Sinovac Biotech Ltd. (NASDAQ: SVA), a leading provider of biopharmaceutical products in China, announced today its unaudited first quarter financial results for the period ended March 31, 2012.
Financial Highlights (year-over-year comparisons to first quarter 2011)
- Sales increased 30.3% to $6.0 million, with Bilive vaccines sales up 92.4%.
- Gross margin was 62.2%, which included higher costs due to planned low production level of the animal vaccine facilities in conjunction with its recent launch. Without these costs gross margin would have been 65.1%.
- Net loss attributable to common stockholders was $5.6 million, or $0.10 per basic and diluted share.
- Cash and cash equivalents totaled $94.5 million as of March 31, 2012, compared to $104.3 million as of December 31, 2011.
Recent Business Highlights
- The Phase III trial, which Sinovac commenced in January 2012, is currently being conducted in accordance with the protocol. Approximately 10,000 healthy volunteers have completed the two-shot inoculation schedule, and blood was collected from all volunteers on the 56th day after the first inoculation. Beginning in early March, Chinese Center for Disease Control and Prevention (China CDC) has set up three laboratories at the clinical sites being used for the Sinovac Phase III clinical trial for its proprietary inactivated EV71 vaccine against HFMD. China CDC will use these laboratories to conduct HFMD epidemic surveillance and case identification, and the data will be used to evaluate the efficacy of the Company's novel HFMD vaccine candidate. China has entered into the hand, foot and mouth disease (HFMD) epidemic season, and according to data published by the Ministry of Health, as of April 30, 2012, over 420,000 HFMD cases were reported with 112 fatal cases, compared to approximately 170,000 reported cases with 62 fatalities in the first four months in 2011.
- As of May 2012, the dedicated construction and equipment installation for the EV71 production plant in Changping site has been completed. Currently, the Company is conducting validation of the equipment and production process. The GMP application for the EV71 plant will be planned according to the clinical development and registration progress.
- In May 2012, Sinovac completed negotiations with the Shanghai Centers for Disease Control and Prevention (Shanghai CDC) on the details of the Shanghai tender to supply inactivated hepatitis A vaccine in prefilled syringe form. The total volume of vaccine to be supplied is approximately 420,000 doses, sufficient for one year supply. Sinovac was selected in December 2011 by the Shanghai CDC as the sole supplier to supply prefilled syringe inactivated hepatitis A vaccine.
- In March 2012, Sinovac was awarded the government tender to supply Healive to Mongolia. The total ordered quantity for Mongolia was approximately 191,000 doses, and two deliveries were completed in March and April.
- According to the GMP inspection plan, the State Food and Drug Administration (SFDA) plans to conduct the official GMP inspection of Sinovac Dalian's mumps vaccine production plant before the end of May 2012. As previously reported, Sinovac Dalian, an operating subsidiary of the Company, obtained the production license from the SFDA for its mumps vaccine in December 2011, and applied for GMP certification in March 2012.
- In late April, Sinovac successfully passed the annual follow-up GMP inspection on the Company's influenza vaccine production plant according to Good Manufacturing Practice for Drugs (2010 Revision), or the new GMP guidelines that came into force in 2011. The inspection was conducted by the SFDA, under the guidance and supervision of WHO experts.
- In May 2012, Sinovac announced the appointment of Mr. Danny Chung as Chief Financial Officer. Ms. Nan Wang, who has served as interim Chief Financial Officer since August 2011, will continue as the Company's Vice President.
- In February 2012, Tangshan Yi'an, the subsidiary company of Sinovac which focuses on animal vaccines, obtained approval from the Ministry of Agriculture to commence the field trial for its swine Japanese encephalitis vaccine.
Dr. Weidong Yin, Chairman, President and CEO of Sinovac, commented, "The positive vaccine sales trend continued in the first quarter of 2012, which represented a good start for the year as the domestic vaccine market remains favorable. The positive effects of this market can be seen especially in the sales of Bilive, our combined hepatitis A and B vaccine, which increased by 92% year over year. We attribute this increase primarily to our sales and marketing experience and capabilities accumulated and improved in the private sector of the Chinese vaccine market over the past few years. We believe our increased strength in sales and marketing in the private market will also benefit the commercialization of other key products in our pipeline. Additionally, we are pleased to see that approximately 9% of our sales this quarter were generated from international markets. As our international sales team grows and the GMP standard in China improves, the Company is well positioned to take advantage of the opportunities across international markets. In general, our team will continue executing on its strategies to expand commercialized vaccine product sales."
Dr. Yin continued, "We are committed to advancing the development of our vaccine pipeline, which we believe will contribute to the Company's future growth. In the first quarter of 2012, we have substantially completed the key steps of the Phase III clinical trial for our EV71 vaccine, including the inoculation of, and blood collection from, these volunteers. The HFMD epidemic situation is becoming more serious, which not only indicates how important it is to develop our vaccine, but also allows for collection of sufficient data to evaluate the efficacy of the vaccine candidate in the Phase III study. In parallel with the vaccine development, the preparation of our dedicated EV71 vaccine production plant is underway to ensure that the vaccine is ready for commercial use soon after it is approved."
Financial Review for First Quarter Ended March 31, 2012
An analysis of sales and gross profit is as follows:
Sales for the first quarter of 2012 were $6.0 million, a 30.3% increase over the same period in 2011. Hepatitis vaccines sales increased by 28.9% year-over-year to $5.6 million, with Bilive sales in the private pay market up 92.4% to $4.0 million. Influenza sales grew by 45.1% year-over-year to $314,000.
Gross profit margin in first quarter of 2012 was 62.2%, which was lower than the gross profit margin of 65.4% in the same period of last year. The planned low production level as the animal vaccine facilities ramped up in the first quarter of 2012 lowered the gross margin. If factored out of the calculation, the gross margin for first quarter 2012 would have been 65.1%. After deducting depreciation of land use rights, amortization of licenses and permits, the gross margin was 61.8% and 62.7% for the first quarter of 2012 and 2011, respectively.
Selling, general and administrative expenses for the first quarter of 2012 represented 72.3% of total sales, compared to 89.6% for the same quarter last year. The reduction of the expenses as a percentage of sales was due to higher export sales with low direct selling costs in the first quarter of 2012. The expenses as a percentage of sales was also impacted by the seasonality of the Company's sales, which, based on historical trends, are typically lower in the first half of the year and expected to increase significantly in the second half of the year.
First quarter 2012 research and development expenses reached $7.3 million, a $5.2 million increase over the same period in 2011. The high research development expenses included $5.6 million for the ongoing EV71 clinical trial and $0.5 million for the pilot production activities underway for the mumps vaccine. Research and development expenses in the quarter reflected the continued progress of the various research and development initiatives intended to drive the Company's pipeline products towards commercialization.
Depreciation of property, plant and equipment and amortization of licenses and permits for first quarter 2012 was $307,000, compared to $384,000 for the same period last year. Although the Company had increased depreciation due to increased additions carried forward from 2011, it benefited from much lower amortization expenses arising from fully amortized license and permits for the inactivated hepatitis A vaccine, which resulted in lower depreciation and amortization expenses in the first quarter of 2012, compared to the same quarter last year.
Total operating expenses for the first quarter 2012 were $11.9 million, compared to $6.5 million for the same quarter last year. The major driver of the higher operating expense was the increase in research and development expenses as the Company advances its pipeline vaccine candidates.
The Company's operating loss was $8.2 million for the first quarter 2012, compared to $3.5 million for the first quarter last year.
Loss before income taxes and non-controlling interests was $7.7 million, compared to $3.4 million in the same quarter last year.
Net loss attributable to stockholders in the first quarter 2012 was $5.6 million, or $0.10 per basic and diluted share, compared to a net loss of $2.8 million, or $0.05 per basic and diluted share, for the same quarter last year.
As of March 31, 2012, cash and cash equivalents totaled $94.5 million, compared to $104.3 million as of December 31, 2011. During the first quarter of 2012, the Company utilized $3.1 million of its cash resources to contribute to its ongoing clinical trial for its proprietary EV71 vaccine. The Company intends to provide the trial with approximately additional $7 million during the remaining quarters of the year. Under the credit line arrangements already in place that cover the ongoing capital needs of the Changping site development, $2.2 million was utilized in the first quarter. Capital expenditure payments to complete the Changping site, which are covered by the same credit line arrangements, are estimated to be around $20 million in the remaining quarters of 2012 and $1.7 million in 2013.