Dear Shareholders & Investors,
You have probably heard in recent media coverage that Korea’s Financial Supervisory Service (FSS) has issued a preliminary notice to Samsung BioLogics regarding our compliance with accounting rules. We held a press conference yesterday to clearly explain our position. To prevent our investors from being confused by the flood of media coverage, here is a brief explanation of the facts and our company’s position.
The main issue is whether our company violated accounting standards when we changed from the “consolidated” to “equity method” to account for our interest in Samsung Bioepis in FY 2015.
Our joint venture partner Biogen has a call option right that enables Biogen to purchase up to a total of 50%-1 shares of Samsung Bioepis. Under the IFRS 10 B23 principle, the determination of whether certain rights are substantive takes into account whether the party holding the rights would benefit from the exercise of those rights. It states that “the terms and conditions of potential voting rights are more likely to be substantive when the instrument is in the money or the investor would benefit for other reasons from the exercise or conversion of the instrument.”
Biogen expressed its intention to exercise its call option in the second half of 2015, and its call option right became “in the money” as defined under the IFRS 10 B23 rule at the end of 2015. Samsung Bioepis began to reap significant success in its biosimilar business, as it gained regulatory approval for its biosimilars in Korea and Europe. The value of Samsung Bioepis significantly increased, along with the likelihood that Biogen would exercise its call option right.
Our company fully verified all accounting procedures during the due diligence for our listing on the KOSPI exchange. We received unqualified opinions from the three major accounting firms (KPMG, Deloitte, and PwC). Following the financial audits by these three firms, the FSS conducted its own due diligence in May 2016 and also requested the KICPA for oversight in October 2016. Both concluded that the accounting treatments were done correctly. As such, FSS accepted our registration statement for IPO, and Samsung BioLogics was successfully listed on the KOSPI.
We will immediately take all measures to clearly prove the legality of our accounting treatments to the relevant committees – 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 had no reason to “intentionally” breach any accounting rules and firmly disagree with the FSS’s allegation that we did so. We are confident that absolutely no accounting fraud has been committed. The management and all employees of Samsung BioLogics will continue to put forth our best efforts to maximize our shareholders’ return.
May 3, 2018
Tae Han Kim
CEO & President
Samsung BioLogics Co., Ltd.