Sinovac Biotech: Court Documents Show CEO Bribed Chinese FDA, Buyout Offers Could Be In Jeopardy

| About: Sinovac Biotech, (SVA)

Summary

Recently disclosed court documents show that Sinovac Biotech's CEO bribed a member of the Chinese Food and Drug Administration to assist its vaccine clinical trial and approval.

Bribery is a clear violation of Foreign Corrupt Practices Act regulations and is prohibited for SEC registered companies like SVA; it could lead to criminal prosecution and fines.

We believe that non-disclosure of these actions taken by SVA's CEO is a clear violation of both SEC and NASDAQ regulations.

We believe this revelation jeopardizes the company's two outstanding non-binding go private offers and could also impact future CFDA approvals and the company's cash flow.

We believe U.S. regulators and Chinese FDA officials will investigate these allegations, as well as potential implications for all of SVA's past and future vaccines.

Sinovac's CEO Bribed a Chinese Food and Drug Administration Official

According to an article from Chinese media source, The Paper, in late April 2015, Yin Hongzhang, Deputy Director General of the Center for Drug Evaluation under the CFDA, was apprehended by government authorities as part of an investigation. In June of 2015, Yin Hongzhang was subsequently removed from his position at the CFDA per an announcement made by the CFDA. The details of his removal had not become available in China until just recently. It is these details, combined with the research we have performed over the last few days, that lead us to believe that investors will start to question whether Sinovac Biotech's (NASDAQ:SVA) buyout offers are in jeopardy.

On December 15, 2016, media articles (link 1, link 2) in China reported more details regarding the investigation into Yin Hongzhang. Guo, Yin Hongzhang's wife, was reported to have received bribes on behalf of her husband, Yin Hongzhang. Guo has recently been convicted and given a three-year prison sentence with five years' probation. Court documents suggest that Yin Hongzhang and his wife received bribes totaling over 1.5 million RMB from a number of vaccine producers in both Beijing and Shanghai. In return for these bribes, Yin Hongzhang helped companies accelerate and smoothen the review/approval process.

An executive that was identified to have bribed Guo and Yin Hongshang was reported to also have the surname "Yin" and was reported to be the General Manager of a biological product company in Beijing. According to the media report, the company filed various applications for hepatitis A, SARS, avian flu, HFMD and influenza A vaccines after Yin Hongzhang was appointed as Director of the Biological Product Division at the CFDA in 2002. After serving in this position, Yin Hongzhang was appointed as the Deputy Director General of the Center for Drug Evaluation with his primary responsibilities including reviewing biologic registration applications.

The description of the Beijing company that is said to have bribed the CFDA in these articles sounded very like Sinovac Biotech. To verify whether it actually could have been SVA, we checked the CFDA web site, and the Beijing court judgment files. We found the most pertinent information to be in the Beijing court judgment regarding Guo. Here is an excerpt of the judgment:

In this paragraph above, the document specifically mentions the Beijing company by name, "Sinovac Biotech". It says [paraphrased] that Guo, along with her husband Yin Hongzhang, illegally received or requested money totaling 350,000 RMB from "general manager Yin" of Sinovac Biotech in order to help advance drug applications and evaluations.

For those who are not familiar with the company, the Chinese name 北京科兴生物制品有限公司's Chinese name could be literally translated to be Beijing Kexing Biological Products Co., Ltd., but its English name is Sinovac Biotech Co., Ltd. (Sinovac Biotech), according to its website. According to SVA's 20F (p.F-11), Sinovac Biotech Co., Ltd. is 73.09% owned by SVA.

Although the court document did not lay out the full name of the "general manager Yin" of Sinovac Biotech, we believe the person who bribed Guo and her husband is very clear - we believe it is SVA's current Chairman and CEO, Mr. Yin Weidong. Please see the Appendix for the full translation [paraphrased] from the court document regarding Mr. Yin Weidong and his affiliates' involvement in this case.

Limited Upside, Significant Downside & Halt Risk

For more than eight years, GeoInvesting has aimed to protect US investors by helping provide investigatory diligence on US listed China-based companies that may be pulling the wool over the eyes of US investors. To date, we have helped expose over $15 billion in fraud and material misrepresentation that has led to over a dozen de-listings and once again, today, we will be revealing extremely alarming information that has not yet been disclosed by the company in question.

With the help of Peter Halesworth at Heng Ren Partners, LLC, these revelations were brought to our attention. Heng Ren specializes in investing in U.S. listed China based stocks and has been involved with activism on behalf of shareholders for such companies.

In the case of Sinovac, we have uncovered explosive Chinese court documents that clearly show that SVA's CEO has been involved in bribery and corruption that has not yet been reported in the United States. We believe that these documents put SVA's current non-binding go-private offers at risk, and that eventual regulatory action and scrutiny on the company from the United States. Additionally, investors will have to ponder what steps Chinese regulators might take against the company that could impact the speed and costs related to future drug approvals.

We believe SVA is priced for perfection and does not incorporate any real discount for the risks we are about to outline. While shorting normally has the theoretical risk of unlimited loss, SVA's potential loss is likely capped.

Given the fact that the company has two non-binding buyouts in place, one partly led by management at $6.18 and the other at $7, it is clear to us that upside potential for buyers of the stock here is extremely limited. Furthermore, SVA's board approved a poison pill to dissuade bids higher than management's $6.18 bid. With the stock already trading near six dollars on the news of the buyout, those purchasing stock here would have potential upside gains of flat to about 15% in a best-case scenario, with a potential loss of significantly more capital, just on uncertainty alone on whether a going private transaction will occur, or at a new lower price. Before the SVA management led buyout proposal of $6.00, the stock traded as low as $4.49. When you throw in other unknowns such as future regulatory actions and/or what difficulty the revelation of these court documents may bestow upon the company, we believe the downside risk increases meaningfully.

Additionally, as we reported on May 5, 2016, the state of the going private theme for U.S. listed China-based companies is murky at best. Even before the bribery revelations, we didn't think SVA could potentially complete a going private transaction for at least a year. Quite frankly, the near-term return from owning shares is just plain unattractive and likely negative, something we think the "smart money" will figure out fairly quickly.

  • Plenty of short available - several million shares
  • Little upside on its own merits
  • According to shortsqueeze.com, only 124K shares are short (0.58% of the float)
  • SVA is not heavily shorted so little "buy to cover" risk
  • Only 2.5% borrow cost
  • Institutional investors and mutual funds own over 55% of outstanding shares according to the company's 20F; these investors will have a fiduciary responsible to evaluate risk of owning shares posed by these revelations

How often do you see this type of scenario in the U.S. listed China-based space when serious risk factors yield the worst possible outcomes? Given that we have a situation where the CEO of a publicly traded company is involved in bribery and the individual who took the bribe (the CFDA official's wife) has already been convicted, we can't rule out a Regulatory halt for more information by NASDAQ.

Our report today will detail undisclosed court documents, which were recently made available only in China, that confirm that SVA's CEO was involved in bribing a former official of the Chinese Food and Drug Administration, and we will make our case for:

  • We believe SVA has near-term downside to $4.50 and potentially lower
  • Why the company's pending go private transactions may be in jeopardy
  • Why the company may see future regulatory action in both China and the United States suffocate its future business prospects

It is reasonable to assume that after U.S. government officials notice this bribery case that the U.S. government could request further information and possibly open an investigation. We believe this is a significant legal risk, both for the company and its CEO personally.

Sinovac Biotech Ltd. is a "China-based biopharmaceutical company that focuses on the research, development, manufacturing and commercialization of vaccines that protect against human infectious diseases including hepatitis A, hepatitis B, seasonal influenza, H5N1 and H1N1 pandemic influenza and mumps", according to the company's 20-F.

Too Many Questions To Support A Bullish Thesis At This Point

Given the new risk profile of the company, we don't know how investors can justify paying anywhere near $6.18 to $7.00 going private offer range for the SVA.

There are a few key points we want to raise that we believe are significant to SVA shareholders and U.S. regulatory authorities. In addition, we believe this issue may put the company's non-binding takeover transactions in jeopardy. We also believe that in addition to U.S. regulatory action, these revelations could have a substantially negative effect on the company's future dealings with the CFDA going forward.

Here are some points to consider:

1. Possible U.S. Governmental Regulatory Action on the Company and Employee Involved

The U.S. Foreign Corrupt Practices Act (FCPA) is designed to make it illegal for companies and company executives to potentially affect foreign officials with personal payments and/or rewards. Under the Risk Factors session of the company's 20F, the company states:

"Failure to comply with the U.S. Foreign Corrupt Practices Act and other applicable anti-corruption laws could subject us to penalties and other adverse consequences and corrupt practices by our competitors may place us at a competitive disadvantage.

Our executive officers, employees and other agents may violate applicable laws in connection with the marketing or sale of our products, including the U.S. Foreign Corrupt Practices Act, or the FCPA, and applicable anti-corruption laws in China and other jurisdictions in which our products are sold or registered for sale. The FCPA generally prohibits United States issuers from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business and requires issuers to maintain reasonable internal controls. The PRC also strictly prohibits bribery of government officials. We have adopted a policy regarding compliance with the FCPA and other applicable anti-corruption laws to prevent, detect and correct such corrupt practice. However, corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time to time in the PRC and the countries in which we seek to do business. While we have implemented measures to ensure compliance with the FCPA and other applicable anti-corruption laws by all individuals involved with our company, it is possible that our compliance policies and procedures may be insufficient or may fail to prevent our employees or other agents from engaging in inappropriate conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations. In addition, our brand and reputation, our sales activities or the price of our common shares could be adversely affected if we become the target of any negative publicity as a result of actions taken by our employees or other agents."

It is reasonable to assume that after U.S. government officials notice this bribery case that the U.S. government could request further information and possibly open an investigation. We believe this is a significant legal risk, both for the company and its CEO personally.

According to its website, the SEC has set aside FCPA cases as a "high priority area" for enforcement. It even has a sole website set up to list and describe FCPA cases that it has taken action on dating back several years.

2. The Involvement of Mr. Yin Weidong and SVA in this Conviction and Criminal Bribery Case Is Material and Must be Disclosed

Under the Risk Factors section of the company's most recent 20F, the company makes it crystal clear that Mr. Weidong Yin is an integral part of the business and that the loss of this one executive could "adversely affect operations":

"We depend on our key personnel, the loss of whom would adversely affect our operations. If we fail to attract and retain the talent required for our business, our business will be materially harmed.

We are a small company with 646 full-time employees as of December 31, 2015 and we depend to a great extent on principal members of our management and scientific teams. If we lose the services of any key personnel, in particular Mr. Weidong Yin, the loss could significantly impede the key decision making on strategic choices and operational issues, which in turn will harm our business achievement..."

The court documents only concern the CFDA official's wife, Guo, but they also state that Yin Hongzhang will be handled in a separate case. It is unclear so far whether the person who is involved in this bribery case will be prosecuted or not. However, if there is any chance this prosecution takes place, we believe SVA's operations will be negatively affected, as Mr. Yin Weidong is the most important executive at SVA per the company's own filings. Thus, we demand (and we believe all stakeholders should also demand) that SVA provide detailed information regarding this case and its potential impact to SVA's operations.

3. Material Uncertainties Exist - Uncertainty Is A Stock's Worst Enemy

According to media reports and court documents, after Yin Hongzhang was appointed as the Director of the Biological Product Division at the CFDA in 2002, SVA filed various applications for hepatitis A, SARS, avian flu, HFMD and influenza A vaccines. Based on court documents, Yin Hongzhang has helped SVA in various cases (the court document is in Chinese and the content regarding SVA has been translated [paraphrased] into English). For reference, "Yin A" refers to CFDA official Yin Hongzhang and "Kexing (Dalian) Vaccine Technology Co. Ltd." is a subsidiary of SVA:

"6) CFDA Drug Registration Approval Letter, Drug Clinical Trial Approval Documents, etc. proved that: In April 2010, Kexing (Dalian) Vaccine Technology Co., Ltd applied domestic registration for its mumps vaccine, live, injection, Yin A wrote his comprehensive comments for this drug on December 16, 2010 and this drug was approved for production on December 19, 2011. In May 2009, Beijing Kexing Biological Products Co., Ltd applied new drug registration for its pandemic influenza vaccine (split virion), inactivated, injection, Yin A wrote his comprehensive comments for this drug on April 27, 2011 and this drug was approved for national reserve on December 19, 2011. In 2011, Kexing (Dalian) Vaccine Technology Co., Ltd applied new drug registration for its rubella vaccine (human diploid cells), live, injection, Yin A wrote his comprehensive comments for this drug on December 29, 2014 and this drug was approved for clinical trial on December 30, 2014."

The court document clearly shows that CFDA official Yin Hongzhang helped SVA on its vaccine products' clinical trials, registrations and approvals for production. Our key questions are:

  1. Will the CFDA reevaluate these clinical trials and production approvals, given that it is now known that bribes took place?
  2. Since the Chinese central government is so serious about its officials' conduct regarding corruption, is it possible that the CFDA will place extra scrutiny on all companies, particularly SVA, going forward?
  3. In a situation where the CFDA makes a concerted effort to put more scrutiny on approvals going forward due to this recently uncovered corruption:
    • Could it prevent SVA from getting any approvals in the future?
    • Could it cost the company significantly more capital to get approvals going forward, as they will now have to follow a more traditional path to approval?
    • Could this scrutiny change the landscape for the candidates looking to bid for SVA, as this could have a profound effect on the company's future cash flows as well as its current and future drug approvals?

4. Previous Widely Reported Vaccine Scandal Have Not Gone Unnoticed By China Regulators

In March 2016, there was a widely known vaccine scandal reported both in China and in the U.S. Readers that want to know more about this vaccine scandal can search for the "Shandong Vaccine Scandal" online, and review the numerous articles will be available to read. This scandal has been reported by news outlets like Xinhua, WSJ, BBC, Reuters, and Bloomberg. The scandal started with an announcement made by Shandong province police that it had arrested a mother and daughter who were alleged to have illegally sold improperly stored or expired vaccines that were worth more than 570 million RMB in 20 provinces since 2011, according to Xinhua. The scandal involved 12 vaccines, 2 immune globulin and one therapeutic product. As state owned media, Xinhua stated:

"Police in east China's Shandong Province have detained 37 suspects implicated in a vaccine scandal that has shocked the nation and raised questions over vaccine safety."

Bloomberg said on March 22, 2016 that "Premier Li Keqiang called for a thorough investigation into the illegal sale of vaccines…" Xinhua reported on March 28, 2016 that China's State Council approved a joint investigation team involving CFDA, National Health and Family Planning Commission, Ministry of Public Security, etc., and that it also formed a supervision team to oversee the investigation. On April 13, 2016, Xinhua reported:

"357 officials implicated in cases concerning the illegal sale of improperly stored vaccines would be penalized.

…So far 192 criminal cases have been filed nationwide and 202 people detained over the scandal, according to a statement issued after the meeting presided over by Premier Li Keqiang."

In order to rein in the public anger and regain the trust from the people in China, the Chinese government put a tremendous amount of resources and manpower into the investigation of this scandal, and based on the announcement made by the State Council, hundreds of government officials were to be penalized, hundreds of criminal cases were filed, and hundreds of people have already been detained over that scandal.

What's worth noting about this vaccine scandal is that the manufacturing of those vaccines were not even in question, as they were produced by "licensed manufacturers", according to Xinhua. The spotlight of this entire investigation was simply about the illegal purchase/sale of these improperly stored or transported vaccines.

More troubling is that apart from the vaccine in question in the court document, we believe that approval process of SVA's other vaccines are also subject to question. For example, per the statement from Yin Hongzhang in the court document [paraphrase],

"In 2002, after Yin A became Director of Drug Registration Department's Biological Production Division, Yin B's company applied approval for the vaccines of hepatitis A, SARS, avian flu, HFMD, Influenza A, etc."

Although there is no mention of Yin Hongzhang's influence on these vaccines, it is reasonable for investors to question the application and approval process for all of these vaccines. The integrity of entire CFDA approval process of all of the company's vaccines could come under scrutiny.

What's more important is, after this Shandong Vaccine Scandal early this year, the Chinese government should have zero tolerance on any other vaccine related scandal. We urge the CFDA and other government authorities in China to scrutinize SVA's vaccine products.

5. Tightening Measures on Capital Outflows Instituted by the Chinese Government and Chinese RMB Depreciation Against The Dollar Add More Doubt to the Company's Non-Binding Go Private Transactions

This article from the South China Morning Post on November 29, 2016 summarizes the Chinese government's attitude on potential outbound capital investments. There is no doubt that right now the SAFE (State Administration of Foreign Exchange) and other government authorities in China are putting more scrutiny on potential capital investments that help U.S. listed China-based companies go private.

The fact that SVA and its Chairman and CEO, Mr. Yin Weidong, are involved in this bribery case will surely bring more attention to SAFE and other government authorities when they review this case. Even if the investors in China participating in this non-binding go private transaction want to proceed, SAFE or other government authorities might put the brakes on this deal, as this bribery case is a clear target for the anti-corruption campaign that the Chinese government has conducted vigorously since President Xi took office.

In December 2015, the CFDA (China Food and Drug Administration) issued a new drug certificate and product license for the company's EV71 (Enterovirus 71) vaccine, which can be used to protect children against HFMD (Hand Foot and Mouth Disease) in China. On January 28, 2016, the company announced that the CFDA had issued a GMP (Good Manufacturing Practices) certificate to SVA for the company's EV71 vaccine.

After 8 years of research and development for the EV71 vaccine, and 4 days after the announcement of the EV71 GMP certificate issuance by the CFDA, the company announced on February 1, 2016 that it had received a preliminary non-binding proposal from the company's Chairman and CEO, Mr. Yin Weidong, SAIF Partners IV L.P. and/or its affiliates to acquire all of the outstanding shares of SVA that were not owned by them for $6.18 per ADS.

After 8 years, and with the drug now finally approved, management has done shareholders the "favor" of protecting their own bid for the company with a poison pill.

On February 4, 2016, the company announced that it had received a competing offer from a Buyer Group consisting of PKU V-Ming (Shanghai) Investment Holdings Co., Ltd., Shandong Sinobioway Biomedicine Co., Ltd., CICC Qianhai Development (Shenzhen) Fund Management Co., Ltd., Beijing Sinobioway Group Co., Ltd., Heng Feng Investments (International) Limited and Fuerde Global Investment Limited to acquire all of the company's outstanding shares for $7.00 per ADS. One of the participants in this $7.00 per ADS non-binding buyout Group, Shandong Sinobioway Biomedicine Co., Ltd. is a China A share listed company (SHE:002581).

On March 28, 2016, the company announced a poison pill to "guard against partial tender offers, open market accumulations and other abusive or coercive tactics to gain control of the Company without paying all shareholders a control premium." We believe this is a tactic being used by Sinovac to prevent the $7.00 per ADS non-binding bid. On April 14, 2016, Sinovac's Special Committee appointed Duff & Phelps as its financial advisor and appointed Weil, Gotshal & Manges as its U.S. legal counsel, with Leslie-Ann Brissett Legal Services as its Antigua counsel to evaluate both of the non-binding proposals.

Until today, there has been no definitive decision made by the Special Committee regarding these two non-binding proposals.

We believe this would apply to both of the non-binding go private offers, for $6.18 and $7.00 per ADS, respectively. Moreover, for the $7.00 per ADS non-binding buyout offer from the Buyer Group consisting of a China A share listed company, Shandong Sinobioway Biomedicine Co., Ltd. (SHE:002581), there is one more layer of scrutiny that will come from the CSRC (Chinese Securities Regulatory Commission) if the A share company wants to eventually inject SVA into it after it takes the company private.

In our opinion, under current stringent regulations from the CSRC, the A share company's $7.00 per ADS non-binding buyout offer is already off the table.

In addition, the cost of SVA's buyout in terms of China's currency increased a fair amount since the non-binding go private offers were proposed in February of this year. For example, in early February 2016, the exchange rate of RMB against USD was around 6.58, and now the rate has changed to around 6.95 (RMB depreciated against USD), according to xe.com. In other words, the cost for Chinese investors using RMB to buyout SVA in USD has increased about 5.6% already.

SVA is Just Simply Too Risky

The risks here become almost too obvious to review again. Not only has the CEO of a US listed company been accused of bribing a Chinese FDA official, but this news has not yet been disclosed by the company. There are a significant amount of securities laws, FCPA regulations and Chinese regulations that this may be a breach of, depending on when the company was made aware of this action.

Further, we believe that in the near to mid-term, SVA faces uncertainty in its dealings with the Chinese FDA, Chinese Regulators and market acceptance of its product. Investors should not discount the financial and stock listing risks that US regulators pose. Again, we feel that the revelation of this news will also put the company's pending go private offers in jeopardy.

In our experience in dealing with US listed China-based companies, we have seen all types of scenarios unfold. While we are confident that the revelation of this bribery should be game changing for the company, there is never an assurance that the market will agree with us or that US and Chinese regulators will be firm with the company. It has been an unfortunate byproduct of our work over the last eight years that we have witnessed companies get away with these types of alarming actions, and we can't guarantee this situation will be any different. However, we are confident that the veracity of the claims made in these court documents should, at the very least, warrant a strict eye from potential investors and regulators. We appreciate Heng Ren Partners' assistance on these matters.

With upside potential capped at $6.18 or $7.00, we simply feel that given the immense risk posed by actions undertaken by the CEO, being long SVA at its current price makes little sense. We see downside risk to the price where SVA was trading at before it's going private offers were made, or as low as $4.50. We encourage both U.S. and Chinese regulators to take a closer look at the documents linked in this article and suggest an immediate investigation by the Securities and Exchange Commission.

Appendix: Translation of Court Documents

Below is the full translation [paraphrased] from court document that focuses on Sinovac Biotech 's activities.

Note:

Yin A is Yin Hongzhang, former CFDA official

Guo: Yin Hongzhang's wife

Yin B is Yin Weidong, Chairman and CEO of Sinovac Biotech

----------------------------------------------------------------------------------------------------------------------------

The court found that:

1. During 2002 to 2014, Defendant Guo - knowing that Yin A (handled separately) took advantage of his positions as Director of Drug Registration Department's Biological Product Division and Deputy Director General of Center for Drug Evaluation in CFDA, accepted request from Yin B, General Manager of Beijing Kexing Biological Products Co., Ltd. (Sinovac Biotech), and offered help related to the filing and approval processes of drugs of this company - jointly with Yin A, illegally received or requested money totaling 350,000 RMB from Yin B. (All following currency is in RMB).

The facts above were supported by evidences confirmed by the court:

1) According to Defendant Guo: The company that Yin B worked for, Beijing Kexing Biological Products Co., Ltd. (Sinovac Biotech), has been dealing with CFDA for business, so Yin A and Yin B has known each other for a long time. When Guo and Yin A was still working for the Zhong Jian Yuan office, Yin B knew that Guo and Yin A are couples. In 2006, Yin A got an apartment as a compensation [from the company he works for], for decoration purposes, Guo and Yin A visited Yin B's home to see the decoration of his house. During their visit, Yin B gave Guo an envelope and said it was for their decoration. Guo found it was 50,000 RMB of cash and then told Yin A about it. In the summer of 2011, Guo had to pay 300,000 RMB balance due for their property in Huairou District, and she asked Yin A if he could afford it. Yin A said he would figure it out. A few days later, Yin A said he had talked with Yin B and they could borrow money from Yin B. One day in August 2011, after talking with Yin B, Yin A drove to a hotel in Haidian District with Guo. Yin A asked Guo to go to the hotel lobby, find somebody to get the money and sign an IOU. After getting into the lobby, Guo and Liu A both signed on the IOU and Guo took 300,000 RMB from Liu A. The money was later used to pay the property in Huairou District. Guo's family has the capability to pay back 300,000 RMB, but before being taken on enforcement action, they never had any intention of paying back.

2) Witness Yin A proved that: Yin A had known Yin B since 1995. Because of their working relationship, they always had meeting together and they got familiar with each other. In 2000, Yin B established Beijing Kexing Biological Products Co, Ltd. (Sinovac Biotech). In 2002, after Yin A became Director of Drug Registration Department's Biological Production Division, Yin B's company applied approval for the vaccines of hepatitis A, SARS, avian flu, HFMD, Influenza A, etc. In order to be taken care of by Yin A, Yin A and Yin B had economic dealings constantly. In the first half of 2006, before Yin A decorated his property in Guangquan, Yin A and Guo had a visit to Yin B's decorated house. During the visit, Yin B gave Yin A an envelope with 50,000 RMB and Yin A handed it directly to Guo. In 2011, during the time Yin A was paying for his property, he asked Yin B for 300,000 RMB in the name of borrowing. Yin A and Guo had enough money at that time, but all the money was managed by Guo and she was not willing to use it and let Yin A to think about other ways of raising money. Then Yin A asked Yin B for 300,000 RMB. Yin B found another person to sign the IOU with certain person found by Guo and Guo got the 300,000 RMB. The reason why Yin B gave Yin A money was to receive assistance in the process of drug approval when Yin A was Director of Biological Product Division and Deputy Director General of Center for Drug Evaluation, and Yin A did help him push the approval process.

3) Witness Yin B proved that: He and Yin A knew each other in 1995. The company he worked for, Beijing Kexing Biological Products Co., Ltd. (Sinovac Biotech), produced vaccines, which are biological products, and Yin A had been responsible for leading the approval process of biological products, so Yin B developed a good relationship with Yin A. In 2006, when his house just finished decoration, Yin A and Guo visited his house, and Yin B gave Yin A or Guo 50,000 RMB cash and reimbursed the money in the financial department of his company. One day in 2011, Yin A said to Yin B that he wanted to buy a property in Huairou District and wanted to borrow 300,000 RMB. Because Yin B was the Deputy Director General of Center for Drug Evaluation and Yin B's company was under his supervision, Yin B could not refuse to lend money to Yin A. Yin B also knew that although Yin A said he was borrowing but he was actually just asking for money. Because Yin B was concerned about it, he discussed it with his wife, Chen, on how to protect himself but also satisfy Yin A's request. Finally, [they] decided to let Liu A lend 300,000 RMB to Guo and they signed a IOU. The reason why he lent money to Yin A was because he wanted Yin A to take care of his company in drug approval process.

4) Witness Chen and Liu A proved that: After discussing with Yin B, Chen let her classmate, Liu A, give 300,000 RMB to Yin A's wife, Guo, and sign an IOU. Chen and Yin B never mentioned to Guo or Yin A about getting the money back.

5) Corporate license, proof of employment, etc. proved that: Yin B has been the General Manager of Beijing Kexing Biological Products Co., Ltd. since 2001 and he is also the legal representative of Tangshan Yi'an Biological Engineering Co., Ltd.

6) CFDA Drug Registration Approval Letter, Drug Clinical Trial Approval Documents, etc. proved that: In April 2010, Kexing (Dalian) Vaccine Technology Co., Ltd applied domestic registration for its mumps vaccine, live, injection, Yin A wrote his comprehensive comments for this drug on December 16, 2010 and this drug was approved for production on December 19, 2011. In May 2009, Beijing Kexing Biological Products Co., Ltd applied new drug registration for its pandemic influenza vaccine (split virion), inactivated, injection, Yin A wrote his comprehensive comments for this drug on April 27, 2011 and this drug was approved for national reserve on December 19, 2011. In 2011, Kexing (Dalian) Vaccine Technology Co., Ltd applied new drug registration for its rubella vaccine (human diploid cells), live, injection, Yin A wrote his comprehensive comments for this drug on December 29, 2014 and this drug was approved for clinical trial on December 30, 2014.

7) The IOU notice proved: On August 14, 2011, Guo and Liu A signed the agreement that Guo borrowed 300,000 RMB from Liu A and the term was from August 12, 2011 to August 11, 2014.

8) Bank statement, accounting voucher and invoice proved that: On August 12, 2011, Chen withdrew 460,000 RMB of cash from the bank account in China Construction Bank; In 2002 and 2006, Yin B reimbursed money from Beijing Kexing Biological Products Co., Ltd. and Tangshan Yi'an Biological Engineering Co., Ltd., respectively.

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