SCICLONE PHARMACEUTICALS INC

Product sales of  $41.6 million or 93% and $36.5 million or 94%, for the three months ended June 30, 2017 and 2016, respectively, related to consolidated sales of ZADAXIN. Of the $41.6 million in ZADAXIN revenues in the second quarter of 2017, $3.3 million was attributed to revenues from sales generated in the first quarter of 2017 but recognized in the second quarter of 2017 for first quarter sales that were above the reference (baseline) tender price under a provision in the agreement with the Company’s China distributor to share, in part, in the burden of price reductions and the benefit of higher pricing in provinces with higher tender prices. In the second quarter of 2017, revenue was reduced by $0.8 million for sales in the second quarter that we estimate will be sold at prices below the reference tender price under a provision in the agreement with the Company’s China distributor. Product sales of $81.1 million or 92% and $70.1 million or 93%, for the six months ended June 30, 2017 and 2016, respectively, related to consolidated sales of ZADAXIN. Of the $81.1  million in ZADAXIN revenues for the first half of 2017,  $4.2 million was attributed to revenues from sales generated in the fourth quarter of 2016 and $3.3 million was attributed to revenues from sales generated in the first quarter that were both above the reference (baseline) tender price under a provision in the agreement with the Company’s China distributor to share, in part, in the burden of price reductions and the benefit of higher pricing in provinces with higher tender prices and which had no corresponding revenues in the same 2016 period. In the six months ended June 30, 2017, revenue was also reduced by $0.8 million for sales in the second quarter that we estimate will be sold at prices below the reference tender price under a provision in the agreement with the Company’s China distributor. As of June 30, 2017, approximately $44.7 million, or 93%, of the Company's accounts receivable was attributable to one customer, Sinopharm, in China. The Company generally does not require collateral from its customers. The Company maintains reserves for potential credit losses and such actual losses may vary significantly from its estimates.

The Company entered into a definitive merger agreement (subject to stockholder approval and other customary closing conditions) in the second quarter of 2017 with a consortium of buyers intending to acquire the Company in a “going-private” transaction (announced via a Form 8-K filed with the SEC on June 8, 2017). The terms of the definitive merger agreement, among other provisions regarding the funding of the acquisition, provide that the Company may distribute funds from its foreign subsidiaries (Cayman Islands entities) to the United States parent company in order to commit a portion of the merger funds necessary to effect the “going private” transaction and repurchase common shares. As a result of this contractual provision, the Company concluded in Q2 that the likelihood of distribution of offshore undistributed earnings cast doubt upon the ability to indefinitely reinvest offshore undistributed earnings. Accordingly, following consideration of amounts specified in the merger agreement and related agreements, it was concluded that $123 million of the unremitted earnings are no longer indefinitely reinvested as a result of expected distribution before the close of the announced merger in late 2017. The Company determined, after further analysis, that its parent company’s available tax net operating loss carryforwards, which had been fully reserved via valuation allowances, are available to eliminate tax liability associated with substantially all of the Federal taxable dividend income of $123 million that would arise from a planned remittance. After determination of the amount, the Company recorded additional net tax expense of approximately $1.1 million as a discrete tax charge in the second quarter of 2017 for the full estimated US tax cost associated with the expected remittance of such earnings.  The net expense represents the Federal deferred tax liability associated with the planned remittance, substantially offset by the reversal of the associated valuation allowance on the tax net operating loss carryforwards expected to be utilized. No withholding taxes are anticipated for the planned remittance due to the jurisdictions in which the cash expected to be remitted is held.

We entered into a definitive merger agreement (subject to stockholder approval and other customary closing conditions) in the second quarter of 2017 with a consortium of buyers intending to acquire us in a “going-private” transaction (announced via a Form 8-K filed with the SEC on June 8, 2017). The terms of the definitive merger agreement, among other provisions regarding the funding of the acquisition, provide that we may distribute funds from our foreign subsidiaries (Cayman Islands entities) to our United States parent company in order to commit a portion of the merger funds necessary to effect the “going private” transaction and repurchase common shares. As a result of this contractual provision, we concluded in Q2 that the likelihood of distribution of offshore undistributed earnings cast doubt upon the ability to indefinitely reinvest offshore undistributed earnings. Accordingly, following consideration of amounts specified in the merger agreement and related agreements, it was concluded that $123 million of the unremitted earnings are no longer indefinitely reinvested as a result of expected distribution before the close of the announced merger in late 2017. We determined, after further analysis, that our parent company’s available tax net operating loss carryforwards, which had been fully reserved via valuation allowances, are available to eliminate tax liability associated with substantially all of the Federal taxable dividend income of $123 million that would arise from a planned remittance. After determination of the amount, we recorded additional net tax expense of approximately $1.1 million as a discrete tax charge in the second quarter of 2017 for the full estimated US tax cost associated with the expected remittance of such earnings.  The net expense represents the Federal deferred tax liability associated with the planned remittance, substantially offset by the reversal of the associated valuation allowance on the tax net operating loss carryforwards expected to be utilized. No withholding taxes are anticipated for the planned remittance due to the jurisdictions in which the cash expected to be remitted is held.

On June 7, 2017  we entered into an Agreement and Plan of Merger, or the Merger Agreement (the “Merger Agreement”), with Silver Biotech Investment Limited, a company organized under the laws of the Cayman Islands (“Holdco”), and Silver Delaware Investment Limited, a Delaware corporation and wholly owned subsidiary of Holdco (“Merger Sub”), under which Merger Sub will be merged with and into us  (the “Merger”), with us continuing as the surviving corporation and subsidiary of Holdco after the Merger. Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the merger, each share of common stock of SciClone  issued and outstanding immediately prior to the effective time of the Merger will be cancelled and automatically converted into the right to receive $11.18 in cash, without interest.

Completion of the merger with the Buyer Consortium is subject to several conditions beyond our control that may prevent, delay or otherwise adversely affect its completion in a material way, including receipt of funding by the Buyer Consortium and the approval of our stockholders. In addition, we may receive lawsuits on various matters relating to the merger, including seeking, among other things, to preliminarily and/or permanently enjoin the proposed merger and/or rescind the merger in the event it is consummated. If the merger or a similar transaction is not completed, the share price of our common stock may drop to the extent that the current market price of our common stock reflects an assumption that a transaction will be completed. In addition, under circumstances specified in the Merger Agreement, we may be required to pay a termination fee in the event the merger is not consummated. Further, a failure to complete the merger may result in negative publicity and a negative impression of us in the investment community. Any disruption to our business resulting from the announcement and pendency of the merger, including any adverse changes in our relationships with our shareholders, customers and suppliers, could continue or accelerate in the event of a failure to complete the merger. There can be no assurance that our business, these relationships or our financial condition will not be adversely affected, as compared to the condition prior to the announcement of the merger, if the merger is not consummated.