Samsung BioLogics threatens legal action after accounting probe sparks stock slide

03-May-2018 - Last updated on 04-May-2018 at 13:49 GMT

(Image: nateemee)

Samsung BioLogics has threatened to sue the Korean government after news of an accounting probe wiped $6bn off its value.

South Korea’s financial regulator triggered the 20% drop in Samsung BioLogics’ share price by releasing a statement about its investigation into accounting practices at the CDMO. The year-long probe reached the preliminary conclusion that Samsung BioLogics breached accounting rules.

Officials at the regulator are yet to share details of the investigation but accusations made against Samsung BioLogics by other people and organizations hint at the possible focus of its case.

In 2015, Samsung BioLogics changed how it valued its share of the biosimilar joint venture it runs with Biogen. Samsung BioLogics said the action was prompted by Biogen’s plan to increase its stake in the venture and was approved by the Korean units of Deloitte, KPMG, and PricewaterhouseCoopers.

However, the timing and consequences of the change led to scrutiny. After changing how it valued the business, Samsung BioLogics posted a $1.8bn (€1.5bn) net profit, ending four years of losses.

The swing from loss to profit came as two units in the broader Samsung group were preparing to merge.

“At that time, Samsung group had to buoy the value of BioLogics to justify the merger ratio,” said Park Ju-guen, head of corporate analysis group CEO Score, to the Financial Times.

Activists at non-governmental organization People’s Solidarity for Participatory Democracy are among the people to question the accounting changes that preceded the jump in Samsung BioLogics’ profits.

Fighting back

Samsung BioLogics now has an opportunity to show it followed the rules and convince the regulator to come down on its side in the final ruling. The final decision is due in the next two months.

The CDMO thinks it can prove it complied with the accounting rules and is willing to escalate the situation if the financial regulator continues to see things differently.

“If a decision is made that we cannot accept, we plan to file an administrative lawsuit,” said Byunghwa Shim, a vice president at Samsung BioLogics, at a media event attended by Reuters.

In a letter to investors, CEO Tae Han Kim said the firm is taking measures to “clearly prove” the legality of its accounting treatments with 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.

“We are confident that absolutely no accounting fraud has been committed,” he added.

The row follows the arrest of Jay Lee, heir to Samsung Group, on bribery and embezzlement charges, the accidental issuance of 2.6bn shares to employees and a legal case linked to the aforementioned merger. These events have created months of bad publicity for Samsung Group.

Samsung BioLogics, in contrast, had largely kept itself in the headlines for the right reasons until this week. The CDMO has risen quickly in recent years, adding enough biologics capacity to put itself in the same league as Boehringer Ingelheim and Lonza and winning contracts with Bristol-Myers Squibb and Roche.