HONG KONG – South Korea's Samsung Biologics Co. Ltd., one of the world's biggest biologic drug manufacturers, has seen its stock price fall 20 percent this month as allegations of accounting fraud remain in play after a year of investigation.

The allegation stemmed from 2015, when Samsung Biologics – after four years of losses – reported net profit for the first time that came in at an eyebrow-raising KRW1.9 trillion (US$1.76 billion), right before it went public in November 2016.

South Korea's financial regulators, the Financial Supervisory Service (FSS), now say they want to complete a second review of Samsung Biologics' accounting practices this week to remove uncertainty, three weeks after they tentatively concluded that the company had violated accounting rules.

The scandal centered around the revaluation of the company's stake in its unit, Samsung Bioepis, whose value was calculated based on market value but not the book value in 2015.

The change in accounting method inflated the value of Samsung Bioepis' shares owned by Samsung Biologics to KRW4.8 trillion (US$4.4 billion), rather than its acquisition price of KRW300 billion (US$277 million) in 2015.

Samsung Bioepis is a joint venture Samsung Biologics set up with U.S.-based pharmaceutical company Biogen Inc., which held only 8.8 percent of the company's shares but could exercise its call option to expand its stake to up to 49.9 percent.

Samsung Biologics, which vows to have complied with the rules, denied the allegations.

"We cannot call it an accounting fraud at this moment, because the result has not come yet," Inchan Hwang, media relations officer at Samsung Biologics, told BioWorld Asia.

"The value of Samsung Bioepis rose greatly due to the successful marketing approval of biosimilars Enbrel and Remicade in Korea and Europe in late 2015 and early 2016," the company said in a statement regarding the allegations.

As the future profitability of Samsung Bioepis improved, the joint venture was valued at KRW5.27 trillion. Samsung Biologics has said it believed that would increase the likelihood of Biogen exercising the call option – therefore changing the accounting method to treat Samsung Bioepis as an affiliate rather than a subsidiary.

Under international financial reporting standards that Samsung Biologics uses, a company is considered a subsidiary if the parent company possesses a majority stake in the firm or an affiliate if it holds a minority stake.

The company also said the decision for the change was backed by three major accounting firms, namely Samil PricewaterhouseCoopers, Samjeong KPMG and Deloitte Anjin.

The alleged accounting fraud was first raised by a Seoul-based civic group, People's Solidarity for Participatory Democracy (PSPD), which tracks private corporations.

"In 2015, Samsung Biologics claimed that it lost control over Samsung Bioepis because Biogen was very likely to exercise the call option, even though Samsung Biologics owns 91.2 percent of Bioepis shares," Kim Eun-jung, head of the economic and labor affairs at PSPD, told BioWorld Asia.

"But according to Biogen's annual report of 2015, it said Samsung Biologics has the power to direct the activities of Samsung Bioepis which will most significantly and directly impact its economic performance," Kim added.

On Friday, Biogen said it would exercise the call option, which Samsung Biologics said justified its valuation of Samsung Bioepis in 2015. However, the FSS said it gave no proper grounds for the change of accounting method, as Biogen had not yet made its intentions clear.

The FSS has made public its allegations against Samsung Biologics before the Securities and Futures Commission (SFC) reaches a conclusion, which is expected to come June 7. The investigation by the FSS has sent Samsung Biologics' share prices down, from $467 to $377 in a month.

"The company is now under investigation by the FSS. It is inevitable that its stock prices will be sent down. Not just Samsung Biologics, but the whole Samsung group is also affected," Shin Se-don, an economics professor at Sookmyung Women's University, told BioWorld Asia.

"The FSS has changed its [approach] recently. It has now become more active in looking into these kind of frauds," said Shin. "In the short run, this investigation will have a direct impact on Samsung's stock prices, but in long run, it will help regulate the companies' practices and it will be beneficial to the stock market."

Samsung Biologics is a biotech unit of South Korea's top conglomerate, Samsung Group. By manufacturing capacity, the company is the third biggest biotech contract manufacturer in the world after Lonza Group and Boehringer Ingelheim. It mainly develops and manufactures antibody drugs for treating cancer, autoimmune disease, diabetes and other diseases.