Sinovac Biotech Ltd (SVA) 2011 Q2 法說會逐字稿

Greetings and welcome to the Sinovac Biotech Ltd. Second Quarter 2011 Earnings Conference Call. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. (Operator Instructions). As a reminder, this Conference is being recorded.

It is now my pleasure to introduce your host, Stephanie Carrington of The Ruth Group. Thank you Ms. Carrington. You may begin.

Thank you operator. Good day everyone. Before we begin, I would like to remind everyone that this conference call contains forward-looking statements. These statements are made under the Safe Harbor provisions of the US Securities Litigation Reform Act of 1995.

These forward-looking statements can be identified by words or phrases such as will, expect, anticipate, future, intends, plans, believes, estimates and similar statements. These statements are not historical facts, including statements about Sinovac's beliefs and expectations are forward looking statements.

Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Sinovac does not undertake any obligation to update any forward-looking statements except as required under applicable laws.

On the call today we have Dr. Weidong Yin, CEO; Mr. Jacob Ho, CFO; Ms. Nan Wang, Interim Chief Financial Officer; Ms. Helen Yang, Investor Relations Manager; Ms. Vanessa Wu, Senior Financial Manager; and Ms. Chris Lee, Investor Relations.

I will now turn the line over to Helen Yang. Go ahead, Helen.

Thank you Stephanie and hello everyone. Thank you for joining us on this conference call. On the call today are Sinovac's Chairman, Dr. Weidong Yin, CFO Jacob Ho, and our Interim CFO Ms. Nan Wang.

I will provide an update on our business on behalf of Dr. Yin and financial review of second quarter results on behalf of Nan and Jacob. Mr. Yin, Ms. Wong and Jacob will answer the questions and I will assist them for the translation.

So, firstly, let me start off by saying that the entire team at Sinovac and our Board is committed to augmenting sales opportunities for our commercial lines of vaccines and advancing the development of our pipeline candidates.

We're very pleased with the increased sales in the second quarter and certainly recognize the progress that our sales team is continuing to make to penetrate the public market through the national expanded immunization program funded by the Chinese government.

At the beginning of 2011 we revised our domestic sales strategy. We strengthened our public market sales focus by establishing a dedicated team, combining the experience of our sales team and a government relations team. At the same time we've also undertaken an initiative to stabilize private market sales. We are very pleased to see that in the first half of 2011 about one-third of our Hepatitis A vaccines were sold into the public market, which is higher than historical record.

On the other hand, our sales of Healive -- a product only being sold to the private pay market -- increased significantly year-over-year, which validates our strategy to developing a combined Hepatitis A and B vaccine that was made years ago. With Healive we're focused on focusing on maintaining and expanding our market share in the private pay market as hepatitis A vaccine is now included in the public market.

Our new strategy has been effective as we have continued to increase Healive revenues during the first two quarters of the year, which enabled us to keep sales of hepatitis vaccines as a whole at a stable level year over year, even know the general even though the general vaccine market in China is still recovering.

In the public market, in addition to the sales recorded in the first half of this year, we successfully won tenders from the Xinjiang and Hunan provinces to supply our Healive and/or Anflu which will contribute to revenue in the coming quarters. We will continue to strengthen our efforts to expand our presence in the public market, aiming at a (inaudible) growth.

As Sinovac is executing domestic sales strategy, the overseas marketing team continues to advance the international sales strategy in Mexico and other key markets. As we recently announced this week, we're very pleased to have received the GMP certificate for our seasonal influenza vaccine and hepatitis A vaccine from the Mexican regulatory authority, the Federal Commission for the Protection Against Sanitary Risk, also called COFEPRIS. We're the first Chinese vaccine manufacture to be granted GMP certificates by COFEPRIS.

GMP certificate follows the onsite inspection by COFEPRIS at Sinovac's Beijing headquarters in September 2010. The license is effective for 30 months and an onsite GMP inspection has to be applied for renewing the license. We also are working in the Mexican market with a pharmaceutical company added as a local partner and they are our exclusive distributor for that market.

In terms of next steps, we plan to submit the additional documentation for our seasonal influenza vaccine, Anflu, required by COFEPRIS in order to complete the entire registration process. We anticipate that a certificate of approval for our seasonal influenza vaccine will be granted in the coming months and that this vaccine will be subsequently launched into Mexico. Thereafter we will move forward with registration process of our hepatitis A vaccine.

In addition to that, Sinovac sold its hepatitis A vaccine to Mongolia, Nepal and seasonal influenza vaccine to Philippines and the first half of this year. Although the overseas market has been at less than 1% of total sales, the international initiative expands the Company's exposure to the global market and the team is gathering knowledge of international vaccine markets before we enter a significant market.

Currently nine registrations are undergoing in various countries. We consider Mexico to be one of the key global markets that represents a significant potential market for us outside of China. We believe our experience over the past few years can be utilized effectively to undertake a market launch and to participate in a government tender process in Mexico.

I will begin by reviewing our second quarter 2011 results and we will then discuss the R&D developments and the capacity expansion initiative.

Sales for the second quarter 2011 were $15.7 million, up 52.5% from $10.3 million for the second quarter last year. On a sequential quarter basis, our total sales rose by over 200%. Second quarter 2011 sales in the EPI market -- meaning the public market -- [were] about $928,000, which is 5.9% of total revenue and 28.4% of total hepatitis A vaccine sales.

Second quarter 2011 sales to private markets came in at $7 million, 44.9% of total sales revenue. In this quarter we also recognized $7.6 million of pandemic flu vaccine revenues from the prior order. The pandemic flu vaccine sales were recorded for the order previously placed by the government for the governmental stockpiling program. And in this quarter the revenue recognized represents about [29.2%] of total sales revenue.

Gross profit for the second quarter of 2011 were $10.8 million with a gross margin of 68.8%, compared to $8.5 million and a gross margin of 82.7% for the same period of last year.

After deducting depreciation of land-use rights, amortization of licenses, permits, the gross margins were 67.9% and 81.7% for the second quarter of this year and last year respectively. The gross profit margin was adversely affected by the revenue recognition in the second quarter of this year of the pandemic flu vaccine, because that product -- having a lower gross margin than other vaccine products.

Selling, general and administrative expenses for the second quarter 2011 were $5 million compared to $4 million in the same period of 2010. SG&A expenses as a percentage of second quarter 2011 sales were 31.8% compared to 38.9% during the second quarter of the prior year. Excluded pandemic vaccine sales, SG&A as a percentage of sales were 62.5% and 46% for the current quarter and the prior-year quarter respectively.

The increased SG&A was mainly related to the expansion of sales teams and increased spending of sales promotion in the private pay market.

Net research and development expenses for the second quarter 2011 were $2.3 million compared to $1.7 million in the same period 2010. The increased R&D expenses in the second quarter 2011 were primarily related to the continued development of the pipeline vaccine. Included in the expenses were the EV71 vaccine with the Phase 2 clinical trial underway. The trial production of animal rabies vaccine and mumps vaccine, and also some studies on other R&D projects.

We ended second quarter of 2011 with a total of $93 million of cash and cash equivalents [and shortened advancement] which the principal income were guaranteed. We're pleased to have a strong cash position given the recent turmoil in the global market. We will prudently utilize these resources to support our R&D projects and our capacity expansion construction initiative at our Changping facility, to expand our production capacity in line with WHO/GMP standards, which makes us ready for the commercialization of our pipeline products such as our EV71 vaccine.

Turning to our clinical trial activities, we reported positive results for our Phase 1 trial on our EV71 vaccine in May. The [safety of the ration] results for all three age groups including adults, children and infants showed good safety and tolerance profiles. The preliminary immunogenicity study results show that the vaccine can induce good immune response.

In June we commenced the Phase 2 trial for our EV71 vaccine. The objective of this study is to determine the dosage level by evaluating the immunogenicity and safety with different level of dosages of Sinovac's EV71 vaccine candidates, and to provide reference data for Phase 3 clinical studies.

Currently the dosing is moving forward on schedule and Phase 2 clinical trial is anticipated to be completed within the year as planned. We will keep the public updated on our progress.

The registration for animal rabies vaccine is progressing on schedule, which is anticipated to complete a registration process and launch into the market within the year. Sinovac (inaudible) is advancing the registration of mumps vaccine.

Currently the site inspection on mumps vaccine production plan were completed and the vaccine samples are being tested by National Institute of Food and Drug Control. When the testing results came out this organization will submit the results to SFDA for further review, along with other necessary documents to grant the production license.

On the other hand the production plan is under renovation, in line with the new GMP scanner issued recently in China which is anticipated to be completed early next year, after which we will apply for the GMP inspection immediately. And we anticipate to launch the mumps vaccine in China next year.

We also recently announced that Mr. Ken Lee from SAIF Partners joined our Board at the end of May. Mr. Lee represents SAIF Partners, and becoming one of our major shareholders SAIF has demonstrated its confidence in the Company's management team and their abilities to execute the sales and topline development strategies over the long-term. And Mr. Lee [do have key] experience to help Sinovac to develop its business strategies more effectively.

And also recently our CFO Jacob Ho resigned for personal reasons. Sinovac's Board appointed Ms. Nan Wong as an interim CFO until such time as a new CFO appointed. The search for a qualified CFO candidate is underway and executive search companies have been engaged.

And that concludes Management's report on Sinovac's second-quarter results. And operator we will now take questions.

(Operator Instructions) Steve Brozak, WBB Securities.

Good morning and thank you for taking the call. First off, congratulations on the sequential growth. I'm delighted to see this happen.

I've got two questions and I will jump back in the queue. The first one is related to the contracting of the influenza vaccine. Obviously influenza is a tricky situation. It is either really, really good business or it's okay business.

Can you give us insight into what kind of visibility the government is going to be providing you as to what their demands might be into the future for future influenza vaccine? And specifically for strains that you -- as being part of the CDC team -- have identified that might be a problem? And after that I've got one question concerning your cash balances.

Okay, thank you for your questions. Let me translate the question for the management team.

To answer your first question, Mr. Yin totally agrees with your statement. We definitely believe influenza vaccine is having a good potential for long-term.

However, that for a short-term period there are some uncertainties, and actually the biggest uncertainty is coming from the government order. Actually right now, as you may be aware of, Beijing government is the only local government who is spending the government money buying money buying flu vaccines and give it free for the citizens. And we think that the Beijing government still will keep the practice as they already did for the last three years to buy flu vaccines for people living in Beijing.

And also we are confident that we will plan to participate in the tender bidding process, and we're confident we expect to win the tender as usual. However, as Mr. Yin said earlier, that there is still no other province or big cities start to have these practices. But we do believe that flu vaccine has a good potential in the future, that there will be more local government still considering buying flu vaccines and provide it to the population.

And to add-on that we believe after we receive the GMP certificate from Mexico, we expect the sales -- or the orders on flu vaccine from international markets should increase. For example, like Mexico, their population is definitely smaller than China. But their (inaudible) demand for flu vaccines is about 30 million doses. And we think with having the GMP certificate in Mexico, giving us the first step to supplying flu vaccines to this market.

Okay. And again, it's one of those things where you -- it's a little bit lumpy in terms of sales. Can you tell me one thing on flu? And then I will switch quickly to the last -- to the financial question.

What's the capacity that you can produce at by comparison to what you're producing at right now? Because obviously the flu, it's a situation where you have capacity constraints. So I just want a quick question on that.

Are there any you could see? Because you could obviously -- it's a time question, but are there any capacity constraints? Or are there any constraints other than time that you would see if you were to get a blockbuster order?

Okay, thank you. Let me translate it first.

So currently all of production capacity for flow annually is about 8 million doses per year, and that is before the year 2013 because we're also -- based on the trial regulation, we need to upgrade the facility to the new China GMP standard which is recently issued in China. With the upgrading process we can -- we're able to expand the capacity from 8 million to 10 million doses are even larger.

But actually our estimation is that this capacity is enough in China. Actually if we are only supplying in China market there are -- we don't have to have this many of this big capacity. So, we expand. If we supply half-and-half for China and the international market, meaning that 5 million to China and 5 million to international, that would be an ideal situation.

Therefore right now we think we already built a foundation to expand capacity from 8 to 10 million doses. And at the same time we are setting up a new sitting in packaging line in our Changping facility in Beijing, and that capacity can reach to 100 million doses.

Therefore that with the secondary production capacity expanded, it will be a lot easier for us to expand the primary production capacity for flu vaccine if there is a big demand. Therefore it will be depending on the market demand. Once the demand is coming, we think we are ready to expand.

Great. Last question. I'm looking at cash balances. You've got EBITDA and revenue coming in. Can you give me a little bit of clarity? And I will jump out of the queue after that. On the cash balances from year to year, from six months to six months, year to year, and what is your expectations on cash balances going forward?

Well, Steve, this is Vanessa, the Senior Finance Manager. Our cash balance (inaudible) -- at June 30 we had cash totaled $70 million and we have short term investment $22 million. So that gives you $92 million.

So if you look at our cash flow, you can see for the second quarter of this year we had positive cash inflow in our operating cycle, so which means we are making money in the second quarter. It's about [$1.5 million]. However, overall for the six months, the cash flow derived from the operating cycle is negative about $4.4 million.

I think because we have heavily invested the in acquisitions of the property plant and equipment, we bought a production facility in Changping near Beijing which we [view] on the payment schedule. We plan to have -- I think we have six installment payments on buying that property. So on the second quarter we paid around RMB10 million for that.

So coming forward we still have another around [RMB15 million] to pay [this facility to pay] off this facility. So that is going to be our -- minimum our acquisition CapEx. So, going forward, I think we have we still have to invest-- spend heavily on the acquisition.

Another thing is from operating cycle. Normally our accounts receivable collection, mostly we will collect the money on the second half of the year. So I'm expecting there's more cash coming in the second quarter.

So hopefully we can make our cash, in the operating cycle we'll be positive. But also you have to be aware that we will spend more on the CapEx in the second quarter. So that is the profile of our cash balance.

Okay, obviously if you don't spend on the CapEx you don't grow. So that is entirely expected. And it is one of those things where you have to do it, and it will lead to sequentially greater quarterly growth. Good numbers and I appreciate the feedback, and I look forward to the next call. Thank you.

(Operator Instructions) Bin Li, Morgan Stanley.

Thanks for taking my questions. I have a couple of questions. First is on your hepatitis A vaccine. You did show very good sequential growth. I just want to understand a little more about this growth, where it is coming from.

And you said you have spent quite a bit of sales effort on the private market. But when I look at the second quarter versus first quarter, can you tell us for the incremental growth how much is from public market and how much is from private market?

And I [think] you [commented] on the split between public and private; one-third sales is coming from the public segment for this quarter. I hope you can give us a little more detail on the public dynamics versus the private, i.e., what is the price difference? And in the private sector, what is the volume versus the public volume?

Also a follow-up a question on this would be -- when I look at your press release you said you won pretty good tenders from Beijing and Shanghai and Tianjin. You also mentioned part of Jiangsu. I want to understand why only part of Jiangsu, if the public market in Jiangsu split into different regions? That is my first question and I will have follow-up on the other business.

Okay. Let me translate your question first.

Actually if we're looking at quarterly basis, we think normally we're looking at a longer period of time, therefore that we didn't a very greater detail growth [analysis] on the private market or public market. But we would like to look at it at a longer period of time. Also when we are analyzing the hepatitis A or hepatitis A and B vaccine, we want to combine it as a hepatitis type of vaccine.

We think that the most significant change in these recent months is that the growth of Healive, the combined hepatitis A and B vaccine, is the driver for the growth. After hepatitis A vaccine was included in the public market, we believe that the promotion on the Healive to have A and B vaccine is actually very effective to expand the market for Sinovac in the private sector.

And regarding to the EPI market within key supply in vaccine to Beijing, Tianjin and Shanghai these are very stable EPI markets for Sinovac. However, for the province of Jiangsu and Xinjiang, like we recently announced they are not a regular EPI market, but just those [supplies] or the tenders were issued by government for a special situation. And we think in this quarter our EPI sales is about over 20% of hepatitis A vaccine sales in general, and we believe that in the future the growth in EPI is a significant driver for the Company.

For example, if in second half this year or even next year, if we can win a tender in a province, maybe the sales from one province could be even bigger than the sales from three cities of Beijing, Tianjin and Shanghai. Therefore that management is very confident and also we put more resources into the promotion and expanding the market share in the EPI, sector which we believe that will be the driver of our future growth.

Thanks. If I could ask a follow-up, still on hepatitis vaccine, I think you mentioned about Xinjiang. I just want to understand. Of the -- about the 0.5 million or so dose that you announced that you got the -- you win tender that you will supplied to Xinjiang province, over how long a period that the supply is for? In other words when can we see sales contribution of these doses?

And also I want to understand the pricing difference between EPI and the private payer market.

Well, firstly to answer your first question is that these 0.5 million doses is expected to be shipped out in the second half of this year. And once the products are delivered we can recognize revenue, meaning that we expect to record revenue of that in the second half this year.

And the reason for having these public tenders from Xinjiang province is because they have local hepatitis A epidemics. And therefore the Ministry of Public Health in China approved a certain amount to approve the Xinjiang province profits to use inactivated hepatitis A vaccine to immunize the children under five years old. However, for the regular EPI market in Xinjiang they're still buying the live attenuated vaccine.

However, once the government decides to give a massive vaccination to the children, [to select to use] the inactivated hepatitis A vaccine, we believe this practice is very meaningful for the long-term in our progress to develop our EPI market presence.

In our press release we did announce -- in a public notification put out by the Xinjiang government there are total amount of payments and a number of doses. And actually the unit price is the highest level of the sitting price given by the government which is about RMB32 per dose. Even though it is a lot lower than the private pay market, as we're selling to that sector, but there are not many expenses on promotion. Therefore we do believe we have a higher bottom-line compared to -- for this amount of vaccines, they do have a higher profit contribution compared to the private pay market.

And can you remind us for the private market, is the price (inaudible) [places], are they similar?

Sure. In private pay market we are starting at about RMB42 per dose.

Great. If I could ask my second question on the flu vaccine. The first question would be when I look at this quarter's sales, obviously you've booked pandemic flu vaccine. Can you tell us this kind of [line], are we expecting any -- this kind of booking of a prior sales for the second half?

You mean -- oh, in the second half.

This is Vanessa. Actually right now we have (inaudible) revenue which refers to H1N1. However, we have to wait until the government to -- [out] everything. So if that happens in the second quarter, we will definitely recognize the revenue in the second quarter.

You mean second half.

Second half, second half of this year.

And what is the balance of deferred revenue?

If you look at our balance sheet, we have the deferred revenue around $2.4 million. That is also including some age H5N1 and also H1N1; most of the H1N1. Oh, no, no, no; sorry. That's -- refers to H5N1, but our inventory we have H1N1 inventory, so -- waiting, sitting in our inventory waiting for government approval to recognize our revenue in the second half of this year.

So if you could (multiple speakers)

I do want to clarify that if the government progress is not completed in time, we may delay the recognition of H1N1 vaccine revenue until next year.

Yes, maybe if you could tell us what is the potential total number including everything -- inventory or deferred.

The deferred has the balance on the balance sheet, which -- about $1.4 million.

[For H1N1] it should be around $18 million to $20 million.

Okay, great. Thanks. And also I noticed that you booked $7.7 million for pandemic sales -- vaccine sales. Now I think you said $7.7 million, but you actually booked $7.5 million. So there is a minus $0.2 million difference. Can you explain? Am I missing anything here?

No, I think you are pretty detail oriented. Yes, you are right. The little difference is because of the sales return of our seasonal flu. We sold a little bit seasonal flu in the fourth quarter. A portion of it returned in the second quarter, so we reflect the sales return of the seasonal flu in our second quarter. So that gives this difference.

Okay, great.

And another question still on the flu vaccine, I appreciate that it is very hard to predict the demand because it is a competitive market. Now we're in the second half, and if I recall correctly, usually third quarter would be a very busy season for bidding and for manufacturing in order to ship a vaccines to -- for this year. So what kind of indication do you have now in terms of bidding in different provinces? And what kind of visibility can you provide us for the second half sales for this seasonal vaccine?

I think we will have Mr. Yin answer this question.

As Mr. Yin just explained, we have already initiated the activities on promoting seasonal flu vaccines right now. We already have vaccines released by the government for commercial sales and some of the product were delivered to our customers.

But in terms of the general market for flu vaccine, we think it may not be as good as what happens in the year 2009 which is very high demand, which is encouraged by the -- which was affected by the H1N1 outbreak. But also for this year, we don't have the negative incidents like the Jiangsu incident, what happens in 2010. Therefore [what we're saying] this year is like a regular year for flu.

So what Sinovac's management team is doing is that we keep executing our strategies to shape and deliver our vaccines to (inaudible) vaccination. And each one of the sales persons are making their effort to sell their vaccines one clinical by one clinic. And only when we have these efforts spent effectively and sufficiently we can maintain a sustainable, growing business for our flu vaccine.

Thanks. I will go back to the queue.

Bin Li, Morgan Stanley.

Thanks. Let me -- I have a few more questions. And also still on the vaccine, flue vaccine, it is good to see you did GMP approval from the Mexico government. Maybe you cannot tell us the pricing point, but can you give us a very broad concept of margins?

How should we think about the margin for the Mexico business, and maybe in general, broadly about the international business? How should we think about the pricing point of international vaccine and what is the profitability? Is it higher or lower than your domestic business?

Thank you. As Mr. Yin just explained, that in Mexico the immunization season is from February to May, which is after the vaccination season in China. So after getting the GMP certificate, if we can get the final approval from Mexico in time, we can actually sell our vaccines to Mexico after the sales in the domestic market.

As you may be aware, in China, if in certain period of time you can't sell out your inventories those part of the vaccine will be written off on our financial statement. Therefore if we can have a market like Mexico, actually it can consume the part of the product that otherwise would be written off. Therefore in general we believe -- open up the international market definitely is a good opportunity to improve the Company's profitability in terms of the flu business.

And also Mr. Yin explained that we're also selling vaccine not only in Mexico, but -- we don't just have Mexico as a potential market. We've already initiated sales of a flu vaccine to the Philippines since last year and we will keep doing business for Philippines with our flu vaccines in the next [following] years. And we believe that our flu business make good profit after our sales going up to 10 million doses.

That is why -- we are right now under that amount. Therefore when we are adding the number of markets to our flu business, we do think in general that we can realize economies of scale and then the profitability of the Company will be improved a lot.

Okay, thanks. My next question is on your animal vaccine business. I just want to understand the rationale for you getting to that business. Correct me if I'm wrong. The animal vaccine business, it is very different from what you have now in terms of sales channel, in terms of regulatory requirements. I think there is synergies perhaps in the technology and the production.

So what is your plan to promote this once the animal vaccine business, animal vaccine is approved? And what is your outlook for that business?

Okay, thank you. So Mr. Yin just commented to answer your question that we believe that even though the sales channel order registration requirements for animal vaccines are different from human vaccines, but they do have a common [theme], which is digitalize the (inaudible) technology to develop and produce a vaccine.

As you may be aware, that in China Sinovac's expertise of developing and manufacturing vaccines for humans has been highly recognized. And therefore that we will also receive the recognition from the Ministry of Agriculture, which is the regulatory authority for approving animal vaccines. That is why we received the license to develop the animal vaccines, that also we received the approval as we're progressing our R&D programs, for example, [via] GMP license. These are from the technology and registration parts.

And on the other hand, we do -- we are aware that the entire animal vaccine market in China is the biggest compared to globally and worldwide compared to other countries. And also in this market, the pets market is also fairly big. And for an example in China, we estimated that there are about close to 100 million dogs registered with the government. And that is the very big potential market for the animal rabies vaccine.

However, that in China the animal vaccine development, production and sales is at a very early stage. That is why we want to utilize our experience to develop and manufacturing high-quality human vaccines and to leverage these experiences to help us enter into the animal vaccine market to build up our expertise and to gain more opportunities.

[As we have said] that the size of animal vaccine markets is as big as the human vaccine market, which currently should be around RMB10 billion to RMB20 billion in terms of value for the entire animal vaccine market. And that is why we decided to move into the sector and develop these vaccines.

And also recently there are a lot of issues in China regarding to the quality of food. Actually, the government do recognize [that utilize] good vaccines to control the quality of animals and also they can turn out to control the quality of animals; very effective method. And that is why we also expect that after we launch our first animal vaccine into the market, we also would like to expand into other vaccines for poultry and for other type of animals that we can contribute to control the quality of food in China as well. That's the answer from Mr. Yin.

Thank you.

Chad Messer, Piper Jaffray.

I apologize if this was discussed. I may have missed it earlier. I was dropped off the call for a while.

But is there any update you can give on the Phase 2 EV71 trial? I know in June when you got that launched, you're expecting about six months to get to the end of that. Is that on track? Any color you can give us there? Thanks.

I would like Mr. Yin to answer the question.

Actually we are still in the process of conducting a Phase 2 clinical trial and we expect to update the public about the results of Phase 2 trial shortly. And also we are right now preparing for entering into the Phase 3 clinical trial, and now where in the process to communicating with the Ministry of Public Health and SFDA of China. And we expect that we can move into Phase 3 clinical trial as soon as we can. And then we expect that the vaccine's safety and efficacy profile could be validated in a Phase 3 trial.

At the same time, we're also -- started the process of designing and building the facilities of commercial manufacturing of our EV71 vaccine, which this process is in line as we're advancing our clinical trial studies. And our objective is to launch the vaccine as soon as we can, and to generating a bigger profit for the Company compared to the other product we have.

And also in the path of our communications with the government and with the investors that we expect the product of EV71 could be -- the contribution from EV71 could be even better than hepatitis A vaccine to the Company. We have a lot of expectations on that. And also because of the severity of the epidemic of hand, foot and mouth disease in China the government -- including the CDC and MOH -- do have a very big expectation on Sinovac's to launch this vaccine to the market. And therefore we're very confident about the demand for hand, foot and mouth disease vaccine in China.

Great, thank you. Well, that sounds like good progress and we'll wait for further updates.

Great, thank you Chad.

There no further questions at this time. I will turn the conference back over to Management for closing remarks.

Well, we do appreciate your support and confidence about Sinovac. We have a very good quarter in the second quarter this year and we're also keep advancing our strategies in terms of sales and marketing, and research and development. And we do expect that we can share in our success and our future with our shareholders. Thank you very much.

Ladies and gentlemen, this concludes today's conference. All parties may disconnect. Have a great day.