“Samsung BioLogics has received a letter from Biogen stipulating that it plans to exercise its call option before the June 29 (midnight) deadline and that the two companies should prepare for a stock exchange deal,” Samsung BioLogics said in a disclosure.
Samsung Bioepis, which focuses on developing biosimilar drugs, is a joint venture between Samsung BioLogics and US-based Biogen. Currently, the former owns a 96.4 percent stake in Bioepis, and the latter, a 5.4 percent stake.
Under their JV agreement, Biogen has the right to exercise a “call option” to purchase shares to increase its stake in Samsung Bioepis to 50 percent minus one share, which expires by end-June. Biogen has yet to exercise the option, though it has cited plans to do so in the past.
Biogen plans to send another formal notice of its call option to Samsung BioLogics in the future, the Samsung-owned contract drugmaker said.
The announcement comes as Samsung BioLogics and Korea’s financial regulator on Thursday began their first session of what’s expected to be a prolonged review of allegations that the company committed accounting fraud by switching its accounting method to inflate its net profit before its initial public offering in 2016.
Closely related to this change is Biogen’s right to a call option, which the company has yet to exercise.
The financial authorities have raised issue with Samsung BioLogics’ decision to change the ownership status of Bioepis from subsidiary to affiliate in 2015. The change led the company to evaluate its market cap based on fair market value, not book value, in line with the International Financial Reporting Standards.
Under the new standards, BioLogics’ equity gains from Bioepis surged from 330 billion won ($355 million) in 2014 to 5.27 trillion won in 2015, raising the contract drugmaker’s net profit to 1.9 trillion won after posting four straight years of deficits.
BioLogics claims that Bioepis was categorized as an affiliate to account for the high likehood that its JV partner Biogen would exercise its call option, considering Bioepis’ value had greatly hiked following the regulatory approval of its copycat biologic drugs at the time.
The company contends there were no issues with the change in its accounting method, made on the advice and approval of Korea’s three major accounting firms and the financial authorities.
However, critics have challenged the legitimacy of Samsung Biologics decision to categorize Bioepis as an affiliate before Biogen’s physical execution of a call option. They have also problematized the timing of the change, which had come ahead of the IPO.
Biogen’s call option announcement — which BioLogics expects will become key evidence in clearing the charges it faces — led the company’s shares to soar by around 6 percent during Friday morning trading.
By Sohn Ji-young (firstname.lastname@example.org)