Sinovac Biotech Ltd. (NASDAQ:SVA)
Q4 2015 Earnings Conference Call
April 5, 2015 8:00 AM ET
William Zima - Managing Director, ICR Inc.
Helen Yang - Investor Relations Director
Weidong Yin - Managing Director, Chairman and Chief Executive Officer
Peter Halesworth - Heng Ren Investments L.P.
Greetings and welcome to the Sinovac Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. And a brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
I’d now like to turn the conference over to Bill Zima with ICR. Thank you, Mr. Zima. You may now begin.
Thank you, operator. Good day, everyone. Before we begin, I would like to remind everyone that this conference call 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, expect, anticipate, future, intends, plans, believes, estimates and similar statements. These 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 in any forward-looking statements. Sinovac does not undertake any obligation to update any forward-looking statements except as required under applicable laws.
On the call today, we have Mr. Weidong Yin, CEO; Ms. Nan Wang, Chief Financial Officer; Ms. Helen Yang, Investor Relations Director; Mr. Shuo He, Finance Director; and Serina Yin [ph], IR Manager.
With that said, I would now like to turn the call over to Helen Yang. Helen, please go ahead.
Thank you, Bill. Hello, everyone, and thank you for joining us. On today’s conference call, I will provide an update on Sinovac’s business and operations during the fourth quarter of 2015. Then I will review our financial results for the fourth quarter and full year of 2015 on behalf of our CEO and CFO.
In the fourth quarter, our quarterly sales from continuing operations were $23 million, an increase of 13.1% from $20.3 million in the prior year period. And our total sales from continuing operations for the whole year of 2015 were $67.4 million, an increase of 7.1% from $62.9 million in 2014. The increases are primarily due to the recognition of H5N1 vaccine revenue in addition to the consistent recurring sales from our core products.
Regarding to our core product sales, the year-over-year sales growth for Bilive is about 3.1%, Healive 1.1% and Anflu 4.5%.
With respect to our research and development activity, we were very pleased with milestone achievement of our product pipeline this past year. Our next major product, the EV71 vaccine, obtained its new drug certificate, production license and GMP certification, and is now in commercial production. We expect to begin the sales of EV71 no later than June 30, 2016.
The EV71 vaccine is the first innovative vaccine product successfully developed and commercialized by Sinovac. We expect to improve our financial performance and enhance our market position over long term as we commercialize of this product.
There were additional vaccine development accomplishments in 2015. We began phase III clinical trials for the pneumococcal polysaccharides vaccine this past April and acquired clinical trial licenses for the Sabin-IPV vaccine, varicella vaccine and pneumococcal conjugate vaccine.
Additionally our Sinovac Dalian subsidiary entered into a technology transfer and supply agreement with GSK in September last year to use their measles seeds to develop combo vaccines containing measles primarily for the China EPI market.
We also had other operational development recently. In September 2015, Sinovac transferred its 100% equity interest in Tangshan Yian Biological Engineering Co., Ltd. to Beijing Kuai Le Xing Biotech Co., Ltd. for a total consideration of RMB13 million, which is approximately $2 million. The transaction has not been completed as of the end of last year.
As a result of this transaction, Tangshan Yian’s operating results, assets, liabilities and cash flows are presented as discontinued operations in Sinovac’s financial results. Tangshan Yian has incurred losses in the past years, so the disposal will have a positive effect on Sinovac’s results of operations.
Heading into 2016, while we look forward to cultivating the sales of our EV71 vaccine, the overall vaccine industry in China faces some challenging headwinds, particularly given the recent news in China associated with vaccines that are illegal sales and distribution in Shandong province and distributed into other provinces around the country.
Although experts from the WHO hold confidence in China’s vaccine industry and publically clarified their position several times since news of this scandal broke public concerns still remain, which could put pressure on our sales performance in the short term. And government may change policies and regulations related to the vaccine sales and distribution in China, which we’re not able to estimate the impact to our business right now.
Given these recent news, it becomes more difficult to provide a growth forecast for this year. As we have greater visibility into the situation, we expect to update the situation to the public and investors.
In the meantime, we will continue to execute on our strategy to maintain the market share of our core products as well as advancing our pipeline products to fuel our additional growth in the future.
With that, I would now like to review our unaudited financial results for the fourth quarter and full year of 2015.
As I mentioned, quarterly sales from continuing operations were $23 million, an increase of 13.1% from $20.3 million in the prior year period. The sales increase was primarily due to the recognition of H5N1 revenue from the production that has happened in the prior periods. Excluding H5N1 revenue, quarterly sales from continuing operation were $19.1 million, a decrease of $1.2 million or 5.4% from $20.2 million in the comparative period.
Sales were adversely affected by the changes in the foreign exchange rate, which is approximately half of the $1.2 million decrease in sales, was attributable to this reason. Gross profit from continuing operations were $15.7 million, an increase of 2.3% from $15.3 million in the prior year period.
Gross margin was 68.3% compared to 75.5% in the prior year period. The decrease was primarily due to higher inventory provision for influenza and mumps vaccines in the fourth quarter of 2015.
Selling, general and administrative expenses in the fourth quarter of 2015 were $11.7 million, compared to $9.8 million in the same period of 2014. The increase was primarily due to increase of selling expenses associated with the preparation for EV71 commercialization.
Net income from continuing operations were $1.3 million compared to a net income of $2.4 million in the prior year period. Net loss from discontinued operations were $109,000 compared to net loss of $217,000 in the prior year period.
Net income attributable to common shareholders were $504,000 or $0.01 per basic and diluted share, compared to net income attributable to common shareholders of $1.3 million, or $0.02 per basic and diluted share in the fourth quarter of 2014.
Non-GAAP EBITDA decreases by 14% to $4.5 million in the fourth quarter of 2015, compared to $5.1 million in the prior year period. Non-GAAP net income from continuing operations in the fourth quarter of 2015 was $2.2 million, a decrease of 15% compared to $2.6 million in the prior year period.
Non-GAAP diluted EPS from continuing operations in the fourth quarter of 2015 was $0.03, which was the same with that 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.
And now, turning to our results for the full-year 2015, total sales from continuing operations in 2015 were $67.4 million, an increase of 7.1% from $62.9 million in 2014. Excluding H5N1 revenue recognized, sales from continuing operation were $63.6 million, an increase of 1.3% from $62.7 million in 2014. Sales recognized in the financial statements were adversely affected by the changes in foreign exchange rates.
Gross profit from continuing operations in 2015 was $49 million, an increase of 3.2% from $47.5 million in 2014. Gross margin was 72.7%, compared to 75.4% in 2014. Excluding H5N1 gross margin was 73.4% compared to 75.7% in 2014. The decrease was primarily due to a lower utilization rate of the company’s hepatitis and influenza vaccine production facilities and higher inventory provision of flu and mumps vaccine in 2015.
Selling, general and administrative expenses in 2015 were $37.4 million compared to $34.2 million in 2014. The increase was primarily due to increased G&A expenses associated with the trial production of the EV71 vaccine for site inspection, as well as an increase in stock-based compensation related to the options and restricted share grant in 2015.
R&D expenses in 2015 were $9.5 million, compared to $10.9 million in 2014. The R&D expenses were primarily incurred from PPV, varicella and Sabin-IPV vaccine development. Net income from continuing operation was $515,000, compared to a net income of $1.2 million in 2014.
Net loss from discontinued operations was $728,000, compared to net loss of $1.5 million in 2014. Net loss attributable to common shareholders in 2015 was $1.1 million, or $0.02 per basic and diluted share, compared to net loss of $851,000 or $0.02 per basic and diluted share in 2014.
Non-GAAP EBITDA increased by 7% to $11.2 million in 2015, compared to $10.4 million in 2014. Non-GAAP net income from continuing operations in 2015 was $2.4 million, an increase of 12% compared to $2.1 million in 2014. Non-GAAP diluted EPS from continuing operations in 2015 was $0.03, compared to $0.03 in 2014.
With that, I would like to turn the call back to operator for questions. Operator?
Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Peter Halesworth with Heng Ren. Please go ahead with your question.
Yes, first question is what is the status of the marketing to the CDCs in China for EV71?
Peter, do you want to ask the first question first and then we’ll follow-up with your other questions?
Yes, please. Yes, what is the status of the marketing of EV71 to CDCs in China?
So, firstly, as we saw from the reported information that the hand, foot and mouth disease, as the reported infectious disease still remain serious, and especially in some provinces as Mr. Yin mentioned. And overall, that the prevention and control of hand, foot and mouth disease still a very important assignment for the CDC doctors, therefore the demand for this vaccine still remains high.
And also we have been communicating with some provincial centers for disease control to talk about what is the strategy of using this vaccine after it’s commercialized in order to prevent the disease. And also, we discuss about the funding for a post-licensure clinical studies as well.
Does that answer your questions? And we expect to have the vaccine on the market as we scheduled in the past. So once the product launched into the market we will keep executing the plans for market vaccine.
And my follow-up question is when will you start to see orders from these provinces and when will that start to occur? And is your EV71 the only product on the market at this time?
[Interpreted] So there were another company who have EV71 vaccine, also were approved earlier this year to commercialize their EV71 vaccine. And also, we expect to receive orders after we obtain the lot release for our EV71 vaccine once it hits the market. So to keep the answer short, we expect receiving orders once our vaccines are on the market.
What is the timing?
What is the timing? I think we mentioned about that in our press releases and also in the prior press releases as well. We expect to have the vaccine released by the government before the end of June 2016, basically by the end of the second quarter.
Thank you. [Operator Instructions] There appear to be no further questions. I would like to turn the call back to management for any closing remarks.
Thank you, operator. And we thank you all for participating into this call. And we look forward to speaking to you for the announcement of our first quarter results. Thank you.
This concludes today’s conference. Thank you for your participation. You may now disconnect your lines at this time.
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