Sinovac's Vaccines on a Roll

The news flow from Sinovac Biotech Ltd. (SVA) was very positive last week. In addition to announcing that one of its vaccines was added to the list of approved vaccines in Beijing, the company released a much-improved financial report for its Q3.

Healive, a hepatitis A vaccine, was chosen by the Beijing Medicine Bidding Center as one of two inactivated hepatitis A vaccines in pre-filled syringes for its hepatitis A vaccination program. The Healive nod allows purchases of the vaccine for 2007 through 2009 in Beijing. Sinovac did not venture a guess on the effect of the selection on Healive revenues. In general, China has made a commitment to include hepatitis A vaccines in its national immunization program, and the designation of Healive as an approved vaccination was part of that program.

In October, Sinovac announced that Anflu, its flu vaccine, was also put on the Beijing list of approved drugs. By becoming part of the official list, it was available free of charge to people over sixty, while students paid 20 RMB ($3).

The announcement that Healive was added to the Beijing formulary came close on the heels of Sinovac’s Q3 financial report, which showed the fortunes of Sinovac to be very much on the upswing. Total sales jumped 141% from the year-earlier period, rising from $4.5 million in 2006 to $10.8 million this year. Gross profit was up a very large 266% to $9.2 million (an 85% margin) and net income climbed to $2.2 million (good for a 20% margin), a 23-fold jump from the $93,000 recorded in 2006.

Of particular interest, Sinovac moved $2.3 million of Anflu, its flu vaccine, off the shelves in Q3 after signing a co-promotion agreement with GSK China (GSK) for the vaccine. That number represents 22% of all sales for the quarter. In previous years, Anflu generated almost no revenues, though Sinovac can claim some responsibility for the sudden interest in the vaccine: the company said it spent $1 million in promoting Anflu in the last quarter.

In addition to Anflu, Healive, long the mainstay of the company’s offerings, also performed well. Separate results for Healive were not broken out, though the company said it doubled the number of doses of Healive sold by moving into previously unpenetrated territories. Also, at the end of 2006, China’s government took a competitor off the market -- a liquid attenuated hepatitis A vaccine. An increase in the production capacity of Healive was completed in October 2007.

The company’s other product is Bilive, a combined vaccine for hepatitis A and B. It remains a slow seller.

Sinovac recorded total operating expenses of $5.1 million in Q3, up from $2.0 million in the same period of 2006. Research and development costs were a relatively small figure of just $255,000, and the government underwrote $34,000 of that, bringing the net figure down to $221,000.

The net income of $2.2 million works out to 5 cents per fully diluted share. In the first nine months of 2007, Sinovac made a profit of $5.7 million, though gains in currency added another $800,000 to bring the total to $6.5 million. Last year (before currency gains), the company had a loss of almost $900,000. Clearly, by increasing its sales from $9 million first nine months of 2006 to $24 million in 2007, the company has accomplished a remarkable financial turnaround.

Sinovac currently has a market capitalization of $170 million (40 million shares outstanding; a price of $4.22 per share). If it can continue producing revenues at the same rate (and it should – the second half of the year is better for the vaccine business), Sinovac is on track to book above $32 million in revenues this year. That puts its valuation at 5.3 times revenues and 23 times expected earnings. That’s fairly cheap for a company growing at this rate. At the end of the third quarter, Sinovac had $9.7 million in cash, slightly above the $9.2 million the company held at the end of 2006.

In September, Sinovac began Phase II tests of Panflu, its vaccine for pandemic flu. The trials cover Phase I and II trials of the whole viron vaccine and of the split vaccine. Sinovac hopes to release preliminary data from the trials in Q1 of 2008.

Disclosure: none.