Investor Contributed Research, 2.13.2007, published by Financial Trader Research©

Sinovac Research Introduction

As a result of several positive material developments, we are updating our research report on Sinovac Biotechnology (American Stock Exchange Ticker Symbol = SVA).

Foundation Supports Strong Revenue

Healive^™

Since 2003, Sinovac’s revenues have grown at a compounded annual rate in excess of 75%. The principal driver of this growth has been Sinovac’s Healive^™ vaccine, which is the first inactivated hepatitis A vaccine developed, produced, and marketed in China.

Strong growth in Healive^™ sales is expected to continue as a result of China’s National Institute for the Control of Pharmaceutical and Biological Products (NICPBP) decision to drop liquid formulations of attenuated hepatitis A vaccines from their vaccine batch approval list effective as of January 1, 2006. 

In 2005, liquid formulations of attenuated hepatitis A vaccines represented roughly 80% of the entire market for Chinese hepatitis A vaccines (estimated at 19 million doses annually). The attenuated hepatitis A vaccine is being rapidly replaced by inactivated vaccines for which Sinovac is a primary supplier.

In 2006, Sinovac sold approximately 2.6 mm doses of Healive^™. Given its current production capacity of 6 mm doses/year of Healive^™ and the ongoing market trend towards the expanded use of inactivated hepatitis A vaccines, Sinovac is well positioned to experience continued strong revenue growth from this product.

Anflu^™

Last September, China’s NICPBP gave final approval for Sinovac to begin selling Anflu^™, an inactivated seasonal split flu vaccine. For the 2006-2007 flu season, Sinovac produced a marketing batch of 300,000 doses of this vaccine so its impact on 2006 revenues were likely minimal.  However, going forward Anflu^™ is positioned to increasingly impact Sinovac’s overall sales.

In China, there is a large shortage of domestically produced seasonal influenza vaccine which results in the need to import about 20 million doses of flu vaccine annually. Additionally, flu vaccines are believed to be the fastest growing segment within the Chinese vaccine industry and are expected to double in size over the next five years.  Sinovac’s current production capacity for Anflu^™ is 2 million doses which offers additional diverse  revenue growth potential without the need for further capital investment.

Financial Forecast

Appearing as Exhibit 1 (Sinovac Key Data) is a summary of Sinovac’s financial results since 2002, along with our estimates for the second half of 2006 and first, second half of 2007.  Sinovac does not yet report results on a quarterly basis, although it recently began doing so for its revenues. The company reports results on a half year basis (unaudited) and on a yearly basis (audited).

For the first half of 2006, Sinovac reported a loss of $970,000 or 3 cents a share on revenue of $4.68 mm. For the second half of 2006, Sinovac reported unaudited revenue of $10.73 mm, an increase of 81.6% over the same period in 2005. As shown in Key Data section of this report, we believe the level of second half revenues generated a profit sufficiently large enough to offset the first half loss and as such are forecasting full year 2006 earnings of about 4 cents per share. Full year results for 2006 are expected to be released by Sinovac in April.

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