation of land-use rights and amortization of licenses and permits of 2,123 (2010 - 4,832) for three months and 6,104 (2010 -9,625) for six months		4,877,963		1,775,177		6,463,980		2,658,652

Gross profit		10,778,136		8,488,529		13,872,711		12,048,953

Selling, general and administrative expenses		4,978,973		3,992,405		9,086,305		7,098,772

Research and development expenses - net of 2,041 (2010 - $(36,502)) for three months and 5,431 (2010 - $(18,948)) for six months in government research grants		2,275,639		1,704,478		4,378,020		2,788,346
Depreciation of property, plant and equipment and amortization of licenses and permits		461,973		261,968		846,155		511,486

Government grants recognized in income		(68,965)		(65,855)		(137,447)		(131,685)

Total operating expenses		7,647,620		5,892,996		14,173,033		10,266,919

Operating income (loss)		3,130,516		2,595,533		(300,322)		1,782,034

Interest income		510,087		373,533		655,461		505,016

Interest and financing expenses		(342,813)		(422,983)		(412,510)		(547,358)

Gain (loss) on disposal of equipment		41,210		(132,316)		33,506		(819,411)

Other income (expenses)		13,770		38,241		22,381		49,550

Income (Loss) before income taxes and non-controlling interests		3,352,770		2,452,008		(1,484)		969,831

Income tax expenses		(1,475,071)		(891,282)		(1,785,493)		(621,803)

Consolidated net income (loss)		1,877,699		1,560,726		(1,786,977)		348,028

Less: income (loss) attributable to non-controlling interests		554,057		515,401		(315,663)		(389,987)

Net income (loss) attributable to stockholders	$	1,323,642	$	1,045,325	$	(1,471,314)	$	738,015
Net income (loss)	$	1,877,699	$	1,560,726	$	(1,786,977)	$	348,028

Other comprehensive income
Foreign currency translation adjustment		1,172,743		428,844		2,012,310		437,567
Total comprehensive income		3,050,441		1,989,570		225,333		785,595
Less: comprehensive income (loss) attributable to non-controlling interests		725,100		630,326		(3,375)		(273,585)
Comprehensive income attributable to stockholders	$	2,325,341	$	1,359,244	$	228,708	$	1,059,180
Basic and diluted earnings (loss) per share	$	0.02	$	0.02	$	(0.03)	$	0.01
Weighted average number of shares
of common stock outstanding
- Basic		54,572,164		54,140,104		54,509,600		52,053,219
- Diluted		55,213,766		55,124,895		54,509,600		53,178,006

SINOVAC BIOTECH LTD.
Consolidated Statements of Cash Flows
Three Months and Six Months Ended June 30, 2011 and 2010
(Unaudited)
(Expressed in U.S. Dollars)
		Three Months ended June 30			Six Months ended June 30
		2011		2010		2011		2010
Cash flows from (used in) operating activities
Net income(loss) for the period	$	1,877,699	$	1,560,726	$	(1,786,977)	$	348,028
Adjustments to reconcile net income to net cash from
(used by) operating activities:
- deferred income taxes		1,460,463		(554,811)		1,770,885		137,709
- write-off of equipment and loss (gain) on disposal		(41,210)		132,316		(33,506)		819,411
- stock-based compensation		67,971		99,232		100,633		202,896
- inventory provision		-		240,859		-		257,065
- depreciation of property, plant and equipment, and amortization of licenses and permits		1,399,348		990,097		2,592,054		1,881,104
- research and development expenditures qualifying for government grant		(142,041)		36,502		(215,431)		18,948
- deferred government grant recognized in income		(68,965)		(65,855)		(137,447)		(131,685)
- accretion expenses		102,564		-		204,409		-
- accounts receivable		4,330,944		(3,389,051)		4,377,521		(1,559,320)
- inventories		(345,299)		(4,705,960)		(2,626,987)		(8,477,709)
- income tax payable		(402,540)		(2,070,272)		(505,933)		(4,698,680)
- prepaid expenses and deposits		(501,030)		31,019		(511,790)		(304,751)
- deferred revenue and advances
from customers		(3,014,970)		(3,217,309)		(3,317,650)		(374,556)
- accounts payable and accrued liabilities		(1,308,444)		4,044,222		(4,186,558)		(5,133,166)
Net cash provided by (used in) operating activities		3,414,490		(6,868,285)		(4,276,777)		(17,014,706)

Cash flows from (used in) financing activities
- Loan proceeds		1,881,372		-		1,881,372		8,265,031
- Loan repayment		(1,374,424)		(14,777,424)		(1,374,424)		(14,777,424)
- Proceeds from issuance of common stock net of share issuance cost		251,839		47,395		536,548		61,915,101
- Repayment from (loan to) non-controlling shareholder of Sinovac Beijing		-		3,285,464		3,397,522		(3,286,695)
- Subscriptions received		8,480		4,800		8,480		4,800
- Dividends paid to non-controlling shareholder of		-		(3,285,902)		(5,862,676)		(3,285,902)
Sinovac Beijing
- Due from non-controlling shareholder of Sinovac Dalian		-		519,075		-		519,075
- Government grant received		7,636		189,007		7,636		235,818
Net cash provided by (used in) financing activities		774,903		(14,017,585)		(1,405,542)		49,589,804

Cash flows used in investing activities
- Restricted cash		-		(302,038)		-		(244,077)
- Proceeds from disposal of equipment		-		1,594		-		191,470
- Proceeds from redemption of short-term investments		1,547,030		-		1,547,030		7,314,187
- Purchase of short-term investments		(22,431,931)		(1,610,984)		(22,431,931)		(9,949,157)
- Prepayments for acquisition of new facility		-		-		-		(8,265,031)
- Acquisition of property, plant and equipment		(4,544,793)		(1,649,336)		(5,698,141)		(2,097,501)
Net cash used in investing activities		(25,429,694)		(3,560,764)		(26,583,042)		(13,050,109)

Exchange effect on cash and cash equivalents		559,552		152,506		967,151		160,136
Increase (decrease) in cash and cash equivalents		(20,680,749)		(24,294,128)		(31,298,210)		19,685,125

Cash and cash equivalents, beginning of period		90,968,029		118,932,465		101,585,490		74,953,212

Cash and cash equivalents, end of period	$	70,287,280	$	94,638,337	$	70,287,280	$	94,638,337

Cash paid for interest	$	356,085	$	389,898	$	641,420	$	658,177
Cash paid for income taxes	$	417,148	$	2,708,398	$	520,514	$	4,361,751

Supplemental schedule of non-cash activities:
Acquisition of property, plant and equipment included in
accounts payable and accrued liabilities	$	3,625,631	$	3,958,740	$	3,625,631	$	3,958,740

About SINOVAC

Sinovac Biotech Ltd. (SINOVAC) is a China-based biopharmaceutical company that focuses on the R&D, manufacturing, and commercialization of vaccines that protect against human infectious diseases.

SINOVAC's product portfolio includes vaccines against COVID-19, enterovirus 71 (EV71) infected Hand-Foot-Mouth disease (HFMD), hepatitis A, varicella, influenza, poliomyelitis, pneumococcal disease, and mumps.

The COVID-19 vaccine, CoronaVac®, has been approved for use in more than 60 countries and regions worldwide. The hepatitis A vaccine, Healive®, passed WHO prequalification requirements in 2017. The EV71 vaccine, Inlive®, is an innovative vaccine under "Category 1 Preventative Biological Products" and was commercialized in China in 2016. In 2022, SINOVAC's Sabin-strain inactivated polio vaccine (sIPV) and varicella vaccine were prequalified by the WHO.

SINOVAC was the first company to be granted approval for its H1N1 influenza vaccine Panflu.1®, which has supplied the Chinese government's vaccination campaign and stockpiling program. The Company is also the only supplier of the H5N1 pandemic influenza vaccine, Panflu®, to the Chinese government stockpiling program.

SINOVAC continually dedicates itself to new vaccine R&D, with more combination vaccine products in its pipeline, and constantly explores global market opportunities. SINOVAC plans to conduct more extensive and in-depth trade and cooperation with additional countries, and business and industry organizations.

For more information, please see the Company’s website at www.sinovac.com.

Contact:

Sinovac Biotech Ltd.

PR Team

pr@sinovac.com