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SciClone Pharmaceuticals Inc. (SCLN)

Recommendation (Buy)

Yuanying Ma & Peihan Cao

The 360 Huntington Fund

Sector: Health CareIndustry (GICS): Biotech and Pharma

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Disclosure Statement• We have no positions in any stocks mentioned,

and no plans to initiate any positions within the next 72 hours.

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Business Description & Market Profile• Market Profile

– 514.1m USD– Primary market –China - 91%

• Business Description– SciClone Pharmaceuticals develops medicine treating

oncology, infectious diseases and cardiovascular disorders commercializes specialist-oriented drugs.

– Lead product ZADAXIN (thymalfasin) is approved in over 30 countries and can be used for the treatment of hepatitis B (HBV), hepatitis C (HCV), and certain cancers as an immune system enhancer (92%)

– Promotion services revenue： partnership & agreement– Development of new products

ZADAXINTiered method of distribution• SCLN•Tier1 Sinopharm ->Large hospitals

•Tier2 retial level->hospitals & pharmacies

•Tier3 local distributors->local hospitals & pharmacies

- Impact: quarterly result may vary substantially

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Industry Analysis• Biotech & Pharmaceutical:• Good performance over past 5 years• Drive force: new drugs approval• Volatility: intense scrutiny of high price

Industry Analysis•Volatility (continued)

Patent-cliff: when one or more established products go off-patent, these products can be replicated and sold at much cheaper prices by competitors.

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Industry analysis

• Trend:• The compound annual growth rate

(CAGR) for global sales from 2016 to 2020 is forecast to range from 4% to 7%

- US is forecast to grow 5%–8%, - China projected to be the fastest-growing region at 6%–9%, today’s $80 billion drug market will grow to $200 billion by 2020- world’s second largest pharmaceutical market

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Market Analysis Chinese market ： Opportunity Risks•Ideal environment for pharmaceutical innovation.

-Healthy mix of partnerships, pharma industry innovation and scientific research.

-Accelerating approval of new drugs

•New policy of price restriction

- Reduce permitted maximum listed price

- Regulate pharmaceutical reimbursement

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Porter Five Force Analysis

Competitive rivalry：

low

Bargaining power of

suppliers：medium

Threat of Substitutes:

Low

Threat of New Entrants:

low

Bargaining Power of Buyers:

highResult of price restriction or policy may adversely impact the revenue

Leading role in Chinese market

Specialized oriented drugs are limited

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Catalysts• Chinese government’s healthcare reform

initiative is expanding healthcare access for a greater portion of the country’s population

–Only about 400 million citizens in China now have access to full healthcare, the number is expected to grow to 800-900 million by 2020

–China is a highly suffered area of chronic hepatitis B, the 350 million to 400 million individuals worldwide infected with the HBV, one-third reside in China, with 130 million carriers

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Catalysts• Growth opportunities for ZADAXIN in therapeutic areas of

hepatitis B and sepsis –2015 revenue grew 16% compared to 2014, more than 15% growth in volume each quarter; more than 40% of the value share and 15% of the volume share in China market category

–“Wider and deeper" strategy to expand Tier 1 and 2 market and establish Tier 3 market: key hospitals, pharmacies, clinicians, physicians, patients and retailing drug stores

–Ongoing government-sponsored study testing the combination of entecavir and ZADAXIN compared to entecavir alone

–More physicians prescribing ZADAXIN for sepsis patients; positive outcome for Phase 3 sepsis trial to recommend ZADAXIN in China Severe Sepsis Treatment Guidelines

–E-commerce initiatives and mobile app to increase the efficiency of prescribing, fulfilling and delivering ZADAXIN prescriptions to patients

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Catalysts• DC Bead market building

–A novel treatment for liver cancer, commercially launched in Q3 of 2015

–Over 50% of the world's incidence of liver cancer is in China and there are more than 350,000 people die from primary liver cancer annually

• Further drug anticipation–Anti-hypertensive Cleviprex: CFDA approved, CTA application filed bridging trial begins in Q2 2016

–Bivalirudin Angiomax: CFADA review, market introduction in early 2018

–Antibiotic VIBATIV: CTA application planning expected approval in 2019

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Catalysts•Establishing more promotion services agreements with leading pharmaceutical companies to promote their products in the China market

–Agreement with Baxter is for a 5-year term, through December 2017, and agreement with Pfizer is for a 5-year term, through June 2019

• Partnering with leading biotechnology companies around the world to develop potential therapeutic portfolio

–Cardiovascular drugs Neucardin: phase 3 trial–Oropharyngeal candidiasis Loramyc: clinical testing

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Correlation

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Comparables

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Risks• Dependence on sales of ZADAXIN in China• Government regulatory actions• Provincial pricing limitation decisions• Challenges in maintaining some of current

agreements or entering into new agreements• Compliance with standards and regulations for

import license• Foreign exchange risk

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Price Graph

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Target Price

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Q&A

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Supplements

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Supplements