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Samsung BioLogics Faces Prosecution Probe over Alleged Accounting Fraud
A Blow to Samsung
Samsung BioLogics Faces Prosecution Probe over Alleged Accounting Fraud
  • By Choi Mun-hee
  • July 13, 2018, 10:44
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Samsung BioLogics immediately released a position statement and expressed that it is willing to file an administrative litigation as a response to SFC’s decision to report the company to the prosecutor’s office on July 12.
Samsung BioLogics said it would file an administrative litigation as a response to SFC’s decision to report the company to the prosecutor’s office on July 12.

Samsung BioLogics is in a state of perplexity as the Securities and Futures Commission (SFC) filed criminal complaints with the prosecution against the company on July 12, judging that it had “intentionally and illegally” committed accounting fraud.

With Samsung BioLogics’ credibility plummeting due to this incident, industry analysts predict that it will inevitably suffer tangible and intangible blows in the global market. While its major business as a contract manufacturing organization (CMO) will not face immediate setbacks, the incident is highly likely to negatively impact its future order taking.

Samsung BioLogics’ accumulated order amount totaled US$3.327 billion (approximately 3.6 trillion won) as of the end of last year. Its major client companies include Roche, BMS and Sun Pharma, and it achieved revenue of over US$400 million last year alone by procuring six additional biomedicines from four client companies. The company’s CEO Kim Tae-han said at the JP Morgan Healthcare Conference hosted in the US earlier this year, “We are currently discussing to sign order contracts with more than 15 companies for over 30 types of biomedicines.”


Although the Securities and Futures Commission (SFC) has acknowledged the intentionality in Samsung BioLogics’ public notice issue, the company is expected to face problems as developed countries consider accounting fraud as a serious economic crime, and the pharmaceutical industry holds stricter standards for corporate ethics than other industries. In a worst-case scenario, global pharmaceutical companies that handle medicines directly connected to human lives may place orders on other companies instead of Samsung BioLogics based on their internal ethical standards.

An employee working at a multinational pharmaceutical company’s Korean subsidiary said, “The process from signing a contract to officially manufacturing biomedical products typically takes about three years,” adding, “If a global pharmaceutical company delays contract signing, it could seriously injure a CMO company.”


Setbacks in product orders are expected to bring negative impacts on future performances as well. Securities companies predict that Samsung BioLogics’ sales will increase dramatically from 539.5 billion won (US$485.5 million) this year to 9.33 trillion won (US$8.39 billion) next year. The figure has been calculated with consideration of the orders to be placed on the company’s third factory that will begin a full-fledged production at the end of this year. As the third factory has obtained only one biomedicine manufacture contract, the company’s astronomical amount of investment may take a break if it fails to win additional contracts.
 

Meanwhile, as a response to the SFC’s conclusion that there was partial intentionality and illegality in Samsung BioLogics’ alleged accounting fraud, the company immediately released a position statement and expressed that it is willing to file an administrative litigation.

The statement released on this day by Samsung BioLogics declared, “The company has been faithfully following the financial authorities’ investigation process, such as supervision of Financial Supervisory Service (FSS) and investigation of the SFC, and has been doing our best to provide adequate evidence and explanation,” adding, “We feel very regretful that such results have been announced.”


It continued to say, “Samsung BioLogics has legally implemented all accounting process according to the International Financial Reporting Standards (IFRS),” adding, “We are planning to seek all legal remedies such as administrative litigation in order to protect the interests of investors and other stakeholders and ensure the adequacy of our accounting procedures.”


The statement added, “The company has confirmed that the ‘omission of a footnote related to a clause in the joint venture contract from public announcement,’ which the financial authority announced, does not subject the company to evaluation of listing qualifications (for delisting).”