Regulators accuse Smsung's biosimilar arm of intentional rule breach

Park Sae-jin Reporter Posted : 2018-07-12 19:32 Updated : 2018-07-12 19:32
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[Yonhap Photo]

SEOUL -- South Korea's financial watchdog handed down a final ruling Thursday that Samsung BioLogics violated accounting rules by leaving out important information intentionally about a call option deal with
a U.S. partner.

The Financial Services Commission (FSC) asked Samsung BioLogics to sack those in accounting irregularities and called for a criminal investigation by state prosecutors. The decision comes as the Samsung group is trying to nurture its biosimilar arm as a new growth engine.

In 2012, Samsung BioLogics set up Samsung Bioepis, a joint venture with U.S.-based pharmaceutical company Biogen Therapeutics. Biogen owned a 5.4 percent stake in Bioepis and promised to exercise the call option later.

On May 1, regulators disclosed information on their provisional decision that Samsung BioLogics breached accounting rules when it was listed in November 2016.
The disclosure sent the share price of Samsung Biologics plunging 26.3 percent for three days and the company lost about 8.5 trillion won ($7.5 billion) in terms of market capitalization.

Samsung BioLogics accused financial regulators of causing market uncertainties by disclosing "sensitive" information related to its initial public offering. On June 29, the American partner exercised its call option, saying it would spend some 748.6 billion won to boost its stake to 49.9 percent.

Samsung BioLogics has denied any illegal activity, claiming the method used to calculate the value of its joint venture was acceptable by international accounting standards.

However, FSC vice chairman Kim Yong-beom said Thursday that Samsung BioLogics did not make a public disclosure deliberately on a proposal by its U.S. partner to boost its stake.

"The extraordinary meeting concluded today taht Samsung Bio Logics clearly violated accounting standards and deliberately omitted the disclosure after recognizing the possibility of its violation," Kim said.

Samsung BioLogics expressed regret and vowed to file an administrative litigation, repeating its earlier stance that it has not breached rules. "As a newly established company, there is no reason or motive to deliberately omit its disclosure," vice president Yoon Ho-yeol told reporters.

Samsung BioLogics has insisted that a different accounting system was applied because the possibility of Biogen exercising its call option increased. At that time, Bioepsis was valued at market prices instead of its book value. As a result, its value surged from 290 billion won to 4.8 trillion won.