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Sinovac Announces Recent Developments

January 20, 2010

BEIJING, Jan. 20 /PRNewswire-Asia/ — Sinovac Biotech Ltd. (Nasdaq: SVA)
(“Sinovac” or the “Company”), a leading China-based vaccine manufacturer,
today announced the following recent developments.

Dalian Joint Venture

In November 2009, Sinovac, through its wholly owned subsidiary Sinovac
Biotech (Hong Kong) Ltd., or Sinovac Hong Kong, entered into an agreement with
Dalian Jin Gang Group to establish Sinovac (Dalian) Vaccine Technology Co.,
Ltd., or Sinovac Dalian. In January 2010, Sinovac established Sinovac Dalian,
which will focus on the research, development, manufacturing and
commercialization of vaccines, such as rabies, chickenpox, mumps and rubella
vaccines for human use. Sinovac will manufacture live attenuated vaccines and
vero cell cultured vaccines at the production facilities of Sinovac Dalian.
Pursuant to the joint venture agreement, Sinovac Hong Kong will make an
initial cash contribution of RMB60 million ($8.8 million) in exchange for a
30% equity interest in Sinovac Dalian and Dalian Jin Gang Group will make an
asset contribution of RMB140 million ($20.5 million), including manufacturing
facilities, production lines and land use rights, in exchange for the
remaining 70% interest in Sinovac Dalian. Sinovac Hong Kong has also entered
into an agreement with Dalian Jin Gang Group, under which the Company has
agreed, subject to the approval of the PRC government, to increase its
shareholding in Sinovac Dalian to 55% through purchasing 25% equity interest
in Sinovac Dalian from Dalian Jin Gang Group for a consideration of RMB50
million
($7.3 million) on or before December 31, 2010.

Acquisition of Buildings and Land

Sinovac is in advanced negotiations for the acquisition of buildings, land
use rights and utility facilities for a total consideration of approximately
RMB120 million ($17.6 million). The Company plans to set up at this site two
new production lines to manufacture the EV71 vaccine and flu vaccines with an
annual production capacity of approximately 30 million doses, a filling and
packaging line, a warehouse and an animal house. The Company cannot assure you
that this acquisition will be completed.

New Vaccine Order

In January 2010, Sinovac received the fifth purchase order for its H1N1
vaccine, Panflu.1, from China’s Ministry of Industry and Information
Technology, or MIIT, under the national purchase plan. Under this purchase
order, the Company is required to deliver an additional 8.57 million doses of
Panflu.1 (15ug/0.5ml) to the Chinese central government, of which 2.33 million
doses are expected to be delivered before March 15, 2010, and the balance 6.23
million doses are to be stockpiled by the government in Sinovac’s warehouse
facility. In aggregate, Sinovac has received orders of Panflu.1 from the
Chinese government for a total 21.06 million doses, and 10.23 million doses of
Panflu.1 have been delivered to date for the Chinese vaccination campaign. In
2009, Sinovac completed the expansion of its production line used to
manufacture the seasonal influenza, H1N1 and H5N1 vaccines, thereby increasing
its annual production capacity by approximately 60%.

Financial Update

The following is an estimate of Sinovac’s selected preliminary unaudited
consolidated financial data for the year ended December 31, 2009. The
Company’s financial results for 2009 have not been finalized, and remain
subject to the completion of its normal year-end closing procedures and
possible change. As a result, its final audited consolidated financial data
for 2009 may be materially different from the estimated selected financial
data set forth below.

Sinovac estimates that its sales for 2009 were between approximately $81
million
and $85 million and its gross profit for 2009 was between
approximately $61 million and $65 million.

Sinovac expects its operating margin for 2009 to increase as a result of a
decrease in its selling, general and administrative expenses relative to its
sales in 2009 primarily due to economies of scale achieved through increases
in its sales as well as an increased portion of its sales to the Chinese
government, particularly in the sales of Healive and Panflu.1, which have
lower selling expenses attributed to such sales. Sinovac expects the trend of
increasing operating margin in the first three quarters of 2009 to be
particularly pronounced in the last quarter of 2009 because of a significant
increase in Panflu.1 sales to the Chinese government under the purchase
program. Furthermore, Sinovac believes the H1N1 outbreak led various Centers
for Disease Control and Prevention and the market to place more attention and
resources towards H1N1 vaccination and less on other vaccines.

Given the preliminary nature of the estimates of Sinovac, its actual sales
and gross profit for 2009 may be materially different from its current
expectations. In particular, the above estimates assume the full recognition
into Sinovac’s sales revenue in 2009 of the purchase of 10.23 million doses in
December 2009 of Sinovac’s Panflu.1 vaccine by MIIT, as part of China’s
national purchase plan. Although Sinovac has delivered this shipment and
received $29.3 million in December 2009 in payment based on the agreed pricing
terms, there is a risk that MIIT may unilaterally adjust the price and affect
the amount of revenue Sinovac may ultimately recognize when it finalizes its
financial statements.

In July 2009, Sinovac completed a restructuring by which Sinovac
transferred its 71.56% direct equity interest in Sinovac Biotech Co., Ltd., or
Sinovac Beijing, to its wholly owned subsidiary Sinovac Hong Kong for no
consideration. Because this is a related party transaction, the PRC tax
authorities have the authority to adjust the amount of the consideration
deemed paid for PRC enterprise income tax purposes to reflect an arm’s length
amount in accordance with the transfer pricing rules. Such adjustment could
result in the recognition by Sinovac of a higher amount of capital gains
subject to the PRC enterprise income tax at a rate of 10%. Sinovac’s estimated
tax liability is approximately $1.5 million, which is subject to the approval
of the PRC tax authorities as they have discretion to assess and determine the
final amount. The amount of Sinovac’s ultimate tax payment could be higher
than the amount estimated, which may adversely affect its net income
attributable to stockholders.

In connection with the dividends declared for 2008 and 2009 by Sinovac
Beijing to Sinovac Hong Kong, the Company expects to incur in 2009 a
withholding tax in an aggregate amount of $3.1 million, if the withholding tax
rate is 10%, or $2.0 million if Sinovac is successful in obtaining the reduced
rate of 5% for the dividends declared for the 2009 fiscal year under the tax
arrangement between the PRC and Hong Kong. Whether the favorable rate will be
applicable to dividends received by Sinovac Hong Kong from its PRC
subsidiaries is subject to the approval of the PRC tax authorities because it
is unclear whether Sinovac Hong Kong is considered the beneficial owner of the
dividends in substance. The PRC tax authorities have discretion to assess
whether a recipient of the PRC-sourced income is only an agent or a conduit,
or lacks the requisite amount of business substance, in such a case the
application of the tax arrangement may be denied.

The incurrence of the withholding taxes discussed above is likely to
adversely affect Sinovac’s net income attributable to stockholders in 2009.

About Sinovac

Sinovac Biotech Ltd. is a China-based biopharmaceutical company that
focuses on the research, development, manufacture and commercialization of
vaccines that protect against infectious diseases. Sinovac’s vaccine products
include Healive(R) (hepatitis A), Bilive(R) (combined hepatitis A and B), and
Anflu(R) (influenza). Panflu(R) and Panflu.1(TM), Sinovac’s pandemic influenza
vaccine (H5N1) and H1N1 vaccine, have already been approved for government
stockpiling. Sinovac is developing vaccines for a number of different
infectious diseases including enterovirus 71, pneumococcal disease, Japanese
encephalitis, haemophilus influenzae type b (Hib), meningitis, rabies,
chickenpox, mumps and rubella. Sinovac is also conducting field trials for
independently developed inactivated animal rabies vaccine.

Safe Harbor Statement

This announcement contains forward-looking statements within the meaning
of the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. All statements other than statements of historical fact in this
announcement are forward-looking statements. These forward-looking statements
involve known and unknown risks and uncertainties and are based on current
expectations, assumptions, estimates and projections about the Company and the
industry in which the Company operates. The Company undertakes no obligation
to update forward-looking statements to reflect subsequent occurring events or
circumstances, or to changes in its expectations, except as may be required by
law.

    For more information, please contact:

     Helen G. Yang
     Sinovac Biotech Ltd.
     Tel:   +86-10-8289-0088 x9871
     Fax:   +86-10-6296-6910
     Email: info@sinovac.com

    Investors:
     Amy Glynn/Stephanie Carrington
     The Ruth Group
     Tel:   +1-646-536-7023/7017
     Email: aglynn@theruthgroup.com
            scarrington@theruthgroup.com

    Media:
     Janine McCargo
     The Ruth Group
     Tel:   +1-646-536-7033
     Email: jmccargo@theruthgroup.com

SOURCE Sinovac Biotech Ltd.


Source: newswire



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