Sinovac Adds Vaccine Capacity by Forming JV

| About: Sinovac Biotech, (SVA)

Sinovac Biotech (NSDQ: SVA) announced a new Joint Venture, Sinovac (Dalian) Vaccine Technology Co., Ltd., that will research, develop and produce human vaccines. Sinovac will contribute its vaccine expertise and capital, while Dalian Jin Gang Group will throw in land use rights, manufacturing facilities and established operating infrastructure. Representatives of Sinovac will fill the major operational posts in the JV.

At the outset, Sinovac will contribute 60 million RMB ($8.8 million), which will give it a 30% share. In the next year, by December 31, 2010, Sinovac will add another 50 million RMB ($7.5 million) in capital, upping its stake in the JV to a majority 55%. The cash value of Dalian Jin Gang Group manufacturing assets was set at 140 million RMB ($22.5 million).

Vaccines are a hot area around the world, but especially in China, fueled by China’s healthcare reform and the current flu scare. Big pharma and local companies send out announcements almost daily of investments to increase capacity.

In a statement, Mr. Weidong Yin, Chairman, President and CEO of Sinovac, remarked that Sinovac Dalian would increase Sinovac’s production capacity at a low cost. The new JV will produce both live attenuated vaccines and vero cell cultured vaccines.

The present plans call for the JV to produce vaccines for rabies, mumps, varicella, and rubella. Its facility was designed for a capacity of 20 million doses of vero cell cultured vaccines and 20 million doses of live attenuated vaccines.

Sinovac’s traditional competence is with vaccines that serve more specialized markets. Its major product to date is Healive, a vaccine to prevent hepatitis B. As revenue growth for that product stagnates, Sinovac has prospered in the second half of the year with its vaccines for seasonal flu, pandemic flu (H5N1) and swine flu (H1N1). Revenues increased by 142% in its Q3.

The JV will have a land area of 1 million square feet, including a building area of 200,000 square feet, comprised of a 60,000 square foot manufacturing building and an R&D facility. At present, Sinovac Dalian’s new plant contains two vaccine production lines – one for vero cell cultured vaccines and one for live attenuated vaccines. It could house six different production lines. In addition, the headquarters feature quality assurance and quality control facilities, research laboratory, office building and warehouse.

The facilities of Dalian Jin Gang were available because, earlier this year, the company was found guilty of using an unauthorized adjuvant in a human rabies vaccine. The substance, a nucleic acid, is often used as a vaccine adjuvant, but Dalian Jin Gang did not have regulatory approval to do so. All the unused doses of the vaccine were recalled (322,000 were found), a fine of three times the value of the products effectively put the company out of business, and three of the top officials of the company were put in jail. The company’s production license was also suspended. The scandal left the vaccine manufacturing facility vacant.

Disclosure: none.