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SFC Refers to Celltrion for Valuation of Samsung Bioepis
For Exit of Samsung BioLogics?
SFC Refers to Celltrion for Valuation of Samsung Bioepis
  • By Yoon Young-sil
  • June 28, 2018, 15:25
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The Securities and Futures Commission (SFC) referred to Celltrion’s biosimilar cases in order to evaluate the corporate value of Samsung Bioepis.
The Securities and Futures Commission (SFC) looked into Celltrion’s biosimilar approval process and sales as a reference in deliberating the accounting fraud allegations against Samsung BioLogics.

The Securities and Futures Commission (SFC), which is deliberating the accounting fraud allegations against Samsung BioLogics, has looked into Celltrion’s biosimilar approval process and its sales record in order to assess the corporate value of Samsung Bioepis, a biosimilar producer which is at the centre of the controversy over Samsung BioLogics.

According to financial authorities on June 26, Samsung BioLogics presented Celltrion as a case in point in explaining the nature of the bio industry during the deliberation sessions of the SFC.

As the valuation of Samsung Bioepis is a major issue in determining whether Samsung BioLogics violated the accounting rules, the SFC thoroughly looked into Celltrion’s sales contracts and the change in its market capitalization after listing on Korea Exchange.

Samsung Bioepis is a joint venture set up in 2012 by Samsung BioLogics and Biogen, its US partner that had a call option to acquire up to 49.9% of Samsung Bioepis.

One of the biggest issues concerns whether it was proper to assess the value of Samsung Bioepis at market prices instead of its book value. Samsung BioLogics argues that the value of Samsung Bioepis went up due to the Korean government’s approval of its biosimilar products in 2015. This boosted the possibility of Biogen exercising the call option, which in turn made it necessary to change the status of Samsung Bioepis from a subsidiary to an affiliate. Samsung BioLogics asserts that the status change was necessary as Biogen’s exercise of the call option would deprive it of an exclusive control over Samsung Bioepis. The company says that under Korea’s accounting regulations, the corporate value of a subsidiary is assessed based on its book value, while that of an affiliate is assessed based on its market value. Accordingly, it did not violate the accounting regulations when it changed the accounting method in evaluating Samsung Bioepis in 2015.

Hence Samsung BioLogics reflected the fair value of Samsung Bioepis calculated by Deloitte Anjin LLC into its 2015 financial statements. As a result, the company swung to a net profit of 1.9 trillion won (US$1.7 billion) in 2016 from a net loss of more than 200 billion won (US$178.57 million) in 2015. Deloitte Anjin LLC said it assessed the value of Samsung Bioepis using a risk adjusted net present value (NPV) method.

However, the Financial Supervisory Service (FSS), which carried out a special audit of Samsung BioLogics, claims that the company committed accounting fraud as it exaggerated the corporate value of Samsung Bioepis in a way that is used for a reference material. In response, Samsung BioLogics submitted Celltrion’s performance as a reference material as the company thought that the FSS lacked an understanding of the bio industry.

Celltrion is increasing its market share with three biosimilar products – Remsima, Truxima and Herzuma. The company, which was relisted on the benchmark KOSPI, currently ranks third in terms of market capitalization with over 37 trillion won (US$32.98 billion). Celltrion has been continuously increasing sales and supply contracts since 2011 and such contracts have been reflected in its stock prices after listing.

However, Celltrion’s case is a bit different from that of Samsung Bioepis. Unlike Celltrion, Samsung BioLogics had granted a call option to its joint venture partner and changed the accounting method for Samsung Bioepis after receiving approval for biosimilar products.

Samsung BioLogics insists that it changed the status of Samsung Bioepis from a subsidiary to an affiliate and subsequently the method to evaluate its shares as there were favorable factors, including government approval for new drugs, which increased the possibility of its US partner exercising a call option. Previously, some members of the Accounting Oversight Deliberation Committee, which reviewed the accounting fraud allegations ahead of the SFC.

said Samsung BioLogics could not be seen as having manipulated its accounting book intentionally unless it had inflated the corporate value of Samsung Bioepis too much. In this regard, how one views the value of Samsung Bioepis will greatly affect a decision on whether Samsung BioLogics violated the accounting rules.


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