Samsung BioLogics: Rise of Biosimilars Behind Bioepis Accounting Change

Samsung BioLogics says it did not violate accounting rules. Change in its financial reporting related to plans by Biogen to up its stake in biosimilar JV, Samsung Bioepis.

South Korea’s Financial Supervisory Service (FSS) released a preliminary statement last week accusing contract development and manufacturing organization (CDMO) Samsung BioLogics of accounting fraud.

The special yearlong audit investigated a turnaround in Samsung BioLogics’ financials, when after years of losses it reported profits of KRW 1.9 trillion (US$1.8 billion) in 2015 ahead of an initial public offering (IPO) and entry on the KOSPI.

The FSS announcement sent Samsung BioLogics’ share price plummeting by 26%, wiping $6 billion off its market value.

But in comments sent to BioProcess Insider, the firm said the 2015 change to its accounting treatment in 2015 was due to the shift in status of Samsung Bioepis from a consolidated to an equity-method subsidiary.

Samsung Bioepis is a joint venture (JV) between Samsung BioLogics and Biogen focused on the development of biosimilars.

“For Biogen, a joint shareholder of Samsung Bioepis, the value of the holding shares subject to the call option became greater than the price of exercising the call option as development results of biosimilars became more visible and substantial,” said spokesperson Inchan Hwang.

The change was done in accordance with International Financial Reporting Standards (IFRS) and was undertaken with guidance from external partners, including KPMG, Deloitte, and PwC, he added.

Biogen owns approximately 9% of Samsung Bioepis but can increase its share to 49.9% under the terms of the JV.

The firm has publically disclosed its willingness to exercise the call option on several occasions, most recently in its 2017 fourth quarter call.

Taking Action

The CDMO has defended its actions in a letter sent to shareholders, with CEO TH Kim saying he is “confident that absolutely no accounting fraud has been committed.”

Samsung BioLogics CEO Dr TH Kim

He added: “We will immediately take all measures to clearly prove the legality of our accounting treatments to the relevant committees – the Accounting Oversight Deliberation Committee and the Securities and Futures Commission of the Financial Services Commission.

“We anticipate that we will receive a final decision by the end of June 2018.”

For the first quarter 2018, Samsung BioLogics reported sales of KRW 131 billion, up 23% year-on-year, with operating profits up by KRW 6.6 billion to KRW 10 billion for the quarter.

This was attributed to continuous increase in capacity utilization at the firm’s second production plant at its site in Songdo, Incheon, which received its first US Food and Drug Administration (FDA) accreditation in October last year.