Samsung BioLogics said Friday that Biogen has exercised its call option to raise its stake in their joint venture Samsung Bioepis to 49.9 percent, putting its long-noted intent to increase its ownership in the biosimilars development company into formal action.

The development is expected to be taken into consideration by South Korea’s financial regulators, who are currently investigating a change in Samsung BioLogics’ accounting standards in 2015 that had factored in Biogen’s right to the Bioepis call option. 

By executing the call option, Biogen will pay Samsung BioLogics approximately $700 million for the option shares, increasing Biogen’s stake ownership in Samsung Bioepis from around 5.4 percent to 49.9 percent. Samsung BioLogics plans to transfer 19,567,921 shares of the 9,226,068 shares it holds in Bioepis to Biogen. Biogen is paying BioLogics 50,000 won ($45) per share, which with tax, adds up to a payment of 748.6 billion won.

The two companies will embark on regulatory procedures for the share purchase and complete the exchange by Sept. 28, the legal deadline for the call option, Samsung BioLogics said.

“This option allows us to increase our ownership share in a leading biosimilar company at what we believe are attractive terms. We look forward to building an important relationship with Samsung BioLogics,” said Biogen CEO Michel Vounatsos in a statement.

As for future management, Samsung Bioepis will operate under a board consisting of an equal number of directors from both Samsung BioLogics and Biogen. Under the terms of the original JV agreement, a company needs to obtain a 52 percent majority stake to secure final decision-making power over Bioepis.

Samsung Bioepis was founded in 2012 as an 85:15 joint venture between Samsung BioLogics and Biogen, with Biogen possessing the right to a call option to raise its stake in the JV to 50 percent minus one share, effective until June 2018.

It was widely expected that Biogen would exercise this option, considering Samsung Bioepis had significantly hiked in value after the fast-paced development and approval of its biosimilars -- cheaper, near-replicas of biologic drugs whose patents have expired.

Samsung Bioepis has a portfolio of six biosimilars referencing blockbuster biologics including Enbrel, Remicade, Herceptin, Humira, Lantus and Avastin. Five of them have been approved in Europe, and one in the US.

On top of shifting Bioepis’ ownership structure, industry watchers expect Biogen’s call option to help strengthen Samsung BioLogics’ defense in the ongoing accounting investigation here.

For the past month, the Securities Futures Commission, the auditing unit of Korea’s Financial Services Commission, has been investigating allegations that Samsung BioLogics committed accounting fraud by deliberately cooking the books in 2015.

The case has largely hinged on Samsung BioLogics’ decision to change its accounting standards at the end of 2015 to categorize Bioepis as an affiliate, instead of a subsidiary, despite holding a majority stake in Bioepis at the time.

BioLogics had defended its move by explaining that it made the change after Biogen became highly likely to exercise its call option as the value of Bioepis had surged after the approval of two of its high-value biosimilars at the end of 2015. The call option would weaken BioLogics’ control over Bioepis, and it was therefore advised by accounting experts to categorize Bioepis as an affiliate and recalculate its stake according to International Financial Reporting Standards, the company had said.

After the accounting shift, Samsung BioLogics came to log a one-time net profit of 1.9 trillion won for the fiscal year of 2015, after posting four straight years of deficits.

Local regulators have asserted that BioLogics had no reason to make the change, considering the call option was not exercised at the time. They viewed the move as a deliberate accounting violation aimed at inflating its profit ahead of an initial public offering in 2016.

There are high stakes involved in the ongoing accounting investigation. If found guilty of deliberate accounting fraud, Samsung BioLogics would face a maximum fine of 6 billion won and the removal of its incumbent CEO Kim Tae-han. If authorities find the case stemmed from minor accounting errors, the company could get off with a lighter penalty, such as a small fine.

The SFC is scheduled to hold its fourth meeting on the case Wednesday, and will likely reconvene until it can reach a final conclusion.

By Sohn Ji-young (jys@heraldcorp.com)