Greatly Transformed Sinovac Set to Reawaken on Wall Street?

Maker of the CoronaVac vaccine for Covid-19 could soon resume trading on the Nasdaq after a nearly three-year pause, following two key legal developments

Key takeaways:

• Two key legal developments could soon pave the way for a resumption of trading in shares of Nasdaq-listed Sinovac, ending a nearly three-year suspension
• Company’s revenue may have risen 80-fold or more since the suspension thanks to sales of its globally accepted CoronaVac Covid-19 vaccine

By Doug Young

By now, many people have heard of Sinovac Biotech Ltd. (SVA.US), the maker of one of the three globally accepted Covid-19 vaccines developed in China. But few likely realize the company is listed on the Nasdaq, providing an interesting investment opportunity, as its revenue soars on strong sales of its CoronaVac vaccine.

There’s a good reason many people may not realize Sinovac is publicly traded in the U.S.

In fact, the company’s shares haven’t changed hands, at least not over the Nasdaq, since trading was halted in February 2019. The halt came at the height of an ugly dispute between the company’s top managers and one of its key stakeholders, prompting the Nasdaq to suspend trading pending clarification of a key issue that we’ll describe in more detail shortly.

After years in the courtroom, two major developments have just occurred over the last two weeks that could soon pave the way for trading to finally resume after nearly three years. When that happens, it seems almost inevitable that frustrated Sinovac shareholders who haven’t been able to sell their stock for all this time should be handsomely rewarded with a big jump in the price.

We’ll explore just how big that jump could be by looking at how Sinovac’s business has exploded over the last two years on the back of CoronaVac, which has sold more than 1 billion doses since it was developed in 2020 and began commercial sales this year.

But first, we’ll look at the convoluted path that leads to where we are today, including the latest developments that indicate the logjam created by the corporate dispute could soon finally end.

The story dates back to 2016 and 2017, when two groups were vying with each other to take Sinovac private. One was led by a man named Pan Aihua, who was chairman of Sinovac’s main Beijing subsidiary and also led a company called Sinobioway Biomedicine (002581.SZ), which owned 26.91% of the subsidiary, Sinovac Beijing. The other came from Sinovac’s own management, led by its Chairman Yin Weidong.

Yin’s management-led group wanted to buy the company’s American depositary shares (ADSs) for $7 apiece, versus a trading price in the $6 range at the time. But Pan’s group was willing to pay $8. Rather than agree to the higher offer, which obviously would have benefited minority shareholders, Yin launched a classic “poison pill” plan to thwart Pan’s group.

That prompted minority shareholders, led by an investor named 1Globe Capital, to launch a shareholder rebellion to oust Yin and others from the Sinovac board and replace them with their own slate of directors. That effort appeared to succeed, but Yin’s team refused to accept the result, leading 1Globe to file a lawsuit in a Caribbean court. Unable to determine if the poison pill plan was valid due to ambiguity about the company’s board, the Nasdaq suspended trading until the situation could be clarified.

That brings us to the latest major developments, starting with a settlement between Pan and the company reached on Nov. 30 and disclosed by the company on Dec. 3. No terms were given, but presumably the settlement finalizes the company’s ownership and management in a way that satisfies both sides.

Board Legitimacy

The second issue saw the dispute over the company’s board end up in a Caribbean court, which was tasked with deciding which board was the legitimate one: Sinovac’s original board that was unseated in the minority shareholder revolt; or the replacement board nominated and approved by minority shareholders in that revolt process.

More than two years after the original case was filed, the Eastern Caribbean Supreme Court’s Court of Appeal finally determined on Thursday that the original board was the legitimate one, Peter Halesworth, whose Heng Ren Investments is a Sinovac shareholder, told Bamboo Works. That ruling should help to settle other litigation that had kept the shares suspended, since the Caribbean court’s ruling that the company’s old board was legitimate means the poison pill plan launched by that board is also legitimate.

“Sinovac’s stock is the Rip Van Winkle of Covid vaccine stocks,” Halesworth said. “It is awakening to finally price in its transformation into a global leader in Covid vaccine production.”

Sinovac’s ADSs last traded at $6.47 when they were frozen in 2019, giving the company a market value of about $640 million. Of course, that was all before Covid-19 and CoronaVac. Sinovac has been a bit spotty in releasing results since its shares were frozen. It released a full-year report for 2020, but hasn’t announced any financial results for this year.

According to the 2020 report, the company’s sales doubled to $510.6 million last year from $246.1 million in 2019, while its net income tripled to $185.2 million from $65.2 million over the same period. Sales for the fourth quarter alone totaled $327.5 million – constituting roughly two-thirds of the annual total as CoronaVac sales started to kick in.

While no figures have been given out for this year, we can look for clues in the interim results of Hong Kong-listed Sino Biopharmaceutical Ltd. (1177.HK), which holds 15% of Sinovac’s shares. The company said that its associates and joint ventures, which includes Sinovac, contributed about 7.6 billion yuan ($1.2 billion) in pre-tax profits to the company in the first half of 2021, though it didn’t break out a specific contribution from its Sinovac holdings.

Halesworth estimated Sinovac will produce around 2 billion doses of CoronaVac this year, which could be priced anywhere between $10 and $25 per dose, yielding revenue of anywhere from $20 billion to $50 billion. If those figures are correct, the company could theoretically post a sales increase of 80 times or more from the $246.1 million it logged in 2019 before CoronaVac.

There are quite a few variables at play here, since more vaccines are likely to come onto the market in 2022, and the pandemic could finally start to subside. That would mean Sinovac’s 2022 sales could quite possibly go down from the sky-high levels this year. But no matter how you look at it, it does seem like the stock could be set for a major jump if and when it finally resumes trading in the next few months.

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