Samsung BioLogics Vows Improved Management Transparency As Stock Resumes Trade
Executive Summary
Following an exchange decision that Samsung BioLogics should remain listed, the company has vowed to improve management transparency by beefing up internal controls and supervision over accounting. The decision is set to ease worries over the possible negative impact of an accounting probe on contract development and manufacturing orders, although the company still faces a court battle with financial authorities over its accounting standards.
Shares of Samsung BioLogics surged 18% after they resumed trading on Dec. 11 following a Korea Exchange decision to maintain the company's stock listing after financial authorities deemed the contract biologics manufacturer had violated accounting standards.
The stock had been suspended from trading and was undergoing a Korea Exchange review over whether it was eligible to remain listed, after financial authorities decided in mid-November that the company had “intentionally” breached accounting standards over the 2012-14 period, which resulted in overstated profits in 2015. (Also see "Samsung BioLogics Faces Penalties As Authorities Conclude 'Intentional' Accounting Violation" - Scrip, 15 Nov, 2018.)
As a result, the authorities recommended punitive measures including the dismissal of Samsung BioLogics CEO Tae Han Kim and imposed fines of KRW8bn ($7m), and have also asked prosecutors to further probe the accounting violations.
The exchange’s decision over the stock has removed worries over a possible delisting, which could have seriously hurt the firm’s business and credibility, as well as having a possible negative impact on South Korea's broader biopharma sector.
Samsung BioLogics said it has also begun an administrative lawsuit process to evaluate the legality of its accounting practices involving its shareholding in Samsung Bioepis Co. Ltd., and has also filed for a suspension of execution of the penalties imposed by financial authorities until the court issues a verdict on the company.
Steps To Improve Transparency
The Korea Exchange maintained the listing of Samsung BioLogics taking into consideration its business continuity and financial stability, but noted that the company has partly lacked management transparency, Kiwoom Securities said in a research note.
In a disclosure to the stock market, Samsung BioLogics vowed to improve management transparency by beefing up its internal control systems, strengthening audit functions using external experts, stepping up supervision of internal accounting management by forming a new inspection division separate from the current accounting team, improving the transparency of internal transactions, and expanding its legal team and functions to improve compliance.
Further details of the plans weren’t disclosed, but the company said it aims to carry them out within the first half of next year.
Given the easing over the biggest uncertainty in the affair, the possible delisting of the stock, Samsung BioLogics now looks poised to push ahead with regaining its credibility and moving toward its goal of becoming the world’s top contract development and manufacturing organization (CDMO).
In 2017, the company advanced into the contract development business to diversify clients and create synergies with its contract manufacturing operations. The expansion increased the potential customer base to more than 1,000 companies compared with fewer than 500 for a global contract manufacturing client base, Kiwoom noted.
As of 2018, Samsung BioLogics had the largest biologics manufacturing capacity globally at 360,000 liters.
Diversification Pays Off
Despite the accounting issues, few companies worldwide can provide one-stop services for the production of commercial quantities of substances, and Samsung BioLogics is the only firm that offers full services from biologic drug bulk ingredients to finished products, the brokerage noted, predicting that it would become a major fully globalized CDMO in 2021.
“There are various advantages in securing clients from early stages as this can lead to stable business in the longer term. Clients prefer receiving CDMO services from early development stages to late commercialization stages as clients will lose at least two years in time when they change production sites and require additional cost,” Kiwoom said.
Once its third plant reaches more than half of its planned production capacity, or if Biogen Inc. and Eisai Co. Ltd. successfully commercialize the Alzheimer’s disease drug aducanumab, Samsung BioLogics is expected to build a fourth plant. Pivotal clinical data for aducanumab, which reduces amyloid plaques, are expected in 2020.
Kiwoom expects Samsung BioLogics to make a decision on construction of its fourth plant by early 2020.
From the editors of PharmAsia News.