Sinovac Biotech Ltd (SVA) 2011 Q4 法說會逐字稿

Greetings, and welcome to the Sinovac Biotech Limited, fourth quarter 2011, earnings conference call. At this time, all participants are in a listen-only mode. A brief 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, Miss Nicole Greenbaum of the Ruth Group. Thank you Miss Greenbaum. 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 Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by words or phrases such as will, expect, anticipate, future, intend, planned, believed, estimate, and similar statements.

These statements that are not historical fact, 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 statement.

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; Ms. Nan Wang, Interim Chief Financial Officer; Ms. Helen Yang, Investor Relations Manager; and Ms. Chris Lee, Investor Relations.

I would now like to turn the call over to Helen Yang. Go ahead, Helen.

Thank you, Nicole; and hello, everyone. Thank you for joining us on this conference call. On the call today are Sinovac Chairman, Dr. Weidong Yin, and our interim CFO, Miss Nan Wang. I will provide an update on the business and the financial review on their behalf.

Let me start by providing you with an update on our business in general in 2001. After passing through the year of 2010 under unfavorable market conditions, vaccine demand from private individual recovered in 2011, and we are seeing continued demand for our hepatitis and seasonal influenza vaccines.

At the beginning of 2011, the new Head of Sales and Marketing team of Sinovac reorganized the sales team by simplifying the management hierarchy and processes to improve the efficiency and productivity of the sales team, and increased the number of sales representatives to enhance the market penetration in the private pay market in China.

Therefore, in the year of 2011, we achieved a 70% growth rate to $56.8 million from $33.4 million in the year of 2010. During 2011, we recorded $21.8 million from pandemic influenza vaccine sales, relating to government stockpiling orders in the previous years.

In comparison, the growth from the regular vaccine sales, i.e., non pandemic products, were actually contributing some 47% growth comparing to last year. And the sales of each of our products are growing, especially for Bilive sales through private pay market in China. And this one in last year actually grow over 200% year over year.

The management believes the new team of sales and marketing in Sinovac is doing well, and that their strategy is very effective for the current market situation.

And also currently, we're not only sending to the product to China domestic market, we're also shipping our vaccines to Philippines, Mongolia and Nepal.

Potentially, there are other few countries that we can sell our products to, subject to completing the registration in those countries. And just recently, in March 2012, we won a tender in Mongolia to supply 190,000 doses of Hepatitis A vaccine, and we were selected to be the supplier for flu vaccines for that country in the second half of this year.

To give you an update on our registration in Mexico, that is still pending, but we're still communicating with the local distributors in order to move forward to obtain the final license.

And in case if we can obtain a sales permit in the first half of this year, we would expect some small amount of sales to private pay markets, and we may begin to participate into the local Government tender for the year of 2013.

We believe the sales of our regular products are in good position now, but to create a higher growth opportunity for long term, we will need to continue advance our pipeline products.

And actually in this morning, we announced that positive Phase I clinical studies for our EV71 was accepted for publication by the peer review journal called Vaccine on March 4, 2012. An uncorrected proof is available online as of March 14, 2012.

And if you're interested, you may want to write down the name of the article and take a look. The name is Safety and Immunogenicity of a Novel Human Enterovirus 71 Vaccine, a randomized placebo-controlled, double blind phase I clinical trial.

This article provides an in depth look at a safety observation with preliminary immunogenicity data from the study, in which all three groups, including adults, children and infants are all showed good safety and tolerance profile.

As we announced previously, we completed phase II trial for a EV71 vaccine candidates, and a selected dose for use in order to commence the phase III studies. And a phase III trial was already announced that commenced in January 2012. The phase III was designed as a randomized double blind placebo-controlled study with a vaccination schedule of two shots at zero and 28 days.

To the end of March 2012, approximately 10,000 healthy volunteers have been enrolled in the phase III trial, and a two-shot inoculation and a blood collection on the 56th day after the first inoculation has been completed in these volunteers.

We began the observation and data collection phase on March 14, 2012, to assess the hand, foot and mouth disease epidemic situation in order to evaluate the efficacy of our novel vaccine. Currently, the phase III trial is progressing on schedule, and is on track to be completed in the first half of 2012.

Meanwhile, the construction of the EV71 production plant is progressing well. The purpose of building the facility in parallel with the phase III trial is to make sure that the vaccine can be provided to protect those at risk as soon as it's approved.

As you may know, besides EV71 vaccine, our vaccine development pipelines also include several vaccine candidates in various stages of development. In December 2011, Sinovac obtained a production license from the SFDA of China for our mumps vaccine. In March 2012, the Company applied for GMP certification on a mumps vaccine production plant at Sinovac Dalian. The Company is waiting for notification of the inspection date from the SFDA for GMP certification.

In early 2011, we also filed a clinical application of pneumococcal conjugate vaccine, pneumococcal polysaccharides vaccine, and rubella vaccines. And during this time, we keep improving the production process and in order to come up with better products.

And we are also continuing to develop our other pipeline products, including rotavirus vaccines, human rabies vaccines, and these programs are all proceeding well and on schedule.

And besides the sales and R&D, the management team also are making an effort in order to improve the efficiency of the Company. And especially in last year, our account receivable collection improved significantly due to the better credit management by the Company, and as well as the better financial capability of our clients under this recovered vaccine market situation.

And we also announced earlier today that Mr. Meng Mei was appointed as an independent director to fill the vacancy created by the resignation of Mrs. Mok. Mr. Mei has also been appointed as a Chairman of Sinovac Compensation Committee, and a member of our Audit Committee and Nominating Committee and Corporate Government Committee. Mr. Mei's appointment enables us to comply with NASDAQ listing Rule 5605 requirement that Audit Committee consists of at least three independent directors.

Mr. Mei founded on Tsinghua University Science Park, which is the national science park established by Tsinghua University in the year of 1994. The Science Park is to incubate high growth companies. Mr. Mei is the Chairman of the Science Park, which is also engaged in the development, construction and management of Tsinghua University Science Park, and is providing services to enterprises based in here. And this Park is also involved in Venture Capital Investment in China.

Mr. Mei also sits on the judging expert panel of China's National Science and Technology award. He has developed courses on entrepreneurship and new venture formation at Tsinghua University, Professor and Entrepreneur.

Mr. Mei holds a Bachelors Degree in Automation from Tsinghua University. We believe his wealth of experience in general business management and investment, as well as his access to a network of local resources among businesses and governments, will be invaluable to the strategic growth of Sinovac. And we believe that he will make significant contribution to the Company.

And now I would like to review our fourth quarter 2011 and full-year 2011 financial results.

First is the fourth quarter results. Our sales for the first quarter 2011 were $21.1 million, up 131.3% from $9.1 million for the fourth quarter year of 2010. The increase of the fourth quarter 2011 sales mainly comes from the recognition of $14 million revenue of H101 vaccine, and also the increase of sales of Bilive in the private pay market.

Our gross profit for the fourth quarter 2011 was $13.1 million, with a gross margin of 62% compared to negative $1.9 million and a gross margin of negative 20% for the same period 2010. The increased gross profit margin in the fourth quarter of 2011 was attributable mainly to the reduced inventory write-offs and provisions, and to more revenue being recognized from the Government stockpiling order.

We recorded a $2.74 million inventory provision in the fourth quarter 2011, as the cost of sales to reflect the expiration due to shelf life of 581,000 does of the seasonal influenza vaccine due to the ending of the flu season, and about 2 million doses of Healive and Bilive that will likely -- that will not be likely to sold in the year of 2012.

The gross margin also reflects a 10% sales return provision for 2011 sales of Anflu, and an 8.3% provision for Healive and Bilive.

After deducting depreciation of land use rights, amortization of licenses and permits, the gross margin was 61.9% and a negative 23.2% for fourth quarter 2011 and 2010 respectively.

Our selling, general and administrative expenses for the fourth quarter 2011 decreased compared to the same period year of 2010. The decrease in general expenses mainly resulted from our cost control efforts, as well the foreign exchange gain from bank deposits denominated in RMB.

The decrease in selling expenses is mainly due to improved productivity of the sales team who incurred less handling and transportation fees on government stockpiling orders which did not require shipment.

Excluding pandemic flu vaccine sales, SG&A as a percentage of sales was 83.2% and 176.1% for the current quarter and prior year quarter respectively.

The provision for doubtful accounts for the fourth quarter 2011 was reversed by $1.7 million compared to an increase of $1.9 million for the same period of the prior year due to the significantly improved account receivable collection.

The R&D expenses in the fourth quarter of 2011 were primarily allocated to the continued development of our pipeline vaccines, including the expenses for the phase II clinical trial of the EV71 vaccine which was completed in November 2011, and trial production of the mumps vaccine and other R&D projects.

Depreciation of property, plant and equipment and amortization of license and permits for the fourth quarter 2011 was $365,000, lower than the $525,000 for the same period of last year, primarily because of the expiration of the amortization period of inactivated hepatitis vaccines.

Our total operating expenses for the fourth quarter of 2011 were $6.3 million compared to $11.3 million for the comparative period in 2010.

Our operating income for the fourth quarter of 2011 was $6.8 million compared to an operating loss of $13.2 million for the same period of the prior year.

Net income attributable to stockholders for the fourth quarter of 2011 was $2.8 million, or $0.05 per diluted share, as compared to a net loss attributable to stockholders of $8.9 million, or $0.17 per diluted share in the same period of 2010.

As of December 31, 2011, our cash and cash equivalents and short-term investments totaled $104.3 million compared to $103.1 million as of December 31, 2010.

We have sufficient cash and short-term investments to support our near-term planned research and development activities and our anticipated investment in manufacturing facility construction.

And now I will talk about the full-year results.

Our annual sales in 2011 were $56.8 million, up 70.2% from $33.4 million in 2010. During 2011, we recorded $21.8 million in pandemic influenza vaccine sales relating to the Government stockpiling orders in the previous years.

The increase in the regular vaccine sales was driven significantly by the growth in Bilive sales to the private pay market in China.

Sales of our H1N1 and H5N1 vaccines, i.e., Panflu.1 and Panflu, represented 24.6% and 13.7% respectively of total sales in the year 2011 as compared to 21.5% and 7.2% of total sales for 2010. The H1N1 and H5N1 vaccines were all ultimately sold to the Chinese Government.

Our gross profit for the full-year 2011 was $35.7 million, with a gross margin of 62.8% compared to a gross profit of $16.7 million, and a gross margin of close to 50% for the same period in 2010.

As our production planning and coordination improved in last year, inventory write-offs and provisions declined from $6.8 million in 2010 to $4 million in 2011, which yield a higher gross profit margin compared to 2010.

However, the lower inventory write-offs and provisions are not totally reflected in the gross margin increase, given that the positive effect was partially offset by a higher write-off of idle capacity being included in the cost of sales, which rose from $298,000 in 2010 to $1.2 million in 2011.

And in 2011, due to the enhanced control of production volume, the hepatitis and the influenza production facilities had idle capacity of 48% and 30% respectively. And in the year of 2010, the idle capacity of hepatitis plant was only 11%, and there was no idle capacity for 'flu.

After deducting depreciation of land use rights, amortization of licenses and permits, our gross margins were 62.3% and 48.3% for the full-year 2011 and 2010 respectively.

Our selling general and administrative expenses increased in 2011, but by proportionally much less than our sales increase.

Over the past 12 months, we have realigned our sales and marketing efforts to better address the changing Chinese vaccine market. Selling expenses increased as a result of increased promotional activities for Bilive in the private market and an expanded sales team to cover a wider geographic area, and increased compensation to professionals to improve employee retention.

General and administrative expenses remain at about the same level as in 2010.

We recorded a recovery of doubtful accounts of $167,000 in 2011 compared to an expense of $1.9 million in 2010, which results from our more effective credit management than last year.

Over the last few years, we have placed a much greater emphasis on product development, and we have built a strong pipeline for the future. As a result, our R&D expenses for 2011 were $9 million compared to $8.5 million in 2010.

R&D expenses in 2011 were primarily related to completing the phase II clinical trial and phase III trial production for our EV71 vaccine product candidate, and trial production of mumps vaccine and completing the development of the animal rabies vaccine.

Depreciation of property, plant and equipment, and amortization of licenses and permits for 2011 was $1.4 million, unchanged from the prior year. Additional depreciation on property, plant and equipment was recorded in the year of 2011 due to the expansion of facilities. And amortization of licenses and permits last year was lower due to the inactivated Hep A vaccine being fully amortized during the year.

Our operating expenses during the last year were $31.9 million compared to $28.8 million in 2010. Our operating income in 2011 was $3.8 million compared to an operating loss of $12.1 million in 2010.

The net loss attributable to stockholders for 2011 was $845,000, or $0.02 per diluted share, as compared to a net loss attributable to stockholders of $8.5 million, or $0.16 per diluted share in 2010.

And in the year of 2012, we will continue to strengthen our domestic sales and marketing activities, and increasing our penetration in China market. Advancing the pipeline programs are more important right now for our long-term growth. And in parallel, the management will also taking steps in order to improve our operating efficiency, and we believe we are well capitalized to fund our growth initiative.

And that concludes management's remarks. And, operator, we are now ready to take questions. Thank you.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. (Operator Instructions). Hao Zhou, Piper Jaffray.

Congrats for a good quarter. My first question actually is can you remind us what's the Bilive sales last year again. I just wanted to get the Bilive growth year-over-year rate for this year -- for last year; for 2011, sorry.

Sure. Actually, in the year of 2010, our Bilive sales were only $3.6 million, but in 2011, the sales is $12.7 million. So the growth is 249%.

Okay. And following the Bilive growth, can you also give us an update of what's the channel strategies in terms of lines of distributors and sales in terms of getting the Bilive growth for last year? And going forward for 2012, what's the Company's continuing plan to expanding the Bilive penetration?

I will invite Mr. Yin to answer this question.

(interpreted) Actually, after Hepatitis A vaccine was included in the national immunization plan, the price and volume of Hep A was decreased comparing to the previous years. That's why we believe it's very important for us to stabilize. At least we've stabilized the sales of Bilive, and we need to create new strategies in order to generating growth from these products. As right now, Sinovac is currently the only supplier of Bilive, we believe we have a comparative advantage.

What we do is we increase the investment into the develop the area in China, and increase the price, the selling price of Bilive in some different places. And also, we strengthen our collaboration with different parties in the channel. And through all these activities, we are strengthening our promotion among the peoples who need a booster of both Hepatitis B -- Hepatitis A and Hepatitis B vaccines.

And also, if you remember that Sinovac only relying on direct sales of our own team, and in the last year we started to try to collaborating with some distributors who have a good access and a better team with local resources in order to help us to create a better penetration in that area. So we think that the collaboration with these selected distributors also gives a very good result which is showing from our sales growth in these products.

To summarize is that we are right now trying to promote and stabilize our sales from private pay markets through Bilive and Influenza vaccines, and also trying to create a new strategy in order to generating growth. And we believe that collaboration last year with distributors is very successful, and we believe right now our strategy is well executed and they are suitable for this market. Therefore, that we believe we're also being prepared in order to be largely enter into the public pay market.

So now what we want is to stabilize and also growing our revenues from our launched -- commercialize the vaccines, but all what we are doing is actually preparing for us to be ready when our EV71 vaccine is launched into the market.

Great. And in terms of the --- you guys have obviously reduced your sales and marketing expense in the last quarter very effectively, and can you guys give us some colors in terms of where is the reduced expense coming from? Is that from most of the promotion expenses or marketing expenses? Or is it the direct sales, from the direct sales and the alignment of more activities, more reduced offers to your distributors in the latest quarters to reflect that reduced SG&A expenses?

And also -- let me just pose this question first and then I'll follow up with the next one.

Sure.

(interpreted) So actually we -- in the fourth quarter last year, we think some of the [upside] coming from our collaboration with distributors. Normally, the expense level will be less comparing to using your own teams to do the sales and marketing activities.

Okay. And also going forward for your distributor models, will using more distributor resources potentially affect your gross margin pricing? The [SP] to the final SP for most of your regular vaccines?

Actually, what we are doing right now is start trying to collaborating with distributors, and we want to maintain some of these resources in order to be utilized when we are launching our EV71 vaccine. So once we've got approval, then the EV71 vaccine can be launched, not only through our own channel, but also go through the distributors.

And the other part of the reasons with the light expenses on selling and marketing is that actually our sales team also restructured, so some of the processes have been eliminated to simplify the management hierarchy. So we believe that improved the productivity; also having a result on the light expenses. (Inaudible).

Hello?

Yes, did you get that part?

Some part has been cut off.

Oh, sorry. And also, we think as some of the vaccine revenue that we recognized is the Government stockpiling programs, and those products will just be staying in our warehouse, so there is no requirement for the transportation expenses as well.

Okay. And also my question relates to the pricing because, obviously, the Healive growth is for private -- is for both private and public growth. What's the Healive growth this -- I have not look at the growth.

So is it potentially you guys thinking about putting price cuts and then inspiring more volume growth in order to solicit a better government tender going forward, or that's not going to be in the near-term strategies to gain volume?

(interpreted) Actually, Sinovac has two different packages for Healive, including prefilled syringe and vial. Actually, the vial is a lower cost product, so this version is prepared for lowering price and in order to submit it to a tender market.

But right now, we think that selling inactivated Hep A vaccine is not enter into a price competition at the moment, because up to now, the tender that we won is still at a relatively higher price compared to the other government-purchased vaccines.

And we also right now is trying to control our costs in order to create more room for us to stay competitive. So I think we are right now ready to move forward in order to supply the large volume of Hepatitis A vaccine to the public market in China.

Okay, great. And my last question actually comes from the Anflu growth. Obviously, the Anflu growth for last year achieved only a 7% growth, mainly due to -- and can you give us some updates in terms of any additional city attractions in terms of getting more Anflu sales through your distributor model, the expanded distributor resources as well as to the Government tenders in other big cities such as Shanghai, or other major part of cities, or maybe other --?

Sure. Actually, the seasonal flow of vaccines in China are still being qualified as a -- classified as a private pay market product. So we are only selling to Beijing Government through a local government procurement program. But in the rest of China, it will be sold directly into the private pay market.

And our sales of Anflu only have a limited amount of sales coming from distributor. So the majority of these sales are still being done by our own sales team.

Okay. And can you remind us how much is the -- of the little over $8 million sales last year, how much is from the Beijing tender, Beijing order?

Beijing order is 20%.

20%. Okay, thanks. I'll get back to the queue.

Bin Li, Morgan Stanley.

I have a couple of questions on your margins first, and a few questions on your products, including pipelines.

First of all, you've had an inventory write-off of $2.74 million, and you also said you have 10% -- you record 10% return of -- an 8% return of other products. Can you tell us, of the $2.74 million, is that it, or are you expecting more inventory write-off? And also for the 8% and 10%, what is the dollar number attached to that?

Sure. Actually, when we are doing the year-end audit, we are actually looking back our inventory levels and comparing to not only the inventory. We are looking at inventory we have and comparing to the future selling budget, and we're also looking at the expiration date of some of our products. So we find there are some products not likely being sold.

So we did a provision on inventory. I think the amount is what we said here is $2.74 million.

Right, yes.

And regarding to the -- your next question is about 10% return.

10% sales return provision for 2011 for Anflu, and 8% for Healive and Bilive. Is it it, or do you expect some more for the next quarter, for 1Q of 2012?

Actually. for flu, it's a seasonal product. Normally, the sales season will end very early of every year. So right now, it's pretty end of the flu season. We have actually set up a schedule internally with our team that the maximum return rate will be 10%. Otherwise, they will have some rules imposing on that.

So we are looking at the product inventory currently held at our customers, i.e., centers of disease control. We are -- including this amount, we calculate it. It's -- we're just doing a conservative approach that we expect all of them will be returned. So we think 10% can cover these amounts.

And regarding to --

And what would be the dollar amount for the 10%?

10% dollar amount. It's about RMB5.7 million. It's close to $900,000.

And 8%?

8%, we actually take a similar approach, but a dollar value for 8% is RMB10.9 million, which is about $1.7 million.

Okay. So if you can help us on the math. If we were to exclude those two items and also the $2.74 million, what would be your margin, growth margin? I don't know whether you have data offhand.

Probably we don't have it with us right now. We probably can -- later on we can send some information to you if you think that is helpful.

Sure. I would appreciate that. Also a number of questions is on your income tax rate. Can you explain why it is running at 71%; [no, 41%].

41%. Well, actually right now, under Sinovac --

[$3 million], yes.

There are three operating entities, but only Sinovac Beijing, which is over 70% owned by ICBA, are generating profit and paying tax. So we actually are being treated with a favorable tax rate of 15% as we are qualified as high tech company status. So it's 15%.

But the other operating entities only have costs and losses, so I think if you are calculating using this consolidated numbers, you will find a higher percentage of tax rate.

Okay. So your pretax is $7 million and your income tax is about $3 million, which comes about 41%, and what would be the normalized tax rate?

There are other issues that we read of about $2.5 million deferred income tax assets, the current portion of [DIT]. We think the $2.5 million write-off from DIT was charged to the income tax deferred, so that having some impact on income tax. Does that make sense?

Okay. Yes, sure. I'll get back to you maybe later. If I can also ask some questions on your pipelines. You talk about the EV74 is ongoing, phase III trial is ongoing, and you also talk about that you're expecting some beta in the second half of 2013. Now a few questions. Number one, are you expecting any interim look for the phase III trial? If yes, what's the timeline?

Let me check with Mr. Yin.

(interpreted) We actually did set a target in order to having an interim report, but that will be having a condition. If we are collecting to a certain number of patient cases, we can unblind the results, and we can preliminarily see how the trial is going. But when we can get sufficient cases, that will be depending on the epidemic situation.

Okay. So the timeline is not certain. Okay. And another question is when I looked at your phase I data, in your trial design, you have adult patients and you also have children. Is that the same design in your phase III studies? Or are you designing this for both populations?

No, not really. Actually, the high risk group for hand, foot and mouth disease is children under five years old. And most of the severe cases are reported among the children under two years old. But for the phase I trial, the primary endpoint is for safety study. So in order to do it conservatively, we do it on adults first, and once it's proved to be safe, we move into younger population. Finally, it goes to the infants. But our phase III trial is studied efficacy of the study. All these 10,000 volunteers are children from 6 months to 35 months old child.

Okay, that makes sense. Now you mentioned that you will constructing the EV71 vaccine facility, production facility. What is the progress on that and what will be the CapEx associated with that?

(interpreted) Currently, our EV71 plant was constructed in our Changping site, but the total CapEx will including the setup a new plant and purchase that campus. And also, we set up a new filling and packaging line and other offices and quality control labs.

So EV71 is only a part, it's one floor of -- the premier production of EV71 is just a floor of that building, so it's very difficult to differentiate what is the total investment for EV71 at the moment. But the first one which we'll be commercializing, using commercialized, is filling and packaging line. For the timeline, we expect to complete all the construction and validation by the end of this year.

The total CapEx of this Changping site is about RMB300 million, which is about close to $50 million. But as said earlier, that will include the filling and packaging line and the purchase of land, land use rights and buildings, and also, the management of setting up labs and offices. And now, this amount of capital expenditure are supported by a credit line we obtained from a commercial bank. So right now, the construction is moving on schedule, and we have good financial resources to back on that.

And one more question, if I could. You mentioned about the Dalian facility is almost back on line and you're waiting for the Chinese FDA inspection. What will be the timeline for that? And can you give us some kind of outlook for that business opportunity for your mumps vaccine?

And also, I think you're working on animal rabies vaccine. Can you also give us an update on that?

As we said, we are right now expecting the GMP inspection. So we expect that in the second half of this year we can finally get this mumps vaccine launched to the market. But with only a few months left and a new product on the market, we don't expect a significant revenue contribution to the Company. But with having these products, and also our rubella which is right now expecting the green light for [connecting] the clinical studies, we finally want to do the MMR which right now are having -- we do think in China there is a big gap between the supply and demand for the measles, mumps and rubella combination vaccine.

And regarding to the --

Sorry. So it sounds to me that you want to launch the MMR rather than the mumps alone, or am I wrong on this?

Yes. Ultimately, we want to do MMR. But now is -- we start making every one of them according to the Chinese regulations. So right now, we have mumps very close to registration. So if we have the vaccine could be launched to the market, it can start generating some revenue, even though it's not very big.

Okay. And the rabies?

(interpreted) So regarding to the animal rabies vaccine, we launched a vaccine lately last year. So right now we have established a sales team, and what they are doing right now is promoting the vaccine and introducing it to the pet doctors. And also, they are introducing this vaccine to some government officials in order to help us to participate into the Government tender. And we are also selecting some of the key areas that we want to focus in order to sell these -- any more rabies vaccines. And our sales persons are also introducing our vaccines in those areas to the animal CDC and to the pet hospital.

Okay. Thank you very much.

Sure. You're welcome.

John Gregory, SG Investments.

Could you give us some idea again just to how big is the animal rabies vaccine market in China in dollar figures, and the mumps market in dollar figures, and the MMR market in dollar figures?

(interpreted) To answer first question that recently Chinese Government is trying to impose the immunization policy to the registered dogs in China, and they require at least 80% of the dogs registered in China have to be immunized. And now, there are total 80 million dogs registered in China, and if it's about 80%, it's over 60 million dogs. And means that 60 million doses is the potential market for animal rabies.

If we times the price level, the ex-manufacturing price is around RMB10 per dose, we could come up with about RMB600 million market. It it's in dollar, I think it's close to $100 million for animal rabies.

But in the past, only the imported vaccines are actually the higher quality vaccines, and they are supplying 5 million to 6 million doses every year. So in the past actually, and also without the Chinese Government policy, I think that that is the market at the time. So we expect that this animal rabies market will have high growth opportunities.

For the mumps vaccine, actually, this one is mainly focusing on the booster market, which is to immunize the people who have not been able to be immunized in the past, or they are in some areas that there is some outbreak. So in the past, the annual consumption volume for mumps is about 4 million to 5 million doses, and the ex-manufacturing price is about $1 to $1.5 per dose. So market size is -- maximum would be $7.5 million.

So regarding to the MMR, because right now, there is short supply of this (inaudible) vaccine, but if anywhere they have it, they will have to include it in the [EPM] market. And in the future, we expect that if we have sufficient supply in China, this MMR could be used among the 60 million new-borns every year, and every child shall get two inoculations. So total potential market would be 32 million doses, and the similar price level as mumps if so purchased by the EPI the public pay market.

So the dollar value of this market is close to $50 million. But right now, because there are only a very limited supply, there are only about 45 million doses being consumed in the public pay market for MMR.

And in addition to the public market for MMR, because China, the Government has a measles eradication plan, so besides the purchased vaccines to immunize the new-borns, Chinese Government also has a booster campaign for the older children. And actually, that is happening within the private pay market.

So right now, there are about 3 million to 4 million doses being consumed in the private pay market and the selling price is a lot higher compared to the public market, which is at about $6 per dose. So the total market size from the private pay is about $24 million. And $24 million, and if that is combining with the public pay market, I think it's close to $80 million, roughly $80 million.

Okay. And regards to the EV71, initially after you've finished your building, what are you expecting to launch with? What's the initial capacity, the number of doses?

And again, the same question. Do you have any estimates yet on what you expect the dollar amount of the Chinese market to be?

And then also, are you all currently in the lead as far as being the first to market in China on the EV71 product?

In order to clarify that, you want to understand what would be the total market site for Chinese vaccine market in the future and what would be the marketing opportunity for EV71. Is that your question?

Yes, my question is what do you expect the total market size. Do you have any estimates yet on the total dollar market size for EV71 in China?

And then, what is going to be your capacity? How many doses are you going to be able to launch with? Are you going to have a facility that makes 2 million doses a year, or what's the initial build of your facility?

And then also, are you currently in the lead as far as being the first to market in China on EV71?

Well, as I explained earlier that EV71 is targeting the children under five years old, the total market opportunity would be close 80 million population. And a high risk group is under two years old, and there are about 32 million children in that range.

So with our current -- and everyone should get two shots, so actually there is simple math you can calculate it. And with our current construction, we want to start from 10 million to 20 million doses. That will actually depend on the optimizing -- keep optimizing of the production process, because right now, we're just starting from the lab capability. But if we can improve further, I think the capacity could be even improved.

Are you currently in the lead to be the first one to have EV71?

Sorry. Can you say that again?

Is Sinovac Biotech in the lead as far as being the first one to develop EV71 to sell in China?

Not really, because right now, we have two peers. Both of them are state-owned enterprises. So right now, three companies in China are developing EV71 vaccines, and we are right now at a similar stage.

Okay. All right. Thank you.

Thank you. Ladies and gentlemen, we have run out of time for questions. I'd like to turn the floor back over to management for any closing remarks.

Well, thank you for joining us tonight, and we are happy to see the results and we're looking forward to having a further communication. And if anyone has any question, you can contact Sinovac IR, or you can contact the Ruth Group.

Thank you very much and have a good day. Bye bye.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.