Sinovac Issues 2009 Guidance, Announces Secondary Stock Issue

| About: Sinovac Biotech, (SVA)

Sinovac Biotech (NSDQ: SVA) released full-year guidance for 2009 and also announced it would issue 8.65 million shares to raise about $62 million in new capital. The company said it expects revenues for 2009 to be between $81 and $85 million, while gross profits will total somewhere in a $61 to $65 million range. Margins will improve because of economies of scale and large government orders, which lower selling costs, according to the company.

The guidance implies Sinovac is predicting Q4 revenues will total about $35.2 million (using the midpoint of the full-year range). Gross profit for the final three months of the year will equal approximately $24.1 million. Both numbers show the surge in flu-related vaccines (H1N1 and seasonal), which took place in the final four months of the year, had a very positive effect upon Sinovac’s financial results. Sinovac booked revenues of just $6.6 million in 2009’s first quarter.

Exact numbers are not available for the four-month period starting September 1, but 42% of the company’s revenues and 38% of its gross profit were generated during the final quarter.

Sinovac warned that a number of factors could change its results by a significant amount, including a change in payment from a 10.2 million dose order of Panflu.1 from the PRC government, which was delivered in December.

Taxes are another consideration that could affect its final results. Sinovac transferred its 72% interest in Sinovac Biotech Co. Ltd. (Sinovac Beijing) to Sinovac Hong Kong. The PRC will charge a tax for this arms-length transaction, even though no consideration was paid for the transfer. Sinovac has reserved $1.5 million to pay the tax. The company must also pay a withholding tax on dividends paid in 2008 and 2009 by Sinovac Beijing to Sinovac Hong Kong. This could amount to either $2 million or $3.1 million.

In addition, the company disclosed it has established its joint venture with Dalian Jin Gang Group, a project that was announced in November 2009. For $8.8 million, Sinovac will obtain a 30% stake in Sinovac (Dalian) Vaccine Technology Co. Ltd. Sinovac will up its ownership by 25% for $7.3 million by December 31, 2010, if it obtains government approval to do so.

Dalian will contribute its facilities and land use rights to the JV. Dalian’s facilities became available after the company was found guilty of using an unauthorized adjuvant in a human rabies vaccine early in 2009. Dalian Jin Gang did not have regulatory approval to add the adjuvant, and the subsequent fine imposed by authorities effectively shut the company down.

Although Sinovac’s financial fortunes are on an upswing, investors did not like the news – either because they did not wish to see a new stock offering or because they expected even higher Q4 results. Sinovac released its announcements after trading closed on Wednesday in the US, and the company’s shares slipped 34 cents lower to $7.l7 in aftermarket trading, a drop of 5%.

Disclosure: none.

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Tagged: , Biotechnology, China, Earnings
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