In the second half of 2009, Sinovac Biotech (NSDQ: SVA) was reporting blockbuster revenues because its flu vaccine sales went through the roof, as China faced the specter of a swine flu (H1N1) epidemic. This year, things are different. The public is not being inundated with daily news reports of flu deaths or increasing numbers of flu cases. And there isn’t any ensuing rush on the part of the general public to inoculate themselves from a potentially lethal dose of flu.
Instead, there is public fear of vaccines rather than illness. In early 2010, there were media reports that a Shaanxi vaccine company has been selling defective vaccines since 2006. The stories declared that 78 children were either made ill or actually died. Subsequent investigations have showed that the situation is not nearly so dire. A few children were adversely affected, becoming ill after the vaccines, but none has died. Nevertheless, the public remains wary of vaccines, rather than fearing the illnesses they prevent.
Now, Sinovac expects its full-year 2010 revenues to total between $60 million and $67 million. That’s down from last year’s $84.2 million, when the company’s record revenues created net income of $20 million. Almost all of those profits came during the second half of last year, after the company quickly developed a H1N1-specific vaccine and sold it alongside a seasonal flu vaccine to a distraught public.
In the first six months of 2010, the company reported sales of just $364,000 worth of flu vaccine.
Sinovac has returned its focus to its perennial best-seller, the hepatitis B vaccine Healive, even though these revenues are also falling. In 2010, the company recorded revenue of Healive came in at $8.5 million during the first six months of the year, down from $24 million a year ago.
So Sinovac is asking investors to look forward into the future, when new streams of revenue may augment sales from its present products. Here is what Sinovac proposes in terms of developments that give reason for optimism:
- Clinical trials are expected to begin for Sinovac’s vaccine for human hoof and mouth disease (enterovirus 71 (EV 71)) and also for a hepatitis B vaccine in-licensed from LG Life Sciences;
- Sinovac plans to file the clinical trial application with the SFDA for its pneumococcal conjugate vaccine; and
- The company expects to begin a clinical trial for a mumps vaccine under development at Sinovac Dalian, a recently formed JV in which Sinovac owns a 30% share.
Of course, Sinovac is well-positioned to profit from any government-led public health initiatives that take advantage of its portfolio of vaccines. The problem is that Sinovac cannot control public perception of the usefulness of its products. And, something that was hot last year is not in 2010.
After reading Sinovac's Q2 earnings report, investors sold the stock 40 cents lower at $4.12, a 9% drop.