Helen Yang
Thank you, Bill. Hello, everyone and thank you for joining us. On today’s conference call, I will provide an update on Sinovac’s business and operations during the third quarter and then I will review our financial results in the past quarter on behalf of our CEO and CFO. Revenue for our third quarter rebounded from a slower first half of the year, increasing 71.4% to $28.7 million from $16.8 million in the prior year period. The sales improvement was mainly attributable to product sales associated with our newly introduced EV71 vaccine, which contributed approximately $16.5 million to our quarterly revenue. Sales of Bilive also our second major revenue contributor increasing by 43% to $6.8 million in the third quarter from $4.8 million in the prior year period. However, the sales of Bilive decreased by 97.2% to $103,000 from $3.7 million in the prior year period, and Anflu sales decreased by 34.2% to $5.3 million from $8 million. Our Bilive sales decline was due to increased sales returns as the delayed supply reduced the shelf life of this vaccine in the channel, while our Anflu sales decline was a result of less vaccine produced by the Company during this challenging environment. For the first nine months, total sales were approximately $41.1 million, a decrease of 7.6% from $44.5 million in the prior year nine months period. EV71 and H5N1 vaccine were the strong contributors to our nine months results, contributing $18 million and $6.4 million to the total sales respectively, while Bilive decreased by 29.6%, Bilive decreased by 105.8% and Anflu sales decrease by 34.4% in the past nine months. As we discussed in the prior quarter, vaccine industry in China was significantly impacted by the new policy issued by the central government. Due to the lack of infrastructure, the new policy was not able to be fully implemented by the vaccine industry. Therefore, in June, an interpretation of the new policy was issued shortly by the Ministry of Health and Chinese FDA allowing for a transitional period with an expiration date of December 31, 2016. Vaccine delivery resumed in the third quarter as manufactures being interpreted the comments by the MoH and CFDA. Due to the long vaccine supply delay, demand for new vaccines and the vaccines for primary immunizations were accumulated and then satisfied after vaccine shipment resumed. Especially for the new product normally CDCs will order the product to build-up their own inventory. However, during this transitional period, almost all provinces in China continued to follow the prior model when conducting business, while during the same time each provincial CDC was busy in establishing a required centralized procurement platform and developing a required governance system with CDC centers located in each county of each city within the province. Beginning January 1, 2017, the new policy has to be fully implemented in accordance with the new government policy. As of now, some provinces have started to purchase vaccines following the new systems, but many more provinces are still in the process of setting up the platform. Generally speaking, the Chinese vaccine industry is transitioning from the out way of conducting the business to the new one. Given the complexity of the logistics requirements as well as other factors change by policy, we believe it will take longer time to fully digest the impact the new policy may have on the vaccine business in China. While the vaccine market is experiencing profound changes, we continue to make progress on our pipeline programs and believe a long -- a strong vaccine product portfolio is important for our long-term success. Our varicella vaccine is now in a phase III trial which commenced in the third quarter. The phase III trial measures efficacy and immunogenicity with a randomized double blind parallel treatment placebo controlled study in a decent to safety. Over 6,000 subjects, age one to 12 years old, were enrolled as volunteers for the phase III trial. We expect the trial to be completed in the third quarter of 2017, after which the production license is expected to be filed with the CFDA. We also initiate a phase I clinical study on Sabin IPV in October 2016, the preliminary results show a positive safety profile of vaccine candidate. After the results were collected, Sinovac recently commenced the phase II trial which is designed to study the immunogenicity of vaccine candidates with different levels of dosage content for the dose selection and to further observe the safety of vaccine candidates. The phase II clinical trial is expected to be completed in the third quarter of 2017. Additionally, the Phase III trial on our PPV vaccine is approaching to the completion, and we expect to apply for the production license of this vaccine in next year. With that, I would now like to review our unaudited financial results for the third quarter of 2016. Again, during the third quarter, sales from continuing operations increased 71% to $28.7 million compared to $16.8 million in the prior year period. The increase in sales was primarily due to the revenue generated by the Company’s EV71 vaccines. Gross margin was 80.1% compared to 66.9% in the prior year period. Selling, general and administrative expenses in the third quarter of 2016 were $12.3 million compared to $10 million in the same period of last year. The Company’s SG&A expenses increased with the higher level of sales activities, as well as from the costs related due to propose privatization of Sinovac. R&D expenses in the third quarter of 2016 were $4.2 million compared to $2.2 million in the same period of last year. The increase was mainly due to higher R&D expenses on the on the varicella and Sabin IPV vaccine projects in the third quarter of this year. Income from continuing operations rose to $4.3 million compared to a loss of $1.8 million in the prior year period. The increase was primarily due to the EV71 vaccine sales contribution, additionally the third quarter of 2015 included a loss from discontinued operations of $183,000, which did not occur in the third quarter of this year. Net income attributable to common shareholders was $3.2 million, or $0.06 per basic and diluted share, compared to net loss attributable to common shareholders of $1.6 million, or $0.03 per basic and diluted share in the prior year period. Non-GAAP EBITDA was $7.7 million in the third quarter of this year compared to $721,000 in the prior year period. Non-GAAP net income from continuing operations in the third quarter of this year was $4.6 million, compared to a net loss of $1.2 million in the prior year period. Non-GAAP diluted earnings per share from continuing operations in the third quarter of 2016 was $0.06 compared to net loss of $0.01 per share in the prior year period. For the first nine months ended September 30, 2016. Sales from continuing operations were $41.1 million, a decrease of 7.6% from $44.5 million in the prior year period. Excluding H5N1 revenue, sales from continuing operations were $34.7 million for the nine months period, a decrease of 22% from $44.5 million in the prior year period. The sales decrease was due to lower sales to customers in the first half of this year and an increase in sales returns as a result of the vaccine incident in Shandong province. Net loss attributable to common shareholders was $5 million or $0.09 per basic and diluted share for the nine months period ended September 30, 2016 compared to net loss attributable to common shareholders of $1.6 million or $0.03 per basic and diluted share for the nine months period of last year. As of September 30, 2016, cash and cash equivalents totaled $54.3 million, compared to $63.8 million as of December 31, 2015. For the nine months period ended September 30, 2016 net cash used in operating activities was $15.5 million. Net cash used in investing activities was $7.4 million, which was for the purchase of equipment. Net cash provided by financing activities was $13.9 million, including loan proceeds of $35 million, and the loan repayment of $21.3 million. As of end of third quarter, the Company had $29.4 million of a bank loan due within one year. And finally I would also like to give an update on the consideration of going private proposal. An Independent Special Committee of the Company’s Board of Director is continuing its work to consider and evaluating the competing proposal to privatize the Company. As disclosed previously, the Company’s Board of Directors formed the Special Committee following the receipt of a non-binding going private proposal stated January 30, 2016 from Mr. Weidong Yin Chairman, President and Chief Executive Officer of the Company and Sales Partner. Subsequently, the Special Committee received a non-binding competing going private proposal stated February 03, 2016 from another consortium. The Special Committee has implemented a customary process to ensure a fair assessment of both proposals. The Special Committee continues to carefully consider and evaluate both proposals with the assistance of the Special Committee’s financial and legal advisor. No final decision has been made with respect to either proposals and there can be no assurance that any definitive and binding offer will be made, that any agreement will be executed or that either proposal or any other transaction will be approved or consummated. The Company does not undertake any obligation to provide any update with respect to these or any other transactions except as required under the applicable laws. And this concludes my prepared remark. And with that, I would like to turn the call back to the operator for questions. Operator, please.
