Sinovac Biotech Ltd.

Third-quarter sales from continuing operations increased 71.4% to $28.7 million from $16.8 million a year ago. Gross margin was 80.1% versus 66.9% in the prior-year period. SG&A was $12.3 million, up from $10 million, and R&D was $4.2 million, up from $2.2 million. Income from continuing operations was $4.3 million versus a loss of $1.8 million last year; net income attributable to common shareholders was $3.2 million, or $0.06 per basic and diluted share, versus a net loss of $1.6 million, or $0.03 per share. Non-GAAP EBITDA was $7.7 million versus $721,000, and non-GAAP diluted EPS from continuing operations was $0.06 versus a loss of $0.01. For the first nine months, sales from continuing operations were $41.1 million, down 7.6% from $44.5 million; excluding H5N1, sales were $34.7 million, down 22%. Cash and cash equivalents were $54.3 million at September 30, 2016, versus $63.8 million at December 31, 2015. Net cash used in operating activities was $15.5 million, investing cash outflow was $7.4 million, and financing provided $13.9 million. The company said it had $29.4 million of bank loan due within one year. For Q4, management expects EV71 to remain the key sales contributor, but declined to provide 2017 guidance given the ongoing policy transition in China.

The CEO’s strategic message centered on navigating China’s vaccine industry through a major regulatory transition while keeping the pipeline moving. Management said the market is shifting from the old sales model to a new centralized procurement system, and that it may take longer to fully understand the impact on vaccine business conditions. At the same time, the company emphasized ongoing progress in varicella, Sabin IPV, and PPV programs as important for long-term success.

The CFO highlighted a strong operational rebound in Q3, with sales up to $28.7 million, gross margin expanding to 80.1%, and profitability returning with $4.3 million of income from continuing operations. She noted higher SG&A of $12.3 million partly from higher sales activity and privatization costs, and R&D of $4.2 million driven by varicella and Sabin IPV work. Cash and cash equivalents were $54.3 million at quarter-end, net cash used in operations was $15.5 million for nine months, and the company carried $29.4 million of bank loan due within one year. On the going-private process, she said $733,000 was recorded in Q3 and more than $1 million year to date, mainly for financial and legal advisors to the special committee.

The main analyst questions focused on Q4 and 2017 EV71 sales, average pricing, EV71 gross margin, and privatization expenses. Management said EV71 should still be the key contributor in Q4, but declined to offer a 2017 outlook because the industry is in a policy transition and it is too early to judge the impact. On EV71 pricing, management said the manufacturing price is 168 per dose for vial presentation and 188 per dose for pre-sales arrangement presentation. On privatization costs, management said $733,000 was recorded in Q3 and more than $1 million was recorded year to date, mainly for the special committee’s advisors.