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Sinovac: benefit from H1N1 vaccines

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(Update 22Sept09) Sold all my SVA shares. The stock is trading at bubble price and it is very speculative. Initially I made some money, but I gave it all back and then lost some. So the lesson here is don’t overpay for “hot” stocks.

(Update 14Sept09) Sansar Capital (Sanjay Motwani), the hedge fund who is also the largest shareholder of Sinavac, sold a bunch following the run up of the stock. See SEC 13G filing here. He still holds 1,238,042 shares (2.9% of all outstanding shares) according to this Sept 10 report. He has twice more on June 30 report SANSAR CAPITAL MANAGEMENT LLC 2,953,503 6.89 $11,666,336 30-Jun-09 (Source: yahoo finance)

(Original) When I was a little kid, village doctors will come and give free vaccinations. Because I was scared of the pinch of needle, I would ask my grandma shut the door (not open) and begin to hide when I heard doctor is coming. Things changed after I started attending school, I will be quitely taking the shot when the doctor comes to class giving vaccinations, as I was the president of the class (have to make an example of myself).

vaccination pic
(Source: PrisonPlanet: notice the number of death from H1N1 has risen since the July)

Vaccinations are a wonderful thing. As I read from HowVaccinesWorks, many lives have been saved, and many more illness have been prevented. I am glad to learn this is still free to children in China (according to Wang Jianshuo).

It appears H1N1 flu is taking some toll and causing a lot panic these days. Fortunately we have developed a vaccines to prevent that (CDC, WHO vaccines availability). The problem with H1N1 is although it’s not deadly, it’s easy to spread, especially in school, air travel, and other places where there are a lot of people in confinement. Vaccinations is the cheapest and most efficient way to prevent the pandemic.

Now to the topic. Sinovac (NYSE:SVA), one of the leading emerging biotechnology companies in China, specializes in the research, development, commercialization, and sales of human vaccines for infectious illnesses such as Hepatitis A and Hepatitis B, influenza and “SARS”. The stock already had a gigantic run after the news that the company won approval of H1N1 vaccines and the order from Chinese government.

In related news, Beijing government signed agreement with Sinavac purchasing the seasonal flu vaccines. Quote:

Over the past two years, the Company has expanded its manufacturing capacity for seasonal influenza vaccine to five million doses per year, and the same production line can produce 20 million doses of pandemic influenza vaccine, using a grant from China’s National Development and Reform Commission.

Let’s be conservative, let’s say the company run the capacity at 50%

(5 m + 20 m) * $3 (CNY 20 ) * 50% = $37.5 m revenue


(NTDTV: China Orders Swine Flu Vaccine)

That’s mostly additional revenue from Sinovac. Before this, the company main revenue source was Hepatitis-A vaccines.

In another Chinese article, the company has capacity of making 30 m doses (2.5 m per month) annually. I think that’s the total capacity of company all flu vaccines capacity (includes seasonal flu).

Risks:
Besides the huge run up of stock price, for H1N1 the company does not own intellectual properties. The companies strength here is rapidly testing and manufacturing capability. It was reported some foreign government and WHO are interested in ordering, the export price maybe more favorable to Sinovac. But Sinovac may have to meet lower priced domestic demand per government mandate. Also, its manufacturing capability is limited compared to larger rival suchas Hualan.

Sustainability: we don’t know how H1N1 will play out in long term. The story was pretty scare so far. But it could die down like SARS. Note Sinovac spent a lot money and effort on SARS vaccines development, it’s not making the money back because SARS was contained and died down eventually.

Disclosure: have some SVA long postions.

Reference
Profile: Vaccine trailblazer (Chemistry World, 07 February 2008, profile of CEO and Founder Yin Weidong)

Swine Flu: China will have the first shots in 10 days

ChinaBioToday: china-starts-flu-vaccine-stockpile-with-sinovac-order

Valuation of vaccines companies: Buyout by Sanofi is a good turn for Shantha Biotechnics
http://www.dnaindia.com/money/comment_buyout-by-sanofi-is-a-good-turn-for-shantha-biotechnics_1278860

Domestic competitors:
Hualan (SHE:002007)
http://stock.jrj.com.cn/hotstock/2009/09/0402435974124.shtml
上海生物制品研究所: 上海产甲型H1N1流感疫苗近期正式批量生产

Sinavac Management (Chinese)

尹卫东:化蛹成蝶 一个基层医生的高科技之舞

北京科兴生物尹卫东:创业三大杀手锏

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