March 24, 2019

All about Samsung BioLogics’ alleged window dressing

PUBLISHED : May 16, 2018 - 16:49

UPDATED : May 17, 2018 - 13:45

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[THE INVESTOR] A high-profile hearing will be held on May 17 to determine whether contract drug manufacturer Samsung BioLogics had committed accounting irregularities in order to inflate earnings before its planned KOSPI listing back in 2016.

Samsung BioLogics -- facing a lawsuit from angry investors on huge stock losses over the past weeks -- is denying all allegations, while the Financial Supervisory Service, which drew criticism for revealing its tentative audit findings to the public hastily, says it has collected enough evidence to support its claims. 

Based on the results of the fierce debate, a final ruling will be made by the nation’s top financial regulator Financial Services Commission possibly on June 6.

Here are the key issues that will be addressed in the upcoming hearing. 

Why did Samsung BioLogics change the ownership status of Samsung Bioepis before listing?

BioLogics changed the ownership status of Samsung Bioepis, a biosimilar making joint venture set up with US-based Biogen, from subsidiary to affiliate in 2015. The change allowed it to evaluate its market cap based on fair market value not book value.

Its share value in Bioepis surged from some 300 billion won (US$2.78 million) to 4.8 trillion won. BioLogics that was suffering losses for years saw its net profit soar to 1.9 trillion won shortly before its initial public offering on the KOSPI in 2016.

BioLogics claims Bioepis was categorized as an affiliate because there was a possibility that its JV partner Biogen could exercise its call option to further increase its stake due to its growth potential. The firm added that the whole accounting process was conducted based on International Financial Reporting Standards that require stake in an affiliate to be reflected in its accounting books by fair market value. 

Did Samsung BioLogics switch its accounting method for the IPO?

Critics say shifting its accounting method led to a drastic boost in its balance sheet that was used for preliminary review of the firm’s stock debut.

“Using the previous method, its capital was valued at about 600 billion won, not 2.8 trillion won, which means it could have stayed afloat only for the next three year considering the size of its operating losses at the time,” Hongik University economics professor Jun Sung-in said.

BioLogics raised 2.26 trillion won in the nation’s third-largest IPO in October 2016.

But the firm denies the allegations, saying the one-time net profit reflected in 2015 did not have any serious impact in its valuation during the IPO process.

“Even with its operating losses, we have already met the listing requirements both in Korea and the US,” a company official said. 

Was Samsung Bioepis overvalued?

Deloitte Anjin, the auditor, evaluated the value of Bioepis at about 5.27 trillion won based on the upbeat outlook for its burgeoning biosimilar business. But critics like civic group People’s Solidarity for Participatory Democracy say the valuation was excessively high considering the drugs were still under development.

At the time, two biosimilar drugs were pending sales approval in Europe, its key market. Even with approval, there was no guarantee of their success as they would face fierce competition from the original drugs.

But industry experts say the biosimilar business should be valued differently from generic drugs. It takes five to 10 years to develop, as compared to two to three years of generics. The entry barrier is much higher.

Bioepis debuted two biosimilars in Europe and the US in 2016. The two drugs posted more than 300 billion won in overseas sales in the first quarter this year.

By Park Han-na (

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