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Sinovac Announces Recent Developments

Thursday, January 21, 2010 Press Release J E 4
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BEIJING, Jan. 20 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 SinovacBiotech (Hong Kong) Ltd., or Sinovac Hong Kong, entered into an agreement withDalian 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 andcommercialization of vaccines, such as rabies, chickenpox, mumps and rubellavaccines for human use. Sinovac will manufacture live attenuated vaccines andvero cell cultured vaccines at the production facilities of Sinovac Dalian.Pursuant to the joint venture agreement, Sinovac Hong Kong will make aninitial cash contribution of RMB60 million ($8.8 million) in exchange for a30% equity interest in Sinovac Dalian and Dalian Jin Gang Group will make anasset contribution of RMB140 million ($20.5 million), including manufacturingfacilities, production lines and land use rights, in exchange for theremaining 70% interest in Sinovac Dalian. Sinovac Hong Kong has also enteredinto an agreement with Dalian Jin Gang Group, under which the Company hasagreed, subject to the approval of the PRC government, to increase itsshareholding in Sinovac Dalian to 55% through purchasing 25% equity interestin Sinovac Dalian from Dalian Jin Gang Group for a consideration of RMB50million ($7.3 million) on or before December 31, 2010.

Acquisition of Buildings and Land

Sinovac is in advanced negotiations for the acquisition of buildings, landuse rights and utility facilities for a total consideration of approximatelyRMB120 million ($17.6 million). The Company plans to set up at this site twonew production lines to manufacture the EV71 vaccine and flu vaccines with anannual production capacity of approximately 30 million doses, a filling andpackaging line, a warehouse and an animal house. The Company cannot assure youthat this acquisition will be completed.

New Vaccine Order

In January 2010, Sinovac received the fifth purchase order for its H1N1vaccine, Panflu.1, from China's Ministry of Industry and InformationTechnology, or MIIT, under the national purchase plan. Under this purchaseorder, the Company is required to deliver an additional 8.57 million doses ofPanflu.1 (15ug/0.5ml) to the Chinese central government, of which 2.33 milliondoses are expected to be delivered before March 15, 2010, and the balance 6.23million doses are to be stockpiled by the government in Sinovac's warehousefacility. In aggregate, Sinovac has received orders of Panflu.1 from theChinese government for a total 21.06 million doses, and 10.23 million doses ofPanflu.1 have been delivered to date for the Chinese vaccination campaign. In2009, Sinovac completed the expansion of its production line used tomanufacture the seasonal influenza, H1N1 and H5N1 vaccines, thereby increasingits annual production capacity by approximately 60%.

Financial Update

The following is an estimate of Sinovac's selected preliminary unauditedconsolidated financial data for the year ended December 31, 2009. TheCompany's financial results for 2009 have not been finalized, and remainsubject to the completion of its normal year-end closing procedures andpossible change. As a result, its final audited consolidated financial datafor 2009 may be materially different from the estimated selected financialdata set forth below.

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

Sinovac expects its operating margin for 2009 to increase as a result of adecrease in its selling, general and administrative expenses relative to itssales in 2009 primarily due to economies of scale achieved through increasesin its sales as well as an increased portion of its sales to the Chinesegovernment, particularly in the sales of Healive and Panflu.1, which havelower selling expenses attributed to such sales. Sinovac expects the trend ofincreasing operating margin in the first three quarters of 2009 to beparticularly pronounced in the last quarter of 2009 because of a significantincrease in Panflu.1 sales to the Chinese government under the purchaseprogram. Furthermore, Sinovac believes the H1N1 outbreak led various Centersfor Disease Control and Prevention and the market to place more attention andresources towards H1N1 vaccination and less on other vaccines.

Given the preliminary nature of the estimates of Sinovac, its actual salesand gross profit for 2009 may be materially different from its currentexpectations. In particular, the above estimates assume the full recognitioninto Sinovac's sales revenue in 2009 of the purchase of 10.23 million doses inDecember 2009 of Sinovac's Panflu.1 vaccine by MIIT, as part of China'snational purchase plan. Although Sinovac has delivered this shipment andreceived $29.3 million in December 2009 in payment based on the agreed pricingterms, there is a risk that MIIT may unilaterally adjust the price and affectthe amount of revenue Sinovac may ultimately recognize when it finalizes itsfinancial statements.

In July 2009, Sinovac completed a restructuring by which Sinovactransferred its 71.56% direct equity interest in Sinovac Biotech Co., Ltd., orSinovac Beijing, to its wholly owned subsidiary Sinovac Hong Kong for noconsideration. Because this is a related party transaction, the PRC taxauthorities have the authority to adjust the amount of the considerationdeemed paid for PRC enterprise income tax purposes to reflect an arm's lengthamount in accordance with the transfer pricing rules. Such adjustment couldresult in the recognition by Sinovac of a higher amount of capital gainssubject to the PRC enterprise income tax at a rate of 10%. Sinovac's estimatedtax liability is approximately $1.5 million, which is subject to the approvalof the PRC tax authorities as they have discretion to assess and determine thefinal amount. The amount of Sinovac's ultimate tax payment could be higherthan the amount estimated, which may adversely affect its net incomeattributable to stockholders.

In connection with the dividends declared for 2008 and 2009 by SinovacBeijing to Sinovac Hong Kong, the Company expects to incur in 2009 awithholding tax in an aggregate amount of $3.1 million, if the withholding taxrate is 10%, or $2.0 million if Sinovac is successful in obtaining the reducedrate of 5% for the dividends declared for the 2009 fiscal year under the taxarrangement between the PRC and Hong Kong. Whether the favorable rate will beapplicable to dividends received by Sinovac Hong Kong from its PRCsubsidiaries is subject to the approval of the PRC tax authorities because itis unclear whether Sinovac Hong Kong is considered the beneficial owner of thedividends in substance. The PRC tax authorities have discretion to assesswhether 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 theapplication of the tax arrangement may be denied.

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

About Sinovac

Sinovac Biotech Ltd. is a China-based biopharmaceutical company thatfocuses on the research, development, manufacture and commercialization ofvaccines that protect against infectious diseases. Sinovac's vaccine productsinclude Healive(R) (hepatitis A), Bilive(R) (combined hepatitis A and B), andAnflu(R) (influenza). Panflu(R) and Panflu.1(TM), Sinovac's pandemic influenzavaccine (H5N1) and H1N1 vaccine, have already been approved for governmentstockpiling. Sinovac is developing vaccines for a number of differentinfectious diseases including enterovirus 71, pneumococcal disease, Japaneseencephalitis, haemophilus influenzae type b (Hib), meningitis, rabies,chickenpox, mumps and rubella. Sinovac is also conducting field trials forindependently developed inactivated animal rabies vaccine.

Safe Harbor Statement

This announcement contains forward-looking statements within the meaningof the safe harbor provisions of the Private Securities Litigation Reform Actof 1995. All statements other than statements of historical fact in thisannouncement are forward-looking statements. These forward-looking statementsinvolve known and unknown risks and uncertainties and are based on currentexpectations, assumptions, estimates and projections about the Company and theindustry in which the Company operates. The Company undertakes no obligationto update forward-looking statements to reflect subsequent occurring events orcircumstances, or to changes in its expectations, except as may be required bylaw.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.
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