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SciClone Pharmaceuticals Inc. (NASDAQ: SCLN)

SciClone Pharmaceuticals Inc. (SCLN) is a global biopharmaceutical company engaged in the development and commercialization of therapeutics for the treatment of cancer and infectious diseases. The Company’s primary product is ZADAXIN, its own brand of thymalfasin or thymosin alpha 1, and is sold in more than 30 countries for the treatment of hepatitis B (HBV) and hepatitis C (HCV), certain cancers and as a vaccine adjuvant. SCLN develops a pipeline of phase 2 and 3 drug candidates, which includes thymalfasin for stage IV melanoma, RP101 for the treatment of pancreatic cancer, and SCV-07 for the delay of the onset of severe oral mucositis in patients receiving chemoradiation therapy for the treatment of cancers of the head and neck and for the treatment of HCV. In China, the Company is pursuing regulatory approval for DC Bead™ as an embolic agent for the treatment of liver cancer.

Founded in 1989, the Company is headquartered in Foster City, California.

Share Statistics 08-Sept-09)			2007	2008	% Chg	Q2 ‘08	Q2 ‘09	% Chg
Symbol	SCLN	Revenue, $Mn	37.06	54.11	46.02%	13.8	22.0	59.4%
Current price	$49.62	Gross marg.	–	83.23%	–	–	–	–
52wk Range:	0.63-5.33	Oper. margin	–	8.10%	–	-16.17%	33.94%	–
Avg Vol (3m):	561,242	Net margin	–	7.60%	–	-15.43%	33.40%	–
Market Cap.	221.72M
Dil. Shares Outst.	46.29M	EPS, $	-0.216	-0.176	18.51%	-0.007	0.159	2171.4%

Source: Reuters.com, SEC Filings.

Financial Summary

For the second quarter of 2009, revenue grew 59% to $22.0 million compared with the same period in 2008, attributable to higher demand for Zadaxin related to the H1N1 flu virus, as well as the Company’s further penetration in the Chinese market, and a modest increase in prices from the 2008 to 2009 periods.

The Company’s net income totaled $7.3 million, or $0.16 per share, compared with a net loss of $0.3 million, or $0.01 per share for the same period last year. For the six months ended June 30, 2009, net income was $7.4 million, or $0.16 per share, compared with a net loss of $6.0 million or $0.13 per share for the same period last year.

While the Company’s revenue grew 46.02% from $37.06 million to $54.11 million, year on year, it has also reduced the cost of goods sold, selling, general and administrative expenses and debt expenses (all as percentages of sales), resulting to narrowed profitability losses from -$9.95 m to -$8.35 million. Cash reserves fell by $4.14 million last year. However, the Company earned more from the sale of existing assets than it spent on the purchase of new assets, as reflected by its Cash Flow from Investing of $572,000.

Analyst Consensus

Analysts polled by Thomson Reuters expect shares of SCLN to “Outperform.” The details of the analysts polled are as follows:

Analyst Recommendations and Revisions

1-5 Linear Scale	Current	1 Month Ago	2 Month Ago	3 Month Ago
(1) BUY	1	1	1	0
(2) OUTPERFORM	2	2	2	2
(3) HOLD	0	0	0	0
(4) UNDERPERFORM	0	0	0	0
(5) SELL	0	0	0	0
No Opinion	0	0	0	0
Mean Rating	1.67	1.67	1.67	2.00

Investment Highlights

Overview

SCLN engages in the development and commercialization of therapeutics to treat life-threatening diseases. Having seen a promising therapy in the areas of cancer and viral infectious diseases, the Company acquired the rights to test and sell Thymosin, with a focus on overseas drug distribution. Under the brand name ZadaxinTM, SCLN began trials throughout Asia, and in 1995, the drug received its first approval in China for monotherapy treatment of Hepatitis B. Soon after commencing sales in 1996, other approvals followed, and the Company eventually acquired the rights for Europe and the United States. It is now sold in more than 25 countries for the treatment of hepatitis B (HBV) and hepatitis C (HCV), certain cancers, and as a vaccine adjuvant.

Looking to expand its product pipeline, the Company is developing thymalfasin for stage IV melanoma, for which the Company has reached agreement with the FDA on the design of a phase 3 trial, RP101 for the treatment of pancreatic cancer, and SCV-07 for the delay of onset of severe oral mucositis in patients receiving chemoradiation therapy for the treatment of cancers of the head and neck and for the treatment of HCV. In addition, SCLN has exclusive commercialization and distribution rights to DC Bead™ in China where the product is under regulatory review. The Company also has commercialization and distribution rights to an anti-nausea drug ondansetron RapidFilmTM in the China and Vietnam, for which the Company is seeking regulatory approval. Most of the Company’s drug candidates are in the second phase of development.

The Company has also partnered with Sigma-Tau to determine the potential of Zadaxin to enhance the immune response to novel pandemic flu H1N1 vaccines. In Italy and 12 other countries, Zadaxin is approved for influenza vaccine enhancement inimmuno-compromised patients or as an immune stimulant.

The Company mentioned in its latest 10-Q that its current cash position, $6 million available line of credit, and the profit margin from its product sales provide the financial resources for continued growth in its international business and for development of its pipeline of phase 2 and 3 drug candidates.

Growth Opportunity

Currently, the Company’s primary market is China. SCLN has established a longstanding presence in China since the launch of Zadaxin as a treatment for hepatitis B in 1996. In China, the hepatitis B virus drug market is forecast to more than double by 2012, from $340 million in 2007 to $800 million in 2012, according to report at Biospectrumasia.com. This is akin to the endemic status of the disease in the country, as recognized by the World Health Organization (WHO). There is an estimated 130 million Chinese infected with the disease, which is about 10% of China’s total population and about one-third of the world’s cases. By 2012, the country is also expected to rank among the top five global pharmaceutical markets.

SCLN also wants to address China’s need for liver cancer treatments. It is reported that more than half of liver cancer cases worldwide occur in the country. The Company is currently pursuing regulatory approval for DC Bead as an embolic agent for the treatment of liver cancer. The Company mentioned in its latest 10-Q that it is required to conduct a small local trial to supplement data obtained from a previous study performed in Hong Kong by Dr. Ronnie Poon for China’s State Food and Drug Administration (SFAD) to complete its review.

The Company expects to receive regulatory approval for DC Bead in the second half of 2010.

With its robust drug development pipeline, SCLN also aims to address the serious unmet medical needs for the treatment of melanoma, pancreatic cancer, oral mucositis and hepatitic C.

The Company stated that its latest stage opportunity is ready for a phase 3 trial that will evaluate thymalfasin (thymosin-alpha 1) as a therapy for stage IV melanoma. The global market is estimated at $200 million. If the targeted patient group can be extended to the adjuvant setting through additional clinical trials, SCLN believes the market opportunity could increase by approximately $500 million.

SCLN entered into an exclusive licensing agreement with APR Applied Pharma Research S.A., granting the company the commercialization and distribution rights to the anti-nausea drug ondansetron RapidFilmTM in China and Vietnam, for which the Company is seeking regulatory approval. The Company plans to file for product registration with China’s State Food and Drug Administration (SFDA) in 2010, and expects to obtain regulatory approval in 2011.

Aside from growth opportunities in China and Vietnam, the Company also looks to develop Zadaxin in certain countries as an enhancer of novel H1N1 flu vaccines for immune-compromised populations. SCLN CEO Friedhelm Blobel, Ph.D., stated that “this plan entails many uncertainties, therefore we have not reflected additional sales or earnings in our updated 2009 guidance, but we are building inventories to address the potential increased demand associated with this difficult healthcare situation.”

Following its robust financial results for the second quarter of 2009, the Company anticipates a revenue increase of approximately 28% to 31%, or between $69 million and $71 million, for the rest of 2009, although quarterly sales growth is expected to return to levels more consistent with its established business. With its R&D focus going forward, the Company expects to increase expenses in the second half of 2009 associated with H1N1 animal and, potentially, human studies; timing of other clinical development expenses; and costs of in-licensing products for China.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui

Last Tuesday, SCLN set a new 52-week high during the trading session when it reached $50.27. Over this period, the share price is up 228.08%.

Currently, the MACD for SCLN indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9-day moving average. Second, the MACD is above 0, which implies that the underlying moving averages are trending higher.

SCLN is trading above its 13-day moving average. This is considered to be the sign of a bullish trend. There is added weight to this indication because the moving average is rising and suggests that there has been buying interest in this stock.

Trading within its Bollinger Bands, the OTC stock reflects neither an overbought nor oversold condition relative to its recent price trend.

Comparative Analysis

SCLN has a positive Return on Assets of 9.21%, compared with an industry average of 2%; and Return on Investment of 10.92%, compared with an industry average of 2.51%; and a Return on Equity of 11.05%, compared with an industry average of 4.33%.

Company Name	Ticker	Price per	Mrkt. Cap.	P/E		P/S
Sept-01-2009	symbol	Share, $	$ Mn	2009	2010	2009	2010
Amgen Inc.	AMGN	58.95	60,100	13.96	11.56	4.09	3.86
Schering-Plough Corp.	SGP	27.53	45,100	18.62	13.97	2.53	2.38
Vertex Pharmaceuticals Inc.	VRTX	36.32	6,500	11.27	12.75	44.10	38.69
InterMune Inc.	ITMN	15.40	702.7	5.57	7.72	15.17	7.18
Anadys Pharmaceuticals Inc.	ANDS	2.64	94.8	2.82	3.30	948	18.62
Dynavax Technologies Corp.	DVAX	1.73	67.9	122.71	84.49	1.19	1.74
Celldex Therapeutics Inc.	CLDX	5.46	87.2	2.76	5.05	7.44	3.04
Novavax Inc.	NVAX	5.52	547.6	16.62	19	1,923.29	5,476
Hemispherx BioPharma Inc.	HEB	2.03	257.5	15	19.0	3,012.48	25.60
Enzon Pharmaceuticals Inc.	ENZN	7.81	340.7	30.91	28.53	1.74	1.64
Median				14.48	13.36	11.305	5.52
SciClone Pharmaceuticals Inc.	SCLN	49.62	221.72	43.67	3.06	3.28	2.81

Source: Reuters.com

Insider Trading Activity

NET SHARE PURCHASE ACTIVITY
Insider Purchases – Last 6 Months
				Shares	Trans
Purchases				19,625	3
Sales				N/A	0
Net Shares Purchased (Sold)				19,625	3
Total Insider Shares Held				17.32M	N/A
% Net Shares Purchased (Sold)				0.1%	N/A
Net Institutional Purchases – Prior Qtr to Latest Qtr
					Shares
Net Shares Purchased (Sold)					2,421,040
% Change in Institutional Shares Held					25.0%
	Data provided by Thomson Financial

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