Sinovac Reports Unaudited Second Half of 2018 Financial Results and Files 2018 Annual Report on Form 20-F

BEIJING--(BUSINESS WIRE)--Apr 29, 2019--Sinovac Biotech Ltd. (NASDAQ: SVA) (“Sinovac” or the “Company”), a leading provider of biopharmaceutical products in China, has filed its 2018 annual report on Form 20-F with the U.S. Securities and Exchange Commission for the year ended December 31, 2018. The Company also reported its unaudited financial results for the second half of the year ended December 31, 2018.

Second Half of 2018 Financial Highlights

• Sales for the second half of 2018 were $107.2 million, which remains the same compared to $107.4 million in the prior year period. Revenue generated by Hepatitis A vaccine increased by $12.0 million compared to same period in 2017, which was offset by $13.6 million decrease in the Company’s influenza vaccine. In second half of 2018, nil revenue generated by the Company’s influenza vaccine in the flu season 2018-2019 caused by the suspension of influenza vaccine production and destruction of inventory in April 2018 as a result of the disruptive actions of the minority shareholder of our subsidiary, Sinovac Biotech Co., Ltd.
• Net income attributable to common shareholders was $7.7 million, or $0.11 per basic and diluted share, compared to net income attributable to common shareholders of $15.0 million, or $0.26 per basic and diluted share, in the prior year period.

Full Year 2018 Financial Highlights

• Sales in 2018 were $229.7 million, an increase of 31.7% from $174.3 million in 2017. Sales increased primarily due to revenue generated by the Company’s EV71 vaccine.
• Net income attributable to common shareholders was $21.8 million, or $0.34 per basic and diluted share in 2018, compared to net income attributable to common shareholders of $25.8 million, or $0.45 per basic and diluted share in 2017.

Business Highlights

Marketing and Sales

The overall vaccine market in China grew in 2018 despite serious impacts from the Changchun vaccine scandal. In addition, although there was no seasonal flu vaccine supply in 2018 due to the production suspension, total sales of the Company’s regular products increased by 31.7% year over year.

Research and Development

Varicella – Human clinical studies have been completed. The new drug application (NDA) was filed with the National Medical Products Administration (NMPA, previously known as the China State Food and Drug Administration) in November 2017. The clinical site inspection was completed in 2018. The technical review on the registration dossier was also conducted in 2018 and supplementary documents were issued and responded to during the year.

Sabin Inactivated Polio Vaccine (sIPV) – The Company has completed phase III clinical studies, which found that the immune responses against the three types of poliovirus in the studied sIPV were not inferior to those achieved with the control IPV and demonstrated a good safety profile. A sequential study of inoculation with bivalent oral polio vaccine (bOPV) was completed in 2018. In January 2019, the NDA was submitted to the NMPA. The consistency study on three consecutive lots is expected to start in 2019.

23 Valent Pneumococcal Polysaccharide Vaccine – The Company filed an NDA in June 2017. The clinical trial site inspection has been completed, and a registration dossier is being reviewed by the NMPA. The technical review on the registration dossier was conducted in 2018 and supplementary documents were issued and responded to during the year.

Quadrivalent Influenza Vaccine (QIV) – Phase III trial has been completed. The preliminary results of the trial show that the vaccine is safe and immunogenic. The NDA has been filed, and the application is under review by the NMPA.

Unaudited Financial Results for Second Half of 2018

Summary of sales and gross profit

Sales for the second half of 2018 were $107.2 million, which remains the same compared to $107.4 million in the prior year period. Revenue generated by Hepatitis A vaccine increased by $12.0 million compared to same period in 2017, which was offset by $13.6 million decrease in the Company’s influenza vaccine. In second half of 2018, nil revenue generated by the Company’s influenza vaccine in the flu season 2018-2019 caused by the suspension of influenza vaccine production and destruction of inventory in April 2018 as a result of the disruptive actions of the minority shareholder of our subsidiary, Sinovac Biotech Co., Ltd.

Gross profit was $95.8 million compared to gross profit of $94.9 million in the prior year period. Gross margin was 89.4% compared to 88.4% in the prior year period. Gross profit in the second half of 2018 increased slightly due to a change in sales mix, with a greater proportion of sales generated by the Company’s higher-margin EV71 vaccine.

Selling, general and administrative expenses in the second half of 2018 were $69.2 million compared to $50.6 million in the same period of 2017. The increase was mainly due to higher professional and consulting fees associated with ongoing litigation.

R&D expenses in the second half of 2018 were $11.8 million compared to $11.7 million in the same period of 2017.

Net income in the second half of 2018 was $13.5 million compared to $20.9 million in the prior year period.

Net income attributable to common shareholders was $7.7 million, or $0.11 per basic and diluted share, compared to net income attributable to common shareholders of $15.0 million, or $0.26 per basic and diluted share, in the prior year period.

Non-GAAP adjusted EBITDA was $20.6 million in the second half of 2018 compared to $35.4 million in the prior year period. Non-GAAP net income in the second half of 2018 was $15.9 million compared to $20.2 million in the prior year period. Non-GAAP diluted earnings per share in the second half of 2018 were $0.13 compared to $0.25 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.

Financial Results for the Twelve Months Ended December 31, 2018

Summary of sales and gross profit

Sales in 2018 were $229.7 million, an increase of 31.7% from $174.3 million in 2017. Sales increased primarily due to revenue generated by the Company’s EV71 and hepatitis vaccines.

Gross profit in 2018 was $204.9 million, an increase of 33.0% from $154.1 million in 2017. Gross margin was 89.2% compared to 88.4% in 2017. Gross profit in 2018 also increased primarily due to higher sales generated by the Company’s EV71 vaccine.

Selling, general and administrative expenses in 2018 were $137.0 million compared to $87.4 million in 2017. The Company’s selling, general and administrative expenses increased with the higher level of sales activity. The Company incurred $11.4 million in professional and consulting fees associated with ongoing litigation.

R&D expenses in 2018 were $21.9 million compared to $20.5 million in 2017. R&D expenses were mainly incurred by the development of varicella vaccine and sIPV.

Net income was $36.1 million in 2018 compared to net income of $36.7 million in 2017.

Net income attributable to common shareholders was $21.8 million, or $0.34 per basic and diluted share in 2017, compared to net income attributable to common shareholders of $25.8 million, or $0.45 per basic and diluted share in 2017.

Non-GAAP adjusted EBITDA was $54.8 million in 2018 compared to $51.3 million in 2017. Non-GAAP net income in 2018 was $39.9 million compared to net income of $36.4 million in 2017. Non-GAAP diluted earnings per share in 2018 were $0.38 compared to diluted earnings per share of $0.44 in 2017. Reconciliations of non-GAAP measures to the nearest comparable GAAP measures are included at the end of this earnings announcement.

As of December 31, 2018, cash and cash equivalents and restricted cash totaled $158.2 million compared to $116.0 million as of December 31, 2017. In 2018, net cash provided by operating activities was $7.9 million. Net cash used in investing activities was $25.3 million, which was primarily due to the purchase of short-term investments. Net cash provided by financing activities was $64.2 million, including loan proceeds of $18.9 million and loan repayment of $43.9 million. As of December 31, 2018, the Company had $3.3 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.

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 enterovirus71, or EV71, hepatitis A and B, seasonal influenza, H5N1 pandemic influenza (avian flu), H1N1 influenza (swine flu), and mumps. Healive, the hepatitis A vaccine manufactured by the Company has passed the assessment under WHO Prequalification procedures in 2017. The EV71 vaccine, an innovative vaccine developed by Sinovac against hand foot and mouth disease caused by EV71, was commercialized in China in 2016. 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. The Company is 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 over 10 countries in Asia and South America. For more information please see the Company’s website at www.sinovacbio.com.

Safe Harbor Statement

This press release contains “forward-looking statements” within the meaning of the United States federal securities laws. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Factors that might cause such a difference include our inability to compete successfully in the competitive and rapidly changing marketplace in which we operate, failure to retain key employees, cancellation or delay of projects, failure to satisfy regulatory and other requirements, disapproval or delay in approval of new products by regulatory bodies, disruptions to our operations, the results of any pending litigation, potential litigation relating to our shareholder rights plan, any halt in trading of the Company’s securities, and adverse general economic conditions in China, the United States and elsewhere. These risks and other factors include those listed under “Risk Factors” and elsewhere in our Annual Report on Form 20-F as filed with the Securities and Exchange Commission. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The Company assumes no obligation to update the forward-looking information contained in this release.

Non-GAAP Financial Measures

To supplement its consolidated financial statements, which are prepared and presented in accordance with GAAP, Sinovac uses the following non-GAAP financial measures: non-GAAP adjusted EBITDA, non-GAAP net income and non-GAAP diluted EPS. For more information on these non-GAAP financial measures, please refer to the table captioned “Reconciliations of non-GAAP Measures to the Nearest Comparable GAAP Measures” in this results announcement.

Sinovac believes that non-GAAP adjusted EBITDA, non-GAAP net income and non-GAAP diluted EPS help identify underlying trends in its business that could otherwise be distorted by the effect of certain income or expenses that Sinovac includes net income and diluted EPS. Sinovac believes that non-GAAP adjusted EBITDA, non-GAAP net income and non-GAAP diluted EPS provide useful information about its core operating results, enhance the overall understanding of its past performance and future prospects and allow for greater visibility with respect to key metrics used by our management in its financial and operational decision-making. Non-GAAP adjusted EBITDA, non-GAAP net income and non-GAAP diluted EPS should not be considered in isolation or construed as an alternative to income from operations, net income, diluted EPS, or any other measure of performance or as an indicator of Sinovac’s operating performance. These non-GAAP financial measures presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to our data.

Non-GAAP adjusted EBITDA  represents net income and excludes interest and financing expenses, interest income, net other income (expenses) and income tax benefit (expenses), and certain non-cash expenses, consisting of share-based compensation expenses, amortization and depreciation that Sinovac does not believe are reflective of the core operating performance during the periods presented.

Non-GAAP net income  represents net income before share-based compensation expenses, and foreign exchange gain or loss.

Non-GAAP diluted EPS represents non-GAAP net income attributable to common shareholders divided by the weighted average number of shares outstanding during the periods on a diluted basis, including accounting for the effect of the assumed conversion of options.