BEIJING - China's leading vaccine developer, Sinovac Biotech, posted a steep fall in profits for the second quarter, and revealed that the World Health Organization is working with Chinese regulators on monitoring good manufacturing practice standards following a series of scandals that have hurt the entire sector.

Although Sinovac was not involved in the sale of vaccines that were reported to have triggered severe adverse reactions across China during the past year, earnings continue to be hit by negative public perceptions related to the safety of vaccines produced inside the country (Also see "CEO Of China's Leading Vaccine Producer Reveals Latest Vaccine Scandal Has Triggered A Sector-wide Boycott, Throwing Firm Into The Red" - Scrip, 14 May, 2010.).

The scandals have also provided an opportunity for multinational companies like GlaxoSmithKline to increase market share at the expense of Chinese vaccine manufacturers, including Sinovac (Also see "Hit Collaterally By Popular Backlash Following Vaccine Scandals, China's Sinovac Could Exploit High Quality Standards To Emerge As Winner" - Scrip, 21 July, 2010.).

Vanessa Wu, senior financial manager at Sinovac, told investors and analysts during an earnings call this week: "Sales of our commercialized vaccines continue to be impacted by the negative media reports that affected the entire vaccine industry."

Sinovac's commercial products include Healive (inactivated hepatitis A vaccine), Anflu (split influenza vaccine) and Bilive (combined inactivated hepatitis A and B vaccine). The Beijing-based firm also manufactures Panflu (H5N1 vaccine), whose sales are limited to a Chinese government stockpiling program, and Panflu.1 (H1N1 vaccine), which was approved last September by China's State FDA.

Sinovac's leadership also disclosed that as a result of a public boycott of vaccines produced in China, the firm's sales for the second quarter of 2010 were $10.3 million, down 49 percent from $20.0 million for the corresponding period of 2009.

Net income attributable to shareholders for the second quarter of 2010 was $1.0 million, compared with net income attributable to shareholders of $5.8 million in the corresponding period of 2009.

Chris Lee, an investment relations executive at Sinovac, said during this week's call with analysts that Chinese regulators are working with WHO experts to improve GMP standards across the nation.

"The Shanxi vaccine misadventure continues to impact the public's confidence in vaccine safety as it has significantly affected demand across the private pay market," she explained while referring to recent reports in the Chinese media of adverse events related to improperly stored vaccines in western Shanxi province.

"Following the public appeal to improve the vaccine quality standards ... the SFDA is working closely with the World Health Organization to improve manufacturing across China in accordance with GMP standards," Lee disclosed. She also noted that WHO experts provided training for Chinese SFDA inspectors in July.

Yet despite the vaccine controversy and loss of public confidence, Sinovac sees an opportunity.

"The public appeal to improve the vaccine quality standards represents a significant market opportunity for the properly positioned companies, such as Sinovac, that supply high quality vaccine products," Lee said.

In a recent interview with PharmAsia News, Lee forecast that Sinovac's performance could begin to recover during the second half of this year from the vaccine controversies, and predicted that the innovative vaccine developer could ultimately emerge from the crisis as the top-ranked and most trusted vaccine firm in China.

Emerging Markets Are An Opportunity

Sinovac is also looking at emerging markets beyond China. During the earnings call, Lee told investors that Sinovac this month received word from the Ministry of Health of Nepal that its facilities meet GMP standards required to register its hepatitis A vaccine for export to Nepal.

"This is the key step in the registration process and it further validates our international strategy," Lee explained. "We anticipate that we will obtain the product registration certificate within this year."

She also said that Sinovac is extending its push to become a global vaccine supplier, and added that the company has been holding talks with potential distribution partners across Southeast Asia and Africa.

"We continue to execute our strategy to secure local partners to assist with obtaining the requisite approvals to sell our products to targeted international markets," Lee said.

And inside China, Lee said, Sinovac's "capacity expansion project for flu vaccine is progressing well."

"Currently, the flu production facilities are under design in compliance with WHO GMP standards and equipment is being selected, which means we are moving forward to meet the target of completing the capacity expansion for flu vaccines by the end of 2011," she disclosed.

In an Aug. 17 research note, Global Hunter Securities analyst Michael Tu forecast that Sinovac's overall outlook is becoming better.

"We believe that fundamentals for Sinovac are gradually improving although it could take a little longer for the private pay vaccine market to fully rebound," he stated.

"The company has several irons in the fire," the senior analyst added, "that should help bolster sales both this year and longer-term, including: 1) product registration certificate for the export of hepatitis A vaccine to Nepal (by late-2010); 2) pending international distribution collaborations in India, Mexico, and Philippines; 3) domestic sales and marketing expansion; 4) new facility expansion to be completed in 2011; and 5) pipeline products."

- Kevin Holden (k.platt@elsevier.com)

China's Sinovac Sees Profits Plummet In Wake Of Public Fears Following Vaccine Scandals By Other Producers

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