SciClone Pharmaceuticals, Inc. (SCLN)

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1 Company Update May 11, 2017 SciClone Pharmaceuticals, Inc. (SCLN) SciClone Pharmaceuticals Reports Strong Revenue Growth for First Quarter 2017 and Provides Corporate Update On May 10 th, SciClone Pharmaceuticals (NasdaqGS: SCLN) announced earnings for the first quarter of 2017, reporting $42.9 million in revenue. Lead product Zadaxin (thymalfasin) accounted for 92% of this total. Zadaxin sales were up 17% compared to the same period in 2016, which was driven by a volume increase and fourth quarter sales that were recognized during the first quarter. SciClone remains cash flow positive and increased its cash position to $141.3 million as of March 31 st, up from $134.4 million as of December 31 st. These results demonstrate the continued strength of Zadaxin sales, which have grown at a faster rate than either its generic competitors or the broader Chinese pharmaceutical market over the past 13 quarters. As the Chinese economy and pharmaceutical market expands, we anticipate that sales of Zadaxin will continue to grow. The Company also has several upcoming catalysts with commercial and development stage candidates that could provide additional opportunities for near-term growth. Continued Growth in Zadaxin Sales. SciClone reported first quarter 2017 revenue of $42.9 million, compared to $36.5 million for the same period in Zadaxin sales totaled $39.5 million, which is 17% higher than in the first quarter of Management attributed sales growth mostly to double-digit volume growth of Zadaxin, and $4.2 million of revenue from the fourth quarter 2016 that was recognized during the first quarter. Overall, roughly 17% of the total thymalfasin prescriptions in China are for Zadaxin. SciClone Reiterates Full Year 2017 Guidance. SciClone reiterated its revenue guidance of between $170 and $175 million for 2017, with non-gaap earnings per share of $0.60 to $0.64. The projected revenue increase of 6% - 9% from 2016 is in line with the growth of the Chinese pharmaceutical market. Guidance incorporates the Company s outlook on growth in the Chinese pharmaceutical market, anticipated pricing pressure, foreign exchange fluctuations, and volume changes. SciClone plans to continue growing Zadaxin volume in China, Vietnam, and South Korea, and is also conducting clinical studies in nonsmall cell lung cancer (NSCLC) and sepsis to potentially expand its use. Expected Upcoming Milestones Analysts Sam Slutsky (212) sslutsky@lifescicapital.com Market Data Price $9.95 Market Cap (M) $514 EV (M) $373 Shares Outstanding (M) 51.7 Fully Diluted Shares (M) 54.4 Avg Daily Vol 218, week Range: $ $15.03 Cash (M)* $141.3 Net Cash/Share $2.60 Debt (M) $0.0 Short Interest (M) 1.53 Short Interest (% of Float) 3.4% *As of March 31, 2017 Financials FY Dec 2015A 2016A 2017A EPS Q1 0.18A 0.16A 0.28A Q2 (0.08)A 0.13A NA Q3 0.24A 0.20A NA Q4 0.25A 0.13A NA FY 0.59A 0.61A NA 2017 Build sales momentum for Zadaxin by expanding to new markets, new indications, and using new channels such as e-commerce Continue education efforts for DC Bead to support the product launch Increase earnings through additional licensing and promotion agreements and opportunistic acquisition or in-licensing of a branded product early 2018 Potential approval of additional DC Bead sizes. Q Interim analysis from Phase III study with neucardin in chronic heart failure. Late early 2018 Potential approval of Angiomax for PCI patients. H Potential approval of Loramyc for oropharyngeal candidiasis Complete enrollment for investigator-initiated sepsis trial with Zadaxin Data readout from investigator-initiated sepsis trail with Zadaxin. For analyst certification and disclosures please see page 5 Page 1

2 Large Investments from Big Pharma Highlight Chinese Market Potential. Although China is the second largest pharmaceutical market in the world, it has historically had limited access to the most innovative medicines. China aims to increase access to these medicines by improving the speed of drug approvals, expanding and enhancing health insurance, and upgrading the basic healthcare infrastructure. Pharmaceutical companies such as Novartis (NYSE: NVS), Gilead (NasdaqGS: GILD), Pfizer (NYSE: PFE), Novo Nordisk (NYSE: NVO) and AstraZeneca (NYSE: AZN) have devoted significant resources towards increasing drug access in China. Total drug sales in China are estimated to reach $167 billion in 2020 compared to $108 billion in Gilead is in the process of building its first ex-us manufacturing site in China, and other companies such as Pfizer are expanding their sales force in the country. Drug sales in China have grown throughout the pharmaceutical sector, which could reflect the upside potential for Zadaxin and SciClone s pipeline. AstraZeneca had a 10% sales increase in the country in 2016, and Novo Nordisk had a 6% increase. SciClone is Focused on Expanding Zadaxin Volume to Drive Growth. To fund the expanded healthcare in China, drug pricing has been reduced at the national level and is now being controlled by individual provinces. On their earnings call, SciClone noted that tenders in two provinces recently priced Zadaxin at a lower cost than that of the Zhejiang province, which SciClone uses as its reference price for invoicing its distribution partner Sinopharm. These prices have not yet taken effect, but management expects them to be implemented in the next few quarters. Importantly, any future price decreases for Zadaxin may be shared with SciClone s distribution partner Sinopharm (HKG: 1099), providing a hedge against pricing pressure. Overall, tenders in many provinces have been slower to negotiate price decreases for Zadaxin than previously expected, and some such as Sichuan and Shanxi have renewed their contract at the price charged in the Zhejiang province or higher. Zhejiang is one of the biggest provinces in China and instituted a price reduction for Zadaxin in SciClone s management also mentioned that there have been more limitations on national-level reimbursement for thymalfasins. This revision is not expected to have a material impact in 2017, and it is unclear how much this will affect Zadaxin volume considering the agent is often paid for out of pocket. In order to mitigate some of the regulatory pressures, SciClone is exploring alternatives to increase prescription volumes. For example, new channels such as e-commerce and retail pharmacies may provide a way to access patients as an alternative to provincial tenders. The e-commerce pilot program is ongoing, and is partnered with Sinopharm and Bayang. SciClone also plans to expand Zadaxin into additional indications like lymphoma, NSCLC, and sepsis. An investigator-initiated trial evaluating Zadaxin as a treatment for sepsis is underway, and a data readout is expected in The Company has previously mentioned that there is growing use of Zadaxin for lymphoma, and a Phase I/II study is being conducted in Italy for NSCLC. SciClone plans to first generate clinical data in NSCLC outside of China prior to pursuing a clinical program in China. Additional Approvals Expected in Next 2 Years from Clinical Stage Candidates. The Chinese CFDA has been working to speed up the regulatory process in order to bring more drugs to the Chinese market. This should bode well for SciClone, which has a diverse pipeline that includes 8 products in clinical development. Most of these programs are partnered, and, if approved, could generate additional revenue for the Company. The first approval in China from the pipeline could come between late 2017 and early 2018 with Angiomax (bivalirudin), which is an anticoagulant for patients receiving percutaneous coronary intervention (PCI). SciClone in-licensed the exclusive Chinese rights for Angiomax from The Medicine s Company (NasdaqGS: MDCO). The FDA approved the product for PCI in 2000, and worldwide sales peaked at about $650 million in Roughly 400,000 PCIs are performed annually in China. There are two generic bivalirudin products currently approved in the country, and the main competitor to Angiomax is marketed by Shenzhen Salubris Pharmaceuticals (SHE: ) under the name Taijianing. Taijianing is priced at $420 per vial, but SciClone s management believes Angiomax could be priced at a premium based on its product profile. SciClone plans to file the NDA for AngioMax in the coming months. Clinical candidate Loramyc (miconazole) is an anti-fungal agent administered as a muco-adhesive tablet formulation of miconazole for the treatment of oropharyngeal candidiasis, an infection in the mouth that can cause discomfort and make it difficult to swallow. Loramyc received initial marketing authorization in France in 2006 and it has since been registered in the US, South Korea, and several European countries. It was licensed from Onxeo (EPA: ONXEO.PA), which grants SciClone commercialization rights for China. SciClone has recently completed a Phase III study with Loramyc, and expects to file an NDA for Loramyc in the coming months with a potential approval coming in the second half of Page 2

There is also an ongoing 1,600 patient Phase III study that is evaluating clinical candidate neucardin, a genetically engineered recombinant peptide fragment of neuregulin-1, for chronic heart

3 There is also an ongoing 1,600 patient Phase III study that is evaluating clinical candidate neucardin, a genetically engineered recombinant peptide fragment of neuregulin-1, for chronic heart failure. SciClone licensed the commercialization rights for neucardin in China, Hong Kong, and Macau from a local Chinese company, Zensun Science and Technology Co., Ltd (private). More than 4.5 million people in China are estimated to have chronic heart failure. An interim analysis from this study is expected in the second quarter of Slow but Continued Growth of DC Bead. In 2015, SciClone launched DC Bead, which is a micro-bead product used in liver cancer and is designed to temporarily limit blood flow from the hepatic artery to the liver to starve tumors of nutrients. Management mentioned on the call that DC Bead s launch has been slower than expected, but believes its use will continue to expand over time. Part of the reason for the slow launch is because it takes time to educate physicians on how to properly use DC Bead in addition to its benefits over conventional TACE procedures in some patient populations. SciClone expects revenue from DC Bead to be recognized in the second quarter. Sinopharm has so far placed an order of less than $1 million for the product. SciClone has reached tendering agreements for DC Bead in provinces such as Shandong, Chongqing, Jiangsu, and Heilongjiang, where a combined 242 million people live. The price per treatment with this product has been set between $2,500 and $2,800. Drug launches in the Chinese market typically take longer to ramp up than in the US due to formulary hurdles, but as a result peak sales often persist for longer since competing treatments will also take longer to penetrate the market. SciClone is working to expand DC Bead s use by offering additional bead sizes that will be more personalized to patients. An approval decision on the new DC Bead sizes is expected in the next year. First Quarter 2017 Financial Results. On May 10 th, SciClone announced financial results for the first quarter of As shown in Figure 1, revenue for the first quarter of 2017 was $42.9 million, which is an 18% increase from the same period in Roughly 92% of sales were derived from Zadaxin. Total operating expenses for the first quarter of 2017 were $28.7 million, compared to $27.1 million in first quarter of GAAP net income for the first quarter was $14.6 million, or $0.28 per share, compared to $7.9 million, or $0.16 per share for the same period in SciClone ended the first quarter 2017 with $141.3 million in cash and cash equivalents, up from $134.4 million on December 31, Figure 1. First Quarter Financial Results Source: LifeSci Capital Page 3

4 Risk to Invesment An investment in SciClone is considered to be a medium-risk investment. SciClone sells products in China and generates the majority of revenues from this country. China has been undergoing significant healthcare reforms to broaden patient access, and has been instituting policies to decrease drug prices to fund the expansion. SciClone may be unable to successfully overcome expected price reductions, and could experience lower sales growth rates than expected. SciClone also has a development program for which there are regulatory risks, and the Company may not receive CFDA approval for its candidates despite significant time and financial investments. Regulatory approval to market and sell a drug does not guarantee that the drug will penetrate the market, and sales may not meet the expectations of investors. Furthermore, unknown competitors may emerge and SciClone, like any company, may be required to spend significant capital to maintain its position within the market. Page 4

5 Analyst Certification The research analyst denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies), with respect to each security or subject company that the research analyst covers in this research, that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or subject companies, and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. DISCLOSURES This research contains the views, opinions and recommendations of LifeSci Capital, LLC ( LSC ) research analysts. LSC (or an affiliate) has received compensation from the subject company for producing this research report. Additionally, LSC expects to receive or intends to seek compensation for investment banking services from the subject company in the next three months. LSC (or an affiliate) has also provided non-investment banking securities-related services, non-securities services, and other products or services other than investment banking services to the subject company and received compensation for such services within the past 12 months. LSC does not make a market in the securities of the subject company. Neither the research analyst(s), a member of the research analyst s household, nor any individual directly involved in the preparation of this report, has a financial interest in the securities of the subject company. Neither LSC nor any of its affiliates beneficially own 1% or more of any class of common equity securities of the subject company. LSC is a member of FINRA and SIPC. Information has been obtained from sources believed to be reliable but LSC or its affiliates (LifeSci Advisors, LLC) do not warrant its completeness or accuracy except with respect to any disclosures relative to LSC and/or its affiliates and the analyst's involvement with the company that is the subject of the research. Any pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute LSC s judgment as of the date of this report and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, companies, financial instruments or strategies to particular clients. The recipient of this report must make his/her/its own independent decisions regarding any securities or financial instruments mentioned herein. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Additional information is available upon request. No part of this report may be reproduced in any form without the express written permission of LSC. Copyright Page 5

US-Based, China-Focused, Specialty Pharmaceutical Company 2016 ANNUAL REPORT

US-Based, China-Focused, Specialty Pharmaceutical Company 2016 ANNUAL REPORT SCICLONE PHARMACEUTICALS is a revenue-generating, specialty pharmaceutical company with a substantial commercial business in