Samsung BioLogics takes on FSS over audit

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Samsung BioLogics takes on FSS over audit

Samsung BioLogics on Wednesday refuted an audit by Korea’s financial watchdog that said it violated accounting regulations, and claimed it did not receive any benefits from new accounting rules it introduced at the end of 2015.

The company threatened to file an administrative suit against the Korean government if necessary.

The biopharmaceutical arm of Samsung Group arranged an emergency press conference Wednesday, a day after the Financial Supervisory Service tentatively concluded after a year-long special audit at the request of civic activists and lawmakers that the Songdo, Incheon-based firm violated accounting rules.

The FSS sent a letter of notification to both Samsung BioLogics and its two accounting firms offering them a chance to “explain” their books. A final conclusion will be made after the company comes up with explanations and the Financial Services Commission, the top financial regulator, holds a subsequent review and voting by members of the Securities & Futures Commission under the FSC.

“We made numerous rounds of review before changing accounting rules in 2015,” said Shim Byung-hwa, vice president of Samsung BioLogics, at the press conference at the headquarters of the Korea Chamber of Commerce and Industry, central Seoul. “Some media reports described us as having committed accounting fraud, which is the worst charge possible against us. Only the first process of the audit has been completed and there are several remaining processes.”

Shim noted that the crux of the issue is not accounting fraud but the recognition and application of accounting standards, and went on to argue the company has gained “no interest” out of the change.

The controversy dates back to the end of 2015, when the biopharmaceutical company converted the status of Samsung Bioepis, a biosimilar unit, from a subsidiary to an affiliate. Samsung BioLogics cited the potential threat that Biogen, a U.S. biotech firm that distributes copycat versions of already existing biological drugs for Samsung Bioepis in Europe, might administer a call option to raise its stake to as much as 49.9 percent, thus depriving BioLogics of control of Bioepis.

Samsung Bioepis was launched as a joint venture between BioLogics and Biogen in 2012. The former invested 280.5 billion won ($260.7 million) for an 85 percent stake and the latter 49.5 billion won for a 15 percent stake plus a call option that could increase its stake up to 49.9 percent by the end of 2018. Currently Samsung BioLogics holds a 94.6 percent stake in Samsung Bioepis and Biogen a 5.4 percent stake.

The problem was that Samsung BioLogics made a profit of 1.9 trillion won in 2015, a dramatic turnaround after four consecutive years of operating losses. When Bioepis was transformed from a subsidiary to an affiliate, the value of its shares were reevaluated in term of market value instead of face value.

That boosted the value of Samsung BioLogics’s stake in Bioepis from 300 billion won to 4.8 trillion won, which paved the way for its own smooth listing on Korea’s main bourse in November 2016.

The FSS suspects the company breached accounting rules with the process of reassessing the value of Bioepis. The accounting scandal sent shares of Samsung BioLogics spiraling.

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