TIDMBPCR
RNS Number : 0472H
BioPharma Credit PLC
08 March 2018
BIOPHARMA CREDIT PLC
(THE "COMPANY")
ANNUAL REPORT FOR THE PERIOD FROM INCORPORATION
(24 OCTOBER 2016) to 31 DECEMBER 2017
BioPharma Credit PLC (LSE: BPCR), a specialist life sciences
debt investment trust, is pleased to present the first annual
results of the Company for the period to 31 December 2017.
The full Annual Report and Financial Statements can be accessed
via the Company's website at www.bpcruk.com or by contacting the
Company Secretary by telephone on 01392 477500.
INVESTMENT HIGHLIGHTS
-- The Company's shares were admitted to trading on the
Specialist Fund Segment ("SFS") of the Main Market of the London
Stock Exchange and The International Stock Exchange ("TISE") on 30
March 2017, raising gross proceeds of c.$762m. In doing so, the
Company became London's first listed specialist debt investor to
the life sciences industry.
-- During the period, the Company made three major investments
including a landmark deal for the sector:
o Up to $500m loan agreement with oncology focused Tesaro
(NASDAQ: TSRO), in conjunction with BioPharma Credit Investments IV
("BioPharma IV"). This was the largest non-convertible life
sciences debt issuance by a biotech company with a market
capitalisation of less than $10bn since 2007.
o Up to $200m loan agreement with fully integrated
biopharmaceutical company Lexicon (NASDAQ: LXRX), in conjunction
with BioPharma IV.
o $140m-160m purchase, sale and assignment agreement with a
subsidiary of Royalty Pharma Investments ("RPI") for the purchase
of a 50 per cent interest in payments acquired by RPI's subsidiary
from Bristol-Myers Squibb (NYSE: BMY).
o Post period end, the Company entered a senior secured loan
agreement for $150m with commercial stage oncology focused NovoCure
Limited (NASDAQ: NVCR).
-- In December 2017, the Company successfully raised c. $154m in
a placing of ordinary shares at a premium to NAV to finance future
investments in addition to the commitments made to Tesaro, Lexicon,
and Bristol-Myers Squibb.
-- During the period, the Company paid or declared interim
dividends totalling $0.02 per ordinary share, in line with its
initial target dividend of 4 per cent per annum.
-- Additionally, on 1 March 2018, the Company declared an
interim dividend in respect of the financial period ending 31
December 2017 of $0.021 per ordinary share, comprising an ordinary
dividend of $0.01 and a special dividend of $0.011.
FINANCIAL AND INVESTMENT HIGHLIGHTS
ORDINARY SHARES ASSETS
as at 31 December 2017 as at 31 December 2017
Share price Net assets
$1.0470 $922.6m
(30 March 2017*: $1.0000) +4.7% (30 March 2017: $746.6m) +23.6%
NAV per share Leverage
$1.0091 0%
(30 March 2017*: $0.9800) +3.0% (30 March 2017: 0%)
Premium to NAV per share
3.8%**
(30 March 2017: 2.0%)
Shares in issue
914.3m
(30 March 2017: 761.9m)
* The opening share price is the issue price as of 30 March 2017
and the opening net asset value ("NAV") per share is issue price
less initial expenses, capped at 2 per cent of the gross issue
proceeds, as set out in the IPO Prospectus dated 1 March 2017.
Portfolio composition
As at
Key statistics 31 December As at
($ in millions) 2017 30 March 2017 % change
------------------------------ ------------- --------------- ---------
Cash and cash equivalents 350.82 423.30 -17.1%
Limited partnership interest
in BioPharma III 123.48 153.50 -19.6%
RPS Note 99.65 185.10 - 46.2%
Tesaro senior secured loan 222.00 - -
Lexicon senior secured loan 124.50 - -
Other 2.12 (15.30) -113.9%
------------------------------ ------------- --------------- ---------
Total net assets 922.57 746.60 23.6%
------------------------------ ------------- --------------- ---------
Pedro Gonzalez de Cosio, CEO and co-founder of Pharmakon
Advisors L.P., the Investment Manager of BioPharma Credit Plc
said:
"This has been a highly successful first year for BioPharma
Credit and we are delighted with the progress since the initial
listing in March 2017. Since the IPO, the Company has made five
investments, deploying $514 million in corporate and royalty debt
secured by cash flows derived from sales of approved life sciences
products and a further $339.5m in future commitments subject to
certain conditions. BioPharma Credit remains uniquely positioned to
generate uncorrelated long-term shareholder returns, predominantly
in the form of sustainable income distributions from exposure to
the life sciences industry.
Results presentation
As announced on 1 March 2018, a management presentation will be
held today at 09:30 at Buchanan, 107 Cheapside, EC2V 6DN. To
confirm your attendance, please contact Buchanan.
A conference call facility is also available, please dial 0808
237 0040 and enter participant PIN 42580884#.
Enquiries:
Buchanan
David Rydell / Mark Court / Jamie Hooper / Henry Wilson
+44 (0) 20 7466 5000
Biopharmacredit@buchanan.uk.com
Notes to Editors:
BioPharma Credit PLC is London's only listed specialist debt
investor to the life sciences industry and joined the LSE in March
2017. The Company seeks to provide long-term shareholder returns,
principally in the form of sustainable income distributions from
exposure to the life sciences industry. The Company seeks to
achieve this objective primarily through investments in debt assets
secured by royalties or other cash flows derived from the sales of
approved life sciences products.
Corporate Summary
Investment Objective
The Company aims to generate long-term shareholder returns,
predominantly in the form of sustainable income distributions from
exposure to the life sciences industry.
Structure
The Company is a closed-ended publicly limited company
incorporated in the United Kingdom. It was registered in England
and Wales under the Act on 24 October 2016. The Company is listed
on the Specialist Fund Segment (SFS) of the London Stock
Exchange.
Investment Adviser
Pharmakon Advisors, the Company's Investment Manager, was
founded in 2009 and has invested $1.9 billion in 27 transactions
across four private funds and BioPharma Credit PLC through 31
December 2017. The first four funds are now fully invested. Drawing
upon the expertise and successful track record of Pharmakon
Advisors, the Company enjoys access to its extensive,
industry-focused knowledge and contacts to source, analyse and
structure attractive investment opportunities.
Through a shared services agreement with Royalty Pharma, founded
in 1996, the Investment Manager is able to rely on the
complementary expertise of the team behind the market leading
investor in pharmaceutical royalties.
CHAIRMAN'S STATEMENT
THE BOARD IS PLEASED TO PRESENT THE COMPANY'S FIRST ANNUAL
RESULTS FOR THE PERIODED 31 DECEMBER 2017
Introduction
This is the first Annual Report of BioPharma Credit PLC,
covering the period from its date of incorporation on 24 October
2016 to 31 December 2017.
The Company successfully listed on the SFS of the Main Market of
the London Stock Exchange ("LSE") and TISE on 30 March 2017,
raising $761.9 million. This was the largest IPO on the LSE in the
first half of 2017.
The proceeds of the IPO included the contribution in exchange
for shares of $338.6 million of seed assets. These comprised of a
$185.1 million note secured by royalties on sales from 22
biotechnology and pharmaceutical products, including some of the
world's largest, (the "RPS Note") together with a $153.5 million
interest in BioPharma lll Holdings LP, through which the Company
gained exposure to an interest in five loans, also secured by
rights to approved life sciences products. The remaining $423.3
million of IPO proceeds was initially held in cash pending
investment in new assets.
During the last quarter of 2017 the Company announced three new
investment commitments totalling up to a maximum of $713.2 million,
available to be drawn over the next two years. As a result of this
activity, together with the development of a pipeline of additional
investment opportunities, the Board decided to carry out a
follow-on issue of new ordinary shares which was successfully
placed on 14 December 2017, raising gross proceeds of $154.1
million. Through the combination of these two share issues, the
Company raised more proceeds than any other listed investment
company in London last year.
Shareholder returns and investment performance
On 31 December 2017 the Company's shares closed at $1.0470, a
4.7 per cent premium to the IPO price of $1.0000. NAV at admission
was $746.6 million or 98.00 cents per share and on 31 December 2017
was $922.6 million or 100.91 cents per share. During the period,
the Company paid or declared dividends totalling $0.02 per share,
in line with our initial target dividend of 4 per cent per
annum.
As more fully described in the Investment Manager's Report which
follows, the Company made a total of four investment commitments
during the period totalling between $693.2 million and $713.2
million, depending on certain conditions. One of these investments
was also exited within the period. A total of $363.7 million has
already been funded ($344 million net of the exited investment),
leaving an additional amount of between $329.5 million and $349.5
million that may be funded by early 2020. In the period ending 31
December 2017 the Company's seed assets declined through capital
repayments by $115.5 million to $223.1 million.
As of 31 December 2017, the Company had total assets of $925.5
million, represented by $569.6 million, in investments, $5.1
million in trade receivables and $350.8 million in cash.
Outlook
As demonstrated by the Company's announced investment activity,
target debt issuers have been receptive to the forms of debt
financing that the Company offers. A leadership position has been
established in the market through the execution of highly visible
transactions such as the important loan to Tesaro, Inc.
(TSRO:NASDAQ), which is reported to have been the largest
non-convertible debt issue by a biotech company with a market cap
of less than $10 billion, the Company's target market.
Your Board has been encouraged by the deployment of the proceeds
raised at the IPO and the development of a most encouraging
pipeline of further possible investment opportunities. This has
already led to the follow-on issue of ordinary shares referred to
above and, as we consider the evolution of these opportunities in
the coming months, I expect the Board to be giving further
consideration to sources of additional capital which, as envisaged
in the IPO Prospectus, may include both equity and debt.
I should like to thank all our shareholders for their support in
2017 and I look forward to updating you on the Company's further
progress later this year.
Jeremy Sillem
Chairman
7 March 2018
MARKET OVERVIEW
LIFE SCIENCES IS A LARGE, VITAL INDUSTRY WITH STRONG, CONSISTENT
GROWTH
Size and growth dynamics of the industry
The life sciences industry consists of pharmaceutical and
biotechnology firms and is a large and vital industry with
consistent growth. Worldwide industry revenues today are
approximately $1.1 trillion and are expected to reach $1.5 trillion
by 2021, reflecting a compounded annual growth rate of six per
cent. While medical and scientific advances contribute to a portion
of that increase, other growth drivers include more basic
demographic and macroeconomic factors such as a growing population,
an aging population and increasing prosperity in developing
countries which is improving access to healthcare for millions of
patients. The increase in spending is expected to be largely driven
by brands and increased usage in emerging markets, offset by
expiring patents.
Product lifecycle
Pharmaceutical and biotechnology products have a long life
cycle, which can provide considerable downside protection for the
Company. Worldwide patents can lead to more than 20 years of
protection, which frequently translates into as long as 15 years of
exclusivity from the time the products are first approved by
regulatory agencies such as the FDA. Some governments also provide
for regulatory exclusivity which provides for six to ten years of
commercial exclusivity independent of an approved patent, if an
innovator performs clinical trials. On average, sales growth is
very robust for the first 12 years of a product's life cycle, after
which some of these products begin to lose exclusivity, and their
sales growth slows and starts to decline shortly thereafter. A key
driver of initial sales growth is increasing prescriptions from
physicians in the early-launch markets, but subsequent
commercialisation rates in additional geographic markets, as well
as expanding indications, frequently drive attractive growth for
more than a decade.
Market dynamics creating fragmentation of the industry and more
lending opportunities
Despite growth in the pharmaceutical market, large
pharmaceutical companies continue to face mounting pressure on
top-line sales from patent expirations on blockbuster products and
failures in their R&D pipelines. The internal R&D
departments of larger pharmaceutical companies have struggled to
replace lost revenue with new products. Dramatically escalating
R&D costs have also put pressure on industry participants to
adapt their business model and seek partners to reduce risk. The
amount of R&D investment per FDA-approved product is now
approximately $1.4 billion. As a result of these factors, large
pharmaceutical companies have evolved and are increasingly relying
on in-licensing and corporate acquisitions for new products.
Over the last 30 to 40 years, the landscape of the
pharmaceuticals industry has been transformed from one dominated by
fully integrated pharmaceutical companies to a more dynamic and
entrepreneurial R&D ecosystem comprised of thousands of
participants. As a result of this R&D evolution, smaller
companies, investor groups, universities and non-profit research
institutes increasingly have rights to royalty streams on products
that have been out-licensed to larger pharmaceutical companies.
This broader shift in R&D approach provides an expanding
landscape of lending opportunities for the Company, as smaller
companies are increasingly partnering with large pharmaceutical
companies.
The pharmaceutical and biotechnology ecosystem has evolved to
one where innovation and commercialisation, which was once
centralised in fewer than 100 big pharmaceuticals, has now spread
among more than 5,000 academic labs, government-funded entities and
more than 5,000 biotech companies. The pool of creditworthy
borrowers has increased exponentially.
INTRODUCTION TO THE INVESTMENT MANAGER
PHARMAKON ADVISORS, THE FUND'S INVESTMENT MANAGER, WAS FOUNDED
IN 2009 AND HAS INVESTED $1.9 BILLION IN 27 TRANSACTIONS ON BEHALF
OF ITS CLIENTS
As of 31 December 2017, Pharmakon clients included four previous
BioPharma Funds (I, II, III & IV) and two managed co-investor
accounts. The four BioPharma Funds have now reached the end of
their investment period and are expected to generate net returns
ranging from 7% to 12% with zero defaults:
Historical Performance of Pharmakon-managed funds as of 31
December 2017
BioPharma Fund I II III IV
------------------- --------------- --------------- ---------------- ----------------
Launch date June 2009 March 2011 February December
2013 2015
End of investment May 2010 March 2013 August 2015 December
period 2017
Invested amount $263.7 million $343.0 million $463.0 million $512.0 million
Distributions to
investors $329.2 million $410.1million $423.8 million* $181.7 million*
Net IRR 11.3% 6.8% 10.9%* 10.0%*
------------------- --------------- --------------- ---------------- ----------------
*Reflects historical performance through 31 December 2017 and
estimated returns thereafter.
The Pharmakon team has extensive expertise investing in debt and
other cash flows backed by life sciences products.
Through a shared services agreement with Royalty Pharma,
Pharmakon has access to the complementary expertise of the team
behind the market-leading investor in pharmaceutical royalties.
Royalty Pharma, an affiliate of Pharmakon, was established in 1996
and acquires revenue-producing intellectual property, with over $17
billion in royalty assets.
The Pharmakon team prides itself on its ability to identify and
structure investments that meet its target returns while minimising
risk through its rigorous diligence process and industry
expertise.
INVESTMENT MANAGER'S REPORT
BIOPHARMA CREDIT IS WELL ON ITS WAY TO BUILDING AN ATTRACTIVE
PORTFOLIO
With the execution of four investments during the period,
representing total commitments of $693.2 million - $713.2 million,
Biopharma Credit is well on its way to meeting its objective of
building an attractive portfolio of life sciences debt
investments.
We are delighted with the results of our first nine months as a
public company. Pharmakon's engagement with multiple potential
counterparties resulted in the execution of four investments on
behalf of the Company while continuing to build an attractive
pipeline for future investments. BioPharma Credit saw significant
investment activity during the last half of the year, having made
four investments totalling $363.7 million, with additional
commitments ranging between $329.5 - $349.5 million subject to
certain conditions, and selling one investment for $19.7 million.
Below is a summary of this investment activity together with an
update on the seed assets acquired at the time of IPO.
Investments
Depomed, Inc.
Between 13 September 2017 and 31 October 2017, the Company
purchased 2.5 per cent senior unsecured convertible notes issued by
Depomed Inc. (NASDAQ: DEPO) with a face value of $23.5 million, at
an average price of 72.9 cents for a total consideration of $17.2
million. Between 5 December 2017 and 8 December 2017, the Company
sold the entire position at an average price of 83.4 cents and
received proceeds of $19.7 million including accrued interest,
generating a net gain of $2.5 million.
Tesaro, Inc.
On 21 November 2017, the Company and BioPharma Credit
Investments IV, S.ár.L. ("BioPharma IV"), another entity managed by
Pharmakon, entered into a definitive loan agreement for up to $500
million with Tesaro, Inc. (NASDAQ:TSRO) ("Tesaro"). Under the terms
of the transaction, the Company will invest up to $370 million
($222 million in the first tranche and up to an additional $148
million by 20 December 2018 at Tesaro's option) and BioPharma IV
will invest up to $130 million in parallel with the Company, which
will act as collateral agent. The loan has a term of seven years
and is secured by Tesaro's US rights to ZEJULA(R) and VARUBI(R) .
The first $300 million tranche bears interest at LIBOR plus 8 per
cent, with the second optional tranche bearing interest at LIBOR
plus 7.5 per cent. The LIBOR rate is subject to a floor of 1 per
cent and certain caps. Each tranche of the loan is interest only
for the first two years, amortises over the remaining term, and can
be prepaid at Tesaro's discretion at any time, subject to
prepayment fees. The
first $300 million tranche was funded on 6 December 2017.
Lexicon Pharmaceuticals, Inc.
On 4 December 2017, the Company and BioPharma IV entered into a
definitive term loan agreement for up to $200 million with Lexicon
Pharmaceuticals, Inc. (NASDAQ: LXRX) ("Lexicon"), a fully
integrated biopharmaceutical company with a market capitalisation
of approximately $1.0 billion as of 31 December 2017. The $200
million loan will be available in two tranches, each maturing in
December 2022 and bearing interest at 9.0 per cent per annum. The
first $150 million is available immediately and an additional
tranche of $50 million is available for draw down by March 2019 at
Lexicon's option if net XERMELO(R) sales are greater than $25
million in the preceding quarter. Under the terms of the
transaction, the Company will invest up to $166 million ($124.5
million in the first tranche and up to an additional $41.5 million
by 30 March 2019) and BioPharma IV will invest up to $34 million in
parallel with the Company which will act as collateral agent. The
loan is secured by substantially all of Lexicon's assets, including
its rights to XERMELO and Sotagliflozin. The first $150 million
tranche was funded on 18 December 2017.
Bristol-Myers Squibb, Inc.
On 8 December 2017, the Company's wholly-owned subsidiary
entered into a purchase, sale and assignment agreement with a
wholly-owned subsidiary of Royalty Pharma Investments ("RPI"), an
affiliate of the Investment Manager, for the purchase of a 50 per
cent interest in a stream of payments (the "Purchased Payments")
acquired by RPI's subsidiary from Bristol-Myers Squibb (NYSE: BMY)
through a purchase agreement dated 14 November 2017. As a result of
the arrangements, RPI's subsidiary and the Company's subsidiary
will each be entitled to the benefit of 50 per cent of the
Purchased Payments under identical economic terms. The Purchased
Payments are linked to tiered worldwide sales of Onglyza and
Farxiga, diabetes agents marketed by AstraZeneca, and related
products. The Company is expected to fund $140 to $160 million
during 2018 and 2019, determined by product sales over that period,
and will receive payments from 2020 through 2025. The Purchased
Payments are expected to generate attractive risk-adjusted returns
in the high single digits per annum.
Update on Seed Assets
The Company acquired $338.6 million in seed assets at the time
of the IPO in March 2017, consisting of a $185.1 million investment
in the RPS Note and a 46 per cent limited partnership interest in
BioPharma III, valued at $153.5 million at the time of the IPO.
BioPharma III
From the time of the IPO in March through 31 December 2017,
BioPharma Credit received distributions from BioPharma III
totalling $41.8 million, including $30.0 million in capital
distributions which reduced the value of the investment from $153.5
million in March to $123.5 million at 31 December 2017. The table
below provides the change in the balance of the individual
investments held by BioPharma III:
Asset value at Asset value at
Investment 30 March 31 December
Counterparty/ amount 2017 2017
borrower ($ in millons) ($ in millions) ($ in millions)
--------------- --------------- ---------------- ----------------
Vivus $50 $32 $7
Valneva $41 $39 $28
Novocure $100 $102 $100
Depomed $150 $127 $94
iRhythm $30 $33 $30
--------------- --------------- ---------------- ----------------
Total $371 $333 $259
--------------- --------------- ---------------- ----------------
During this period, the investments held by BioPharma III
performed as expected. One of these investments, a loan to Depomed,
Inc. (NASDAQ: DEPO), was subject to an amendment that allowed it to
enter into a commercialisation agreement with a third party,
Collegium Pharmaceuticals. The key terms to the amendment provided
for: 1) a replacement of a $330 million annual sales covenant with
an annual EBITDA covenant of $90 million through the third quarter
of 2018 and $125 million thereafter; and 2) a change in the
amortisation schedule to allow for quarterly as opposed to annual
amortisation.
RPS Note
From the time of the IPO in March 2017 through 31 December 2017,
BioPharma Credit received payments from the RPS Note totalling
$94.8 million, including $85.5 million in amortisation payments
which reduced the value of the investment from $185.1 million in
March 2017 to $99.6 million at 31 December 2017.
End of investment period of BioPharma IV
The investment period of BioPharma IV, an entity managed by
Pharmakon, expired on 8 December 2017. As a result, in line with
our policy outlined at the IPO, the Company will be entitled to
participate in a minimum of 50 per cent of any future investment
opportunity by value, regardless of its size (subject always to
compliance with the investment restrictions applicable to the
Company). From the time of the IPO in March 2017 through 8 December
2017, BioPharma IV executed five transactions, investing $211.9
million and committing to invest an additional $80.5 million. In
addition to a share of the Tesaro and Lexicon transactions
described above, BioPharma IV entered into three transactions
ranging in size from $20 to $60 million.
Investment outlook
The life sciences industry has continued to perform well during
these past months. Through December 2017, the New York Stock
Exchange Biotechnology Index ("BTK Index") had increased by 18.4
per cent since 31 March 2017 and by 37.3 per cent since the start
of the year. Beyond reflecting the overall health of the industry,
this index is relevant to us because potential borrowers are more
inclined to issue equity or convertible bonds at times when equity
markets are strong, limiting the number and size of fixed-income
investment opportunities for the Company.
Despite recent stock market performance, equity and convertible
issuance during this period has been in line with the recent past.
Global equity issuance by life sciences companies during 2017 was
$58.1 billion, broadly in line with the $61.0 billion issued during
2016. US issuance of life sciences convertible bonds increased 13.4
per cent from $4.8 billion during 2016 to $5.5 billion in 2017.
Acquisition financing is a very important driver of capital
needs in the life sciences industry. An active M&A market helps
drive opportunities for investors such as the Company, as acquiring
companies need to raise finance to fund acquisitions. Global life
sciences M&A volume during 2017 was $168.6 billion, 14.4 per
cent less than the $196.9 billion witnessed during 2016, reflecting
a decline across the broader, all industry, M&A market that saw
a 25 per cent reduction. It is widely believed that this decline in
M&A activity was caused by uncertainty surrounding US tax
reform which was resolved in December 2017, leading to the
expectation of increased M&A activity in 2018. While this
decline has reduced the number of past investment opportunities, we
are encouraged by the number of M&A opportunities that are
starting to build up and should lead to a more active market over
the next few months.
In conclusion, there is a robust pipeline of investment
opportunities but the timing of their execution is not completely
within our control. In addition, given the recent pace of
investment activities, we will continue to explore additional
sources of capital in order to finance new investments and fund
existing commitments. We remain focused on our mission of creating
the premier dedicated provider of debt capital to the life sciences
industry while generating attractive returns and sustainable income
to investors. Further, we remain confident of our ability to
deliver attractive returns that will enable the Company to pay a
robust dividend yield for our investors.
Pedro Gonzalez de Cosio
Co-founder and CEO, Pharmakon
7 March 2018
PORTFOLIO INFORMATION
Counterparty/ Fair value Expected % of
Asset borrower Geography Underlying product ($m) maturity net assets
---------------------- --------------- ---------------- ---------------------- ----------- --------- -----------
Limited partnership
interest in
BioPharma III:
1. Capped royalty Vivus Qsymia 3.05 2018 0%
2. Senior secured
loan Valneva Ixiaro 12.77 2018 1%
3. Senior secured
loan Novocure Optune 46.15 2020 5%
Nucynta, Gralise,
4. Senior secured three
loan Depomed others 43.59 2022 5%
5. Senior secured
loan iRhythm Optune 13.84 2021 2%
6. Other net assets 4.08 0%
--------------------------------------------------------------------------------- ----------- --------- -----------
Limited partnership interest in
BioPharma III Cayman Islands 123.48 various 13%
--------------------------------------- ---------------------------------------- ----------- --------- -----------
RPS Note RPS Cayman Islands 22 products 99.65 2026 11%
Tesaro senior secured
loan Tesaro United States ZEJULA 222.00 2024 24%
Lexicon senior
secured XERMELO and
loan Lexicon United States Sotagliflozin 124.50 2022 14%
---------------------- --------------- ---------------- ---------------------- ----------- --------- -----------
Total investments 569.63 62%
--------------------------------------------------------------------------------- ----------- --------- -----------
Cash and cash equivalents 350.82 38%
Other net assets 2.12 0%
--------------------------------------------------------------------------------- ----------- --------- -----------
Net assets 922.57 100%
--------------------------------------------------------------------------------- ----------- --------- -----------
The above table excludes maximum unfunded commitments for the
following investments:
1) Tesaro senior secured loan: $148.0 milllion.
2) Lexicon senior secured loan: $41.5 million.
3) Bristol-Myers Squibb priority royalty tranche: $140 to $160
million.
See Recent Investments below for additional information on
Tesaro and Lexicon senior secured loans.
Performance
Cumulative Performance (%) Since launch 1 month 3 months 6 months
---------------------------- ------------- -------- --------- ---------
Share price 4.70% -1.04% -5.93% -4.12%
---------------------------- ------------- -------- --------- ---------
NAV per share(1) 2.97% 1.24% 1.94% 2.00%
---------------------------- ------------- -------- --------- ---------
(1) As set out in the IPO Prospectus dated 1 March 2017, the
Initial Expenses to be borne by the Company were capped at 2% of
the Gross Issue Proceeds. The cumulative NAV performance since
launch reflects the Company's performance against the opening NAV
per share of 98 cents on the date of IPO.
RECENT INVESTMENTS
TESARO
$500 MILLION SENIOR SECURED LOAN TO TESARO, INC.
Tesaro is an oncology biopharmaceutical company focused on
in-licensing and developing oncology-related product candidates,
including rolapitant, niraparib, and product candidates under their
immuno-oncology platform.
Most recent product sales:
Zejula
$108.8m
2017
US approval: March 2017
EU approval: November 2017
Pedro Gonzalez de Cosio, Co-founder and CEO, Pharmakon
"We believe that TESARO is well on its way to becoming an
oncology leader with an excellent management team, portfolio of
commercial products with blockbuster potential in their current
indications, and an exciting clinical development program that will
one day offer patients additional indications for niraparib as well
as new immuno-oncology therapies".
KEY TERMS OF LOAN
Size of facility:
$500 million to be funded in two tranches
> Tranche A: $300 million
> Tranche B: $200 million (prior to 20 December 2018)
> Company's share of Tranche A: $222 million
> Company's share of Tranche B: $148 million
Funding fee:
2% of Tranche A + 2% of Tranche B (draw)
Funding date:
6 December 2017
Interest rate:
> Tranche A: LIBOR +8.0% (subject to a floor and cap)
> Tranche B: LIBOR +7.5% (subject to a floor and cap)
Amortisation:
Two year interest only then 3% quarterly
Maturity:
Seven years
Prepayment:
Two years' interest less interest paid to date plus 3% if prior
to the 2nd anniversary, 2% if prior to 3rd anniversary, or 1% if
prior to the 4th anniversary.
ZEJULA
(niraparib)
ZEJULA is a once-daily, oral poly (ADP-ribose) polymerase
("PARP") 1/2 inhibitor approved for the maintenance treatment of
women with recurrent epithelial ovarian, fallopian tube, or primary
peritoneal cancer who are in a complete or partial response to
platinum-based chemotherapy in the US. It is the market-leading
PARP inhibitor in the US. PARP inhibition interferes with DNA
repair, leading to accumulation of single-strand breaks.
Single-strand breaks become double-strand breaks, which are not
repaired due to deficient DNA repair pathways present in many
ovarian tumours. In the Phase 3 NOVA trial, the median PFS for
patients treated with ZEJULA was nearly 4x higher than placebo in
the gBRCAmut cohort and more than 2x higher than placebo in the
non-gBRCAmut cohort. Treatment with ZEJULA reduced the risk of
disease progression or death by 74 per cent in patients with
germline BRCA mutations and by 55 per cent in patients without
germline BRCA mutations. ZEJULA received US FDA approval in March
2017 and EMEA approval in November 2017. TESARO has ongoing and
planned trials for 1st line and recurrent ovarian cancer and
expansion into certain other solid tumours.
LEXICON PHARMACEUTICALS
$200 MILLION SENIOR SECURED LOAN TO LEXICON PHARMACEUTICALS,
INC.
Lexicon is a biopharmaceutical company developing drugs for
cancer, diabetes, and pain including Xermelo for the treatment of
Carcinoid Syndrome diarrhoea and Sotagliflozin for Type 1 and Type
2 diabetes.
Most recent product sales:
Xermelo
$15.9m
2017
US approval: February
2017
EU approval: September
2017
Sotagliflozin
US approval: Pending
EU approval: Pending
Pablo Legorreta, Co-founder and Principal, Pharmakon
"We are impressed with the LEXICON team and the commercial
opportunities for XERMELO and are thrilled to support LEXICON in
its ramp up of this product that fills a well-defined unmet patient
need."
KEY TERMS OF LOAN
Size of facility:
$200 million to be funded in two tranches
> Tranche A: $150 million
> Tranche B: $50 million (prior to 20 March 2019)
> Company's share of Tranche A: $124.5 million
> Company's share of Tranche B: $41.5 million
Funding date:
18 December 2017
Interest rate:
9.0%
Amortisation:
Principal amount five years post funding date
Maturity:
Five years
Prepayment:
Three years interest less interest paid to date plus 2% if prior
to the 4th anniversary or 1% if prior to the 5th
XERMELO
(telotristat ethyl)
XERMELO is the first and only orally administered therapy for
the treatment of carcinoid syndrome diarrhoea in combination with
somatostatin analog ("SSA") therapy in adults inadequately
controlled by SSA therapy. Carcinoid syndrome is a rare and
debilitating condition that affects people with metastatic
neuroendocrine tumours ("mNETs"). XERMELO targets the
overproduction of serotonin inside mNET cells, providing a new
treatment option for patients suffering from carcinoid syndrome
diarrhoea.
SOTAGLIFLOZIN (LX4211)
An orally-delivered phase 3 compound for Type 1 and Type 2
diabetes that inhibits both sodium-glucose cotransporter type 2, or
SGLT2, a transporter responsible for glucose reabsorption performed
by the kidney and sodium-glucose cotransporter type 1, or SGLT1, a
transporter responsible for glucose and galactose absorption in the
gastrointestinal tract.
STRATEGIC OVERVIEW
Investment objective
The Company aims to generate long-term shareholder returns,
predominantly in the form of sustainable income distributions from
exposure to the life sciences industry.
Investment policy
The Company will seek to achieve its investment objective
predominantly through direct or indirect exposure to Debt
Assets.
The Company may acquire Debt Assets:
-- directly from the entity issuing the Debt Asset (a
"Borrower"), which may be: (i) a company operating in the life
sciences industry (a "LifeSci Company"); or (ii) an entity other
than a LifeSci Company which directly or indirectly holds an
interest in royalty rights to certain Products, including any
investment vehicle or special purpose vehicle ("Royalty Owner");
or
-- in the secondary market.
The Company may also invest in equity issued by a LifeSci
Company, acquired directly from the LifeSci Company or in the
secondary market.
"Debt Assets" will typically comprise:
Royalty debt instruments
Debt issued by a Royalty Owner where the Royalty Owner's
obligations in relation to the Debt are secured as to repayment of
principal and payment of interest by Royalty Collateral.
Priority royalty tranches
Contract with a Borrower that provides the Company with the
right to receive payment of all or a fixed percentage of the future
royalty payments receivable in respect of a Product (or Products)
that would otherwise belong to the Borrower up to a fixed monetary
amount or a pre-set rate of return, with such royalty payment being
secured by Royalty Collateral in respect of that Product (or
Products).
Senior secured debt
Debt issued by a LifeSci Company, and which is secured as to
repayment of principal and payment of interest by a first priority
charge over some or all of such LifeSci Company's assets, which may
include: (i) Royalty Collateral; or (ii) other intellectual
property and marketing rights to the Products of that LifeSci
Company.
Unsecured debt
Debt issued by a LifeSci Company which is not secured or is
secured by a second lien on assets of the Borrower.
Credit linked notes
Derivative instruments referencing Debt Assets, being a
synthetic obligation between the Company and another party where
the repayment of principal and/or the payment of interest is based
on the performance of the obligations under the underlying Debt
Assets.
"Royalty Collateral" means, with respect to a Debt Asset, (i)
future payments receivable by the Borrower on a Product (or
Products) in the form of royalty payments or other revenue sharing
arrangements; or (ii) future distributions receivable by the
Borrower based on royalty payments generated from a Product (or
Products); or (iii) both limb (i) and limb (ii). "Debt" includes
loans, notes, bonds and other debt instruments and securities,
including convertible debt, and Priority Royalty Tranches.
Borrowers will predominantly be domiciled in the US, Europe and
Japan, though the Company may also acquire Debt Assets issued by
Borrowers in other jurisdictions.
Investment restrictions and portfolio diversification
The Company will seek to create a diversified portfolio of
investments by investing across a range of different forms of Debt
Assets issued by a variety of Borrowers. In particular, the Company
will observe the following restrictions when making investments in
accordance with its investment policy:
-- no more than 30 per cent of the Company's gross assets will
be exposed to any single Borrower, other than in the case of the
RPS Note;
-- no more than 35 per cent of the Company's gross assets will
be invested in Unsecured Debt; and
-- no more than 15 per cent of the Company's gross assets will
be invested in equity securities issued by LifeSci Companies.
Each of these investment restrictions will be calculated as at
the time of investment. In the event that any of the above limits
are breached at any point after the relevant investment has been
made (for instance, as a result of any movements in the value of
the Company's total assets), there will be no requirement to sell
any investment (in whole or in part).
Cash management
The Company's uninvested capital may be invested in cash
instruments or bank deposits for cash management purposes.
Hedging
The Company does not propose to enter into any hedging or other
derivative arrangements other than as may from time to time be
considered appropriate for the purposes of efficient portfolio
management. The Company will not enter into such arrangements for
investment purposes.
Business and status of the Company
The Company is registered in England as a public limited company
and is an investment company in accordance with the provisions of
Section 833 of the Companies Act 2006.
The principal activity of the Company is to carry on business as
an investment trust. The Company intends at all times to conduct
its affairs so as to enable it to qualify as an investment trust
for the purposes of Sections 1158/1159 of the Corporation Tax Act
2010 ("S1158/1159"). The Directors do not envisage any change in
this activity in the foreseeable future.
The Company has been granted approval from HM Revenue &
Customs ("HMRC") as an investment trust under S1158/1159 and will
continue to be treated as an investment trust company, subject to
there being no serious breaches of the conditions for approval. The
Directors are of the opinion that the Company has conducted its
affairs for the period ended 31 December 2017 so as to be able to
continue to qualify as an investment trust.
The Company has a wholly-owned subsidiary, BPCR Ongdapa Limited,
details of which can be found in Note 14 to the financial
statements.
Key performance indicators
The Company assesses its performance in meeting its investment
objectives using the following Key Performance Indicators
("KPIs"):
NAV performance
The NAV at 31 December 2017 was $1.0091 per share, compared to
$0.98 per share upon IPO, an increase of 3.0 per cent.
A full description of the Company's performance for the year
ended 31 December 2017 is included in the Investment Manager's
Report above.
A full description of the Company's performance for the year
ended 31 December 2017 is included in the Investment Manager's
Report above.
Share price return
The Company's share price at IPO was $1.00 and increased to
$1.0470, for a return since IPO of 4.7 per cent as of 31 December
2017.
Share price premium to NAV per share
The Company's share price was at a premium to the NAV per share
consistently throughout the period, ending the period at a premium
of 3.8 per cent. The daily closing price of the Company's shares
ranged from $1.02 - $1.13 throughout the period.
If the share price declines to a point where the shares trade on
average at a discount to NAV per share in excess of 5 per cent in
any three-month rolling period, the Company has certain discount
control mechanisms in place, one of which requires the Company to
repurchase shares until such time the share price discount to NAV
per share moves below 1 per cent.
Dividend yield
The Company declared and paid dividends during the period in
line with the expected 4 per cent annual yield as disclosed in its
IPO Prospectus dated 1 March 2017.
Ongoing Charges
The Company's ongoing charges ratio as at 31 December 2017 was
1.2 per cent.
Dividends
Dividends totalling $15,238,000 per ordinary share have been
paid in respect of the period ended 31 December 2017.
Principal risks and uncertainties
The Board of Directors has overall responsibility for risk
management and internal control of the Company. The Board
recognises that risk is inherent in the operation of the Company
and that effective risk management is key to the success of the
organisation. The Board has delegated responsibility for the
assurance of the risk management process and the review of
mitigating controls to the Audit and Risk Committee.
The Board, when setting the risk management strategy, also
determines the nature and extent of the significant risks and its
risk appetite in implementing this strategy. A formal risk
identification and assessment process has been in place since the
IPO, resulting in a risk framework document which summarises the
key risks and their mitigation.
The Board undertakes a formal risk review with the assistance of
the Audit and Risk Committee at least twice a year in order to
assess the effectiveness of the Company's risk management and
internal control systems. During the course of such review, the
Board has not identified, nor been advised of any failings or
weaknesses which it has determined to be of a material nature. The
principal risks and uncertainties the Company faces are set out
below.
The principal risks, the Company's policies for managing these
risks and the policy and practice with regard to financial
instruments are summarised in Note 16 to the financial
statements.
The principal risks and uncertainties that could have a material
impact on the Company's performance are set out below. The
financial risks faced by the Company include, but are not limited
to, market risk, liquidity risk and credit risk.
Failure to achieve target returns
The target returns are targets only and are based on financial
projections that are themselves based on assumptions regarding
market conditions, economic environment, availability of investment
opportunities and investment-specific assumptions that may not be
consistent with conditions in the future.
The Company seeks to achieve its investment objective
predominantly through direct or indirect exposure to debt assets.
Debt assets typically comprise royalty debt instruments, priority
royalty tranches, senior secured debt, unsecured debt and credit
linked notes. A variety of factors, including lack of attractive
investment opportunities, defaults and prepayments under debt
assets, inability of the Company to obtain debt at an appropriate
rate, changes in the life sciences industry, exchange rates,
government regulations, the non-performance (or underperformance)
of any life sciences product (or any life sciences company) could
adversely impact the Company's ability to achieve its investment
objective and deliver the target returns. A failure by the Company
to achieve its target returns could adversely impact the value of
the shares and lead to a loss of investment.
The Company has an investment policy to achieve a balanced
Investment with a diversified asset base and has investment
restrictions in place to limit exposure to potential risk factors.
These factors enable the Company to build a diversified portfolio
that should deliver returns that are in line with its stated target
return.
The success of the Company depends on the ability and expertise
of the Investment Manager
In accordance with the Investment Management Agreement, the
Investment Manager is responsible for the investment management of
the Company's assets. The Company does not have its own employees
and all of its Directors are appointed on a non-executive basis.
All investment and asset management decisions are made by the
Investment Manager (or any delegates thereof) and not by the
Company or the Directors and, accordingly, the Company is
completely reliant upon, and its success depends on, the Investment
Manager and its personnel, services and resources. The Investment
Manager is required, under the terms of the Investment Management
Agreement, to perform in accordance with the Service Standard. The
Investment Manager does not submit individual investment decisions
to the Board for approval and the Board does not supervise the due
diligence performed by the Investment Manager. As part of its asset
management decisions, the Investment Manager may from time to time
make commitments for future investments for which the Company may
need to raise funds in the future by issuing equity and/or debt or
by selling all or part of other investments to raise liquidity.
The Company is entitled to terminate the Investment Management
Agreement if the Investment Manager has (i) committed fraud, gross
negligence or willful misconduct in the performance of its
obligations under the Investment Management Agreement, or (ii)
breached its obligations under the Investment Management Agreement,
and the Company is reasonably likely to suffer a loss arising
directly or indirectly out of or in connection with such breach of
an amount equal to or greater than 10 per cent of the NAV as at the
date of the breach. The Investment Management Agreement may also be
terminated at the Company's discretion on not less than six months'
notice to the Investment Manager, such notice not to expire earlier
than: (i) 36 months following Admission, unless approved by
shareholders by ordinary resolution; and (ii) 18 months following
Admission, in any event.
Under the terms of the Investment Management Agreement, the
Investment Manager is only liable to the Company (and will only
lose its indemnity) if it has committed fraud, gross negligence or
willful misconduct or acted in bad faith, or knowingly violated
applicable securities' laws. The performance of the Company is
dependent on the diligence, skill and judgment of certain key
individuals at the Investment Manager, including Pedro Gonzalez de
Cosio and other senior investment professionals and the information
and investments' pipeline generated through their business
development efforts. On the occurrence of a Key Person Event (as
defined in the Investment Management Agreement), the Company may be
entitled to terminate the Investment Management Agreement with
immediate effect (subject to the Investment Manager's right to find
an appropriate replacement to be approved by the Board (such
approval not to be unreasonably withheld or delayed) within 180
days)). However, if the Company elects to exercise this right, it
would be required to pay the Investment Manager a termination fee
equal to either 1 per cent or 2 per cent of the invested NAV
(depending on the reason for the Key Person Event), as at the date
of such termination. If the Company elects not to exercise this
right, the precise impact of a Key Person Event on the ability of
the Company to achieve its investment objective and target returns
cannot be determined and would depend inter alia on the ability of
the Investment Manager to recruit individuals of similar
experience, expertise and calibre. There can be no guarantee that
the Investment Manager would be able to do so and this could
adversely affect the ability of the Company to meet its investment
objective and target returns and may adversely affect the NAV and
shareholder returns and result in a substantial loss of a
shareholder's investment.
Pharmakon Advisors, the Investment Manager, has extensive
expertise and a track record of successfully investing in debt and
other cash flows backed by life sciences products. The Investment
Management Agreement provides attractive incentives for the
Investment Manager to perform prudently and in the best interests
of the Company. In addition, the Investment Manager and its
affiliates own approximately 13 per cent of the Company as at 31
December 2017, creating a strong alignment of interests between the
Investment Manager and its affiliates and shareholders of the
Company.
The Company may from time to time commit to make future
investments that exceed its current liquidity
From time to time, the Company may commit to make future
investments for which the Company will need to raise funds by
issuing equity and/or debt, or by selling all or part of other
investments. Investment opportunities may require the Company to
fund transactions in two or more tranches, with the later tranches
to be funded six or more months in the future. Refusing to offer
such later tranches would decrease the attractiveness of the
Company's investment proposals and harm the Company's ability to
successfully deploy its capital. Requiring the Company to maintain
low-yielding cash balances sufficient to fund all such later
tranches at the time of the initial commitment would decrease the
average yield on the Company's assets, adversely impacting the
returns to investors, and may also result in missed investment
opportunities. However, in order to fund all such later tranches,
the Company could be forced to issue debt, sell assets or
renegotiate with the party to which it has committed the funding on
unattractive terms. Furthermore, there can be no assurance that the
Company will always be able to raise sufficient liquidity (by
issuing equity and/or debt, or by selling investments) to meet its
funding commitments. If the Company were to fail to meet its
funding commitments, the Company could be in breach of its
contractual obligations, which could adversely affect the Company's
reputation, could result in the Company facing legal action from
its counterparty, and could adversely affect the Company's
financial results.
Pharmakon Advisors, the Investment Manager, together with its
affiliate Royalty Pharma, believes that the risks associated with
such unfunded commitment is manageable without undue risk.
Pharmakon Advisors has extensive expertise raising debt secured by
cash flows from life sciences products and has extensive
relationships with banks and other financial institutions who can
be called on to provide debt financing to the Company in order to
raise liquidity. In addition, Pharmakon Advisors has expertise
purchasing and selling life sciences debt assets in the secondary
market and has extensive relationships with the major participants
in the life-sciences debt market who would be the likely purchasers
of any assets offered for sale by the Company in order to raise
liquidity.
The Investment Manager's ability to source and advise
appropriately on investments
Returns on the shareholders' investments will depend upon the
Investment Manager's ability to source and make successful
investments on behalf of the Company. There can be no assurance
that the Investment Manager will be able to do so on an ongoing
basis. Many investment decisions of the Investment Manager will
depend upon the ability of its employees and agents to obtain
relevant information. There can be no guarantee that such
information will be available or, if available, can be obtained by
the Investment Manager and its employees and agents. Furthermore,
the Investment Manager will often be required to make investment
decisions without complete information or in reliance upon
information provided by third parties that is impossible or
impracticable to verify. For example, the Investment Manager may
not have access to records regarding the complaints received
regarding a given life science product or the results of R&D
related to products. Furthermore, the Company may have to compete
for attractive investments with other public or private entities,
or persons, some or all of which may have more capital and
resources than the Company. These entities may invest in potential
investments before the Company is able to do so or their offers may
drive up the prices of potential investments, thereby potentially
lowering returns and, in some cases, rendering them unsuitable for
the Company. An inability to source investments would have a
material adverse effect on the Company's profitability, its ability
to achieve its target returns and the value of the shares.
The Investment Manager believes that sourcing investments is one
of its competitive advantages. The Investment Manager's
professionals, together with those at its affiliate Royalty Pharma,
accessible through the Shared Services Agreement, have
complimentary scientific, medical, licensing, operating,
structuring and financial backgrounds which the Investment Manager
believes provide a competitive advantage in sourcing, evaluating,
executing and managing credit investments in the life sciences
industry.
There can be no assurance that the Board will be able to find a
replacement investment manager if the Investment Manager
resigns
Under the terms of the Investment Management Agreement, the
Investment Management Agreement may be terminated by: (A) the
Investment Manager on not less than six months' notice to the
Company, such notice not to expire earlier than 18 months following
Admission; or (B) the Company on not less than six months' notice
to the Investment Manager, such notice not to expire earlier than:
(i) 36 months following Admission, unless approved by shareholders
by ordinary resolution; and (ii) 18 months following Admission, in
any event. The Board would, in these circumstances, have to find a
replacement investment manager for the Company and there can be no
assurance that a replacement with the necessary skills and
experience would be available and/or could be appointed on terms
acceptable to the Company. In this event, the Board may have to
formulate and put forward to shareholders proposals for the future
of the Company which may include its merger with another investment
company, reconstruction or winding up. It is possible that,
following the termination of the Investment Manager's appointment,
the Investment Manager will continue to have a role in the
investment management of certain assets, where a debt asset is
shared with one or more other entity managed by the Investment
Manager that continue to retain the Investment Manager's
services.
In the event the Investment Manager resigns, the Board will put
forward to shareholders proposals for the future of the Company
which may include its merger with another investment company,
reconstruction or winding up. Entities affiliated with the
Investment Manager own approximately 13 per cent of the Company as
of 31 December 2017. This affiliate ownership level, coupled with
the fact that the Investment Manager is fairly compensated, provide
further incentive to remain as Investment Manager to the
Company.
Concentration in the Company's portfolio may affect the
Company's ability to achieve its investment objective
The Company's published investment policy allows the Company to
invest up to 30 per cent of the Company's assets in a single debt
asset or in debt assets issued to a single borrower. While the
investment limits in the investment policy have been set keeping in
mind the debt capital requirements of the life sciences industry
and the investment opportunities available to the Investment
Manager, it is possible that the Company's portfolio may be
significantly concentrated at any given point in time.
Concentration in the Company's portfolio may increase certain
risks to which the Company is subject, some or all of which may be
related to events outside the Company's control. These would
include risks around the creditworthiness of the relevant borrower,
the nature of the debt asset and of any life sciences product(s) in
question. The occurrence of these situations may result in greater
volatility in the Company's investments and, consequently, its NAV,
and may materially and adversely affect the performance of the
Company and the Company's returns to shareholders. Such increased
concentration of the Company's assets could also result in greater
losses to the Company in adverse market conditions than would have
been the case with a less concentrated portfolio, and have a
material adverse effect on the Company's financial condition,
business, prospects and results of operations and, consequently,
the Company's NAV and/or the market price of the shares.
The Company may be unable to reduce its total exposure to Tesaro
(funded and unfunded) to below 30 per cent before it is obligated
to fund the second tranche of its senior secured loan to Tesaro
On 21 November 2017, the Company and BioPharma Credit
Investments IV, S.àr.L. ("BioPharma-IV") entered into a definitive
loan agreement for up to $500 million with Tesaro, Inc. Under the
terms of the transaction, the Company will invest up to $370
million ($222 million in the first tranche and up to an additional
$148 million by 20 December 2018) and BioPharma-IV will invest up
to $130 million in parallel with the Company acting as collateral
agent. The first tranche was funded on 6 December 2017. At the time
of entering into the transaction, the Company's exposure in
relation to the first funded tranche ($222 million) was below 30
per cent, calculated on the basis of 31 October 2017 gross assets
of $757.4 million. The Company may be required to fund its $148
million share of the second tranche at any time from 30 June 2018
to 20 December 2018 with 90-day prior notice. The Company plans to
undertake efforts to reduce its investment concentration prior to
30 June 2018 and will consider options such as raising additional
capital (equity and/or debt), selling a participation in the Tesaro
loan, or a combination of the three.
There can be no assurance that the Company will be able to
complete a successful equity or debt raise on attractive terms, or
at all. There is no liquid market for the Tesaro loan. If the
Company is unable to sufficiently increase its assets, it may be
unable to sufficiently reduce the size of its Tesaro investment in
a timely manner or at a reasonable price.
The Company has various liquidity options which it intends to
pursue to decrease its exposure to any one Borrower, including
raising equity and/or debt or by selling a portion of the Tesaro
loan. If the Company receives a 90-day funding notice from Tesaro
prior to increasing its total assets to reduce the exposure below
30 per cent, the Company will endeavour to identify potential
solutions and execute a plan to remediate by reducing the
investment to a permissible level. Pharmakon Advisors has expertise
purchasing and selling life sciences debt assets in the secondary
market and has extensive relationships with the major participants
in the life-sciences debt market who would be the likely purchasers
of a portion of the Tesaro loan if necessary to reduce the
concentration. The success of such solutions or plan however,
cannot be guaranteed.
An increased concentration of the Company's assets could result
in greater losses to the Company in adverse market conditions than
would have been the case with a less concentrated portfolio, and
could have a material adverse effect on the Company's financial
condition, business, prospects and results of operations and,
consequently, the Company's NAV and/or the market price of its
shares.
Life sciences products are subject to intense competition and
various other risks
The biopharmaceutical and pharmaceutical industries are highly
competitive and rapidly evolving. The length of any life sciences
product's commercial life cannot be predicted. There can be no
assurance that the life sciences products will not be rendered
obsolete or non-competitive by new products or improvements made to
existing products, either by the current marketer of the life
sciences products or by another marketer. Adverse competition,
obsolescence or governmental and regulatory life sciences policy
changes could significantly impact royalty revenues of life
sciences products which serve as the collateral or other security
for the repayment of obligations outstanding under the Company's
investments. If a life sciences product is rendered obsolete or
non-competitive by new products or improvements on existing
products or governmental or regulatory action, such developments
could have a material adverse effect on the ability of the borrower
under the relevant debt asset to make payment of interest on, and
repayments of the principal of, that debt asset, and consequently
could adversely affect the Company's performance. If additional
side effects or complications are discovered with respect to a life
sciences product, and such life sciences product's market
acceptance is impacted or it is withdrawn from the market,
continuing payments of interest on, and repayment of the principal
of, that debt asset may not be made on time or at all. It is
possible that over time side effects or complications from one or
more of the life sciences products could be discovered, and, if
such a side effect or complication posed a serious safety concern,
a life sciences product could be withdrawn from the market, which
could adversely affect the ability of the borrower under the
relevant debt asset to make continuing payments of interest on, and
repayment of the principal of, that debt asset, in which case the
Company's ability to make distributions to investors may be
materially and adversely affected.
Furthermore, if an additional side effect or complication is
discovered that does not pose a serious safety concern, it could
nevertheless negatively impact market acceptance and therefore
result in decreased net sales of one or more of the life sciences
products, which could adversely affect the ability of borrowers
under the relevant debt asset(s) to make continuing payments of
interest on, and repayment of the principal of, that debt asset(s),
in which case the Company's ability to make distributions to
investors may be materially and adversely affected.
The Investment Manager engages in a thorough diligence process
before entering into any debt instrument with the counterparty and
interacts with each counterparty as needed to evaluate the status
of its investment on an ongoing basis.
Investments in debt obligations are subject to credit and
interest rate risks
Debt instruments are subject to credit and interest rate risks.
Credit risk refers to the likelihood that the borrower will default
in the payment of principal and/or interest on an instrument.
Financial strength and solvency of a borrower are the primary
factors influencing credit risk. In addition, lack or inadequacy of
collateral or credit enhancement for a debt asset may affect its
credit risk. Credit risk may change over the life of an instrument.
Interest rate risk refers to the risks associated with market
changes in interest rates. Interest rate changes may affect the
value of a debt asset indirectly (especially in the case of fixed
rate debt assets) and directly (especially in the case of debt
assets whose rates are adjustable). In general, rising interest
rates will negatively impact the price of a fixed rate debt asset
and falling interest rates will have a positive effect on price.
Adjustable rate instruments also react to interest rate changes in
a similar manner although generally to a lesser degree (depending,
however, on the characteristics of the reset terms, including the
index chosen, frequency of reset and reset caps or floors, among
other factors). Interest rate sensitivity is generally more
pronounced and less predictable in instruments with uncertain
payment or prepayment schedules. In addition, interest rate
increases generally will increase the interest carrying costs to
the Company (or any entity through which the Company invests) of
leveraged investments.
The Company will often seek to be a secured lender for each Debt
Asset. However, there is no guarantee that the relevant borrower
will repay the loan or that the collateral will be sufficient to
satisfy the amount owed under the relevant Debt Asset. Credit risk
will be assessed on an ongoing basis along with interest rate risk,
and is further mitigated by the Company's investment policy
permitting up to 30 per cent of the Company's assets to be invested
in a single Debt Asset or in Debt Assets issued to a single
borrower. Interest rate risk can be managed in a variety of ways,
including with the use of derivatives.
Counterparty risk
The Company intends to hold Debt Assets that will generate an
interest payment. There is no guarantee that any borrower will
honour their obligations. The default or insolvency of such
borrowers may substantially affect the Company's business,
financial condition, results of operations, the NAV and shareholder
returns.
The Company will often seek to be a secured lender for each Debt
Asset. However, there is no guarantee that the relevant borrower
will repay the loan or that the collateral will be sufficient to
satisfy the amount owed under the relevant Debt Asset.
Sales of life sciences products are subject to regulatory
actions that could harm the Company's ability to make distributions
to investors
There can be no assurance that any regulatory approvals for
indications granted to one or more life sciences products will not
be subsequently revoked or restricted. Such revocation or
restriction may have a material adverse effect on the sales of such
products and on the ability of borrowers under the relevant Debt
Asset to make continuing payments of interest on, and repayment of
the principal of, that Debt Asset, in which case the Company's
ability to make distributions to investors may be materially and
adversely affected. Changes in legislation are monitored with the
use of third-party legal advisors and the Investment Manager will
maintain awareness of new approvals or revoked approvals.
Net asset values published will be estimates only and may differ
materially from actual results
Generally, there will be no readily available market for a
significant number of the Company's investments and hence, the
majority of the Company's investments are not valued based on
market-observable inputs.
The valuations used to calculate the NAV on a monthly basis will
be based on the Investment Manager's unaudited estimated fair
market values of the Company's investments. It should be noted any
such estimates may vary (in some cases materially) from the results
published in the Company's financial statements (as the figures are
published at different times) and that they, and any NAV figure
published, may vary (in some cases materially) from realised or
realisable values.
The Investment Manager sends valuations on a monthly basis to
the administrator for calculation of the NAV. The NAV is prepared
by the administrator on the basis of information received from the
Investment Manager and, once finalised, is reviewed and approved by
a representative of the Investment Manager. Once approved, the
Investment Manager notifies the Board and the NAV is released to
the market.
Changes in taxation legislation or practice may adversely affect
the Company and the tax treatment for shareholders investing in the
Company
Any change in the Company's tax status, or in taxation
legislation or practice in the UK or elsewhere, could affect the
value of the Company's investments and the Company's ability to
achieve its investment objective, or alter the post-tax returns to
shareholders. It is the intention of the Directors to conduct the
affairs of the Company so as to satisfy the conditions for approval
of the Company by HMRC as an investment trust under Section 1158 of
the Corporation Tax Act 2010 (as amended) and pursuant to
regulations made under Section 1159 of the Corporation Tax Act
2010. However, although the approval has been obtained, neither the
Investment Manager nor the Directors can guarantee that this
approval will be maintained at all times. The Company was granted
approval from HMRC as an investment trust during the accounting
period and will continue to have investment trust status in each
subsequent accounting period, unless the Company fails to meet the
requirements to maintain investment trust status, pursuant to the
regulations. For example, it is not possible to guarantee that the
Company will remain a non-close company, which is a requirement to
maintain investment trust status, as the shares are freely
transferable. Failure to maintain investment trust status could, as
a result, (inter alia) lead to the Company being subject to UK tax
on its chargeable gains. Existing and potential investors should
consult their tax advisers with respect to their particular tax
situations and the tax effects of an investment in the Company.
Environmental, human rights, employee, social and community
issues
The Board recognises the requirement under the Companies Act
2006 to detail information about employees, human rights and
community issues, including information about any policies it has
in relation to these matters and the effectiveness of these
policies. These requirements do not apply to the Company as it has
no employees, all the Directors are non-executive and it has
outsourced all its functions to third-party service providers. The
Company has therefore not reported further in respect of these
provisions.
The Company is not within the scope of the Modern Slavery Act
2015 because it has not exceeded the turnover threshold and
therefore, no further disclosure is required in this regard.
Board diversity
The Directors acknowledge the benefits of greater diversity on
the Board and will consider this as part of a future appointment of
an additional Director, which is expected to take place in 2018.
The Company's diversity policy is set out in the full Annual
Report.
The Strategic Report has been approved by the Board and signed
on its behalf.
Jeremy Sillem
Chairman
7 March 2018
EXTRACT FROM THE DIRECTORS REPORT
The Directors are pleased to present the Annual Report and
financial statements for the period ended 31 December 2017.
Directors
The Directors in office during the period and at the date of
this report are listed below:
Jeremy Sillem - Chairman
Colin Bond - Chairman of the Audit and Risk Committee
Duncan Budge - Director
Harry Hyman - Senior Independent Director
Share Capital
The Company was incorporated with 1 ordinary share issued at
$0.01 and 5,000,000 redeemable preference shares issued at
GBP0.01.
At the general meeting held on 28 February 2017, the Company was
granted authority to allot shares up to an aggregate nominal amount
of $20 million on a non pre-emptive basis.
On 27 March 2017, 526,747,199 ordinary shares were issued at
$0.01 each fully paid, pursuant to a placing and offer for
subscription as part of the Initial Admission. As a result of
Subsequent Admission on 30 March 2017, 235,130,160 ordinary shares
were issued at $0.01 each fully paid.
On 29 June 2017, the Company's share premium account of
$739,021,000 was cancelled in order to create distributable
reserves for the payment of dividends. Simultaneously, the
redeemable preference shares were cancelled in accordance with the
Company's Articles of Association (the "Articles")
Following the result of a placing by the Company announced on 14
December 2017, the Company issued 152,375,471 ordinary shares.
These shares were admitted to trading on the SFS of the LSE and to
listing and trading on the Official List of the TISE on 18 December
2017. Following the issue of new shares in December 2017 and as at
the date of this report, the Company may allot shares up to an
aggregate nominal amount of $10,857,471.
At 31 December 2017, and as at the date of this report, there
are 914,252,831 ordinary shares in issue, none of which are held in
treasury. At general meetings of the Company, shareholders are
entitled to one vote on a show of hands and on a poll, to one vote
for every share held. The total voting rights of the Company at 31
December 2017 were 914,252,831.
As set out in the Company's Prospectus dated 1 March 2017,
BioPharma III investors and RPS investors who purchased shares at
IPO, together with Pablo Legorreta have agreed not to transfer,
dispose or grant any options over any shares held by them without
the prior written consent of the Company until one year after the
date on which their shares were issued. These arrangements are
subject to certain exceptions customary for an agreement of this
nature.
Dividends
Dividends paid or payable in respect of the period ended 31
December 2017 are set out in Note 6 to the financial
statements.
Dividend policy
The Company pays dividends in US Dollars or GBP Sterling on a
quarterly basis. The Company may, where the Directors consider it
appropriate, use the reserve created by the cancellation of its
share premium account to pay dividends.
The Company's target dividend for the first financial year
following IPO was 4 per cent (calculated by reference to the issue
price at IPO) and, once substantially invested, the Company will
target an annual dividend yield of 7 per cent on the ordinary
shares (calculated by reference to the issue price at IPO),
together with a net total return on NAV of 8 to 9 per cent per
annum on the ordinary shares, in the medium term.
Going concern
The Directors consider that it is appropriate to adopt the going
concern basis in preparing the financial statements. After making
enquiries, and bearing in mind the nature of the Company's business
and assets, the Directors consider that the Company has adequate
resources to continue in operational existence for the foreseeable
future. In arriving at this conclusion, the Directors have
considered the liquidity of the portfolio and the Company's ability
to meet obligations as they fall due for a period of at least 12
months from the date that these financial statements were
approved.
Viability statement
The Board has assessed the principal risks facing the Company
over a five-year period, including those that would threaten its
business model, future performance, solvency or liquidity. The
five-year period was selected to align with the average duration of
the Company's investments and the timing for the Company's
continuation vote, which will be held on the fifth anniversary of
its IPO. The Board has developed a matrix of risks facing the
Company and has put in place certain investment restrictions which
are in line with the Company's investment objective and policy in
order to mitigate these risks as far as practicable. The principal
risks which have been identified, and the steps taken by the Board
to mitigate these risks are presented above.
The Company believes its borrowing capabilities provide further
flexibility and help ensure it is in a position to finance its
funding obligations in the event that internally generated cash
flow in the period is insufficient to finance the unfunded portion
of a lending commitment. The Board reviews the Company's financing
arrangements quarterly to ensure that the Company is in a strong
position to fund all outstanding commitments on existing
investments as well as being able to finance new investments. In
addition, the Board regularly reviews the prospects for the
Company's portfolio and the pipeline of potential investment
opportunities which provide comfort that the Company is able to
continue to finance its activities for the medium-term future.
Based on this assessment, the Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the next five-year
period.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
In respect of the Annual Report and financial statements
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the Directors to prepare financial
statements for each financial period. Under that law, the Directors
have prepared the financial statements in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union. Under company law, the Directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that period.
In preparing the financial statements, the Directors are required
to:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable IFRSs as adopted by the European
Union have been followed, subject to any material departures
disclosed and explained in the financial statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements and the Directors' Remuneration Report
comply with the Companies Act 2006.
The Directors are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the Company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and financial
statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Company's performance, business model and strategy.
Each of the Directors, whose names and functions are listed
above confirm that, to the best of their knowledge:
-- the Company Financial Statements, which have been prepared in
accordance with IFRS as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and
profit of the Company; and
-- the Directors' Report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
On behalf of the Board
Jeremy Sillem
Chairman
7 March 2018
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's Annual financial statements for the period ended 31
December 2017. The Annual Report, including the Annual financial
statements, for the period ended 31 December 2017 was approved by
the Board on 7 March 2018. The Auditor has reviewed those accounts;
their report was (i) unqualified, (ii) did not include a reference
to any matters to which the Auditor drew attention by way of
emphasis without qualifying their report and (iii) did not contain
a statement under Section 498 (2) or (3) of the Companies Act
2006.
STATEMENT OF COMPREHENSIVE INCOME
For the period from 24 October 2016 (Date of Incorporation) to
31 December 2017
(In US dollars $000s except per share amounts)
Period ended 31 December 2017
----------------------------------
Note Revenue Capital Total
------------------------------- ----- ---------- ---------- ----------
Income
Investment income 3 33,218 - 33,218
Other income 3 3,774 - 3,774
Net gains on investments
at fair value 7 - 2,265 2,265
Currency exchange gains - 51 51
------------------------------- -----
Total income 36,992 2,316 39,308
Expenses
Management fee 4 (5,830) - (5,830)
Directors' fees 4 (250) - (250)
Other expenses 4 (1,062) (471) (1,533)
------------------------------- -----
Total expenses 4 (7,142) (471) (7,613)
------------------------------- ----- ---------- ---------- ----------
Return on ordinary activities
before finance costs
and taxation 29,850 1,845 31,695
Finance costs 4 (4) - (4)
------------------------------- ----- ---------- ---------- ----------
Return on ordinary activities
after finance costs and
before taxation 29,846 1,845 31,691
Taxation on ordinary
activities 5 - - -
------------------------------- -----
Return on ordinary activities
after finance costs and
taxation 29,846 1,845 31,691
------------------------------- ----- ---------- ---------- ----------
Net revenue and capital
return per ordinary share
(basic and diluted) 11 $0.0389 $0.0024 $0.0413
------------------------------- ----- ---------- ---------- ----------
The total column of this statement is the Company's Statement of
Comprehensive Income prepared in accordance with IFRS as endorsed
by the EU. The supplementary revenue and capital columns are
presented for information purposes as recommended by the Statement
of Recommended Practice ("SORP") issued by the Association of
Investment Companies ("AIC").
All items in the above Statement derive from continuing
operations.
There is no other comprehensive income, and therefore the return
on ordinary activities after finance costs and taxation is also the
total comprehensive income.
The Notes below form part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
For the period from 24 October 2016 (Date of Incorporation) to
31 December 2017
(In US dollars $000s)
Total equity
attributable
Share Special to
Share premium distributable Capital Revenue shareholders
Note capital account reserve* reserve reserve* of the Company
Net assets attributable
to shareholders at 24 October
2016 - - - - - -
Gross proceeds of share
issue 9,143 906,847 - - - 915,990
Share issue costs - (17,447) - - - (17,447)
Transfer to special
distributable
reserve 13 - (739,021) 739,021 - - -
Share premium cancellation
costs 13 - - (41) - - (41)
Return on ordinary activities
after finance costs and
taxation - - - 1,845 29,846 31,691
Dividends paid 6 - - (4,624) - (2,995) (7,619)
------------------------------ -----
Net assets attributable
to shareholders at 31
December
2017 9,143 150,379 734,356 1,845 26,851 922,574
------------------------------ ----- --------- ---------- --------------- --------- ---------- ----------------
* The special distributable and revenue reserves can be
distributed in the form of dividends.
The Notes below form part of these financial statements.
STATEMENT OF FINANCIAL POSITION
As at 31 December 2017
(In US dollars $000s except per share amounts)
31 December
Note 2017
------------------------------------------- ----- ------------
Non-current assets
Investments at fair value through
profit or loss 7 569,630
------------------------------------------- -----
Current assets
Trade and other receivables 8 5,038
Cash and cash equivalents 9 350,822
------------------------------------------- -----
355,860
------------------------------------------- -----
Total assets 925,490
------------------------------------------- -----
Current liabilities
Trade and other payables 10 2,916
------------------------------------------- -----
Total liabilities 2,916
------------------------------------------- ----- ------------
Total assets less current liabilities 922,574
Net assets 922,574
------------------------------------------- ----- ------------
Represented by:
Share capital 13 9,143
Share premium account 13 150,379
Special distributable reserve 13 734,356
Capital reserve 1,845
Revenue reserve 26,851
------------------------------------------- -----
Total equity attributable to shareholders
of the Company 922,574
------------------------------------------- ----- ------------
Net asset value per ordinary share
(basic and diluted) 12 $1.0091
------------------------------------------- ----- ------------
The financial statements of BioPharma Credit PLC registered
number 10443190 were approved and authorised for issue by the Board
of Directors on 7 March 2018 and signed on its behalf by:
Jeremy Sillem
Chairman
The Notes below form part of these financial statements.
CASH FLOW STATEMENT
For the period from 24 October 2016 (Date of Incorporation) to
31 December 2017
(In US dollars $000s)
Period ended
31 December
Note 2017
-------------------------------------------- ----- -------------
Cash flows from operating activities
Investment income received 28,872
Other income received 3,384
Investment management fee paid (3,826)
Finance costs paid (2)
Other expenses paid (1,515)
-------------------------------------------- ----- -------------
Cash generated from operations 15 26,913
Taxation paid -
-------------------------------------------- ----- -------------
Net cash flow generated from operating
activities 26,913
-------------------------------------------- ----- -------------
Cash flow from investing activities
Purchase of investments (548,728)
Redemptions of investments 115,474
Sales of investments 19,385
-------------------------------------------- ----- -------------
Net cash flow used in investing activities (413,869)
-------------------------------------------- ----- -------------
Cash flow from financing activities
Gross proceeds of share issue 13 762,508
Share issue costs (17,121)
Dividends paid 6 (7,619)
Share premium cancellation costs (41)
-------------------------------------------- ----- -------------
Net cash flow generated from financing
activities 737,727
-------------------------------------------- ----- -------------
Increase in cash and cash equivalents
for the period 350,771
-------------------------------------------- ----- -------------
Cash and cash equivalents at start
of period -
Revaluation of foreign currency balances 51
-------------------------------------------- ----- -------------
Cash and cash equivalents at end
of period 9 350,822
-------------------------------------------- ----- -------------
The Notes below form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For the period from 24 October 2016 (Date of Incorporation) to
31 December 2017
1. GENERAL INFORMATION
BioPharma Credit PLC is a closed-ended investment company
incorporated and domiciled in England and Wales on 24 October 2016
with registered number 10443190. The registered office of the
Company is Beaufort House, 51 New North Road, Exeter, EX4 4EP. On 6
February 2017 the Company changed its name from PRECIS (2772)
PLC.
The Company carries on business as an investment trust company
within the meaning of Sections 1158/1159 of the Corporation Tax Act
2010.
The Company's Investment Manager is Pharmakon Advisors L.P.
("Pharmakon"). Pharmakon is a limited partnership established under
the laws of the State of Delaware. It is registered as an
investment adviser with the SEC under the United States Investment
Advisers Act of 1940, as amended.
Pharmakon is authorised as an AIFM under the Alternative
Investment Fund Managers Directive ("AIFMD").
2. ACCOUNTING POLICIES
a) Basis of preparation
The Company's annual financial statements covers the period from
incorporation on 24 October 2016 to 31 December 2017 and have been
prepared in conformity with IFRS as adopted by the EU, which
comprise standards and interpretations approved by the
International Accounting Standards Board ("IASB"), and as applied
in accordance with the AIC SORP (issued in November 2014, updated
in January 2017 with consequential amendments) for the financial
statements of investment trust companies and venture capital
trusts, except to any extent where it is not consistent with the
requirements of IFRS. The financial statements have adopted the
following accounting policies in their preparation. As this is the
first reporting period since the Company was incorporated, no
comparative figures have been shown.
The financial statements are presented in US dollars, being the
functional currency of the Company. The financial statements have
been prepared on a going concern basis under historical cost
convention, except for the measurement at fair value of investments
designated at fair value through profit or loss.
Assessment as an investment entity
Entities that meet the definition of an investment entity within
IFRS 10 Consolidated Financial Statements are required to measure
their subsidiaries at fair value through profit or loss rather than
consolidate the entities. The criteria which define an investment
entity are as follows:
-- an entity that obtains funds from one or more investors for
the purpose of providing those investors with investment
services;
-- an entity that commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income or both; and
-- an entity that measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Directors have concluded that the Company meets the
characteristics of an investment entity, in that it has more than
one investor and its investors are not related parties; holds a
portfolio of investments, predominantly in the form of loans which
generates returns through interest income. All investments,
including its subsidiary BPCR Ongdapa Limited, are reported at fair
value to the extent allowed by IFRS.
b) Presentation of Statement of Comprehensive Income
In order to better reflect the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature
has been prepared alongside the Income Statement.
c) Segmental reporting
The Directors are of the opinion that the Company has one
operating and reportable segment being the investment in debt
assets secured by royalties or other cash flows derived from the
sales of approved life sciences products.
d) Investments at fair value through profit or loss
The principal activity of the Company is to invest in
interest-bearing debt assets with a contractual right to future
cash flows derived from royalties or sales of approved life
sciences products. In accordance with IFRS, the assets are measured
at fair value through profit or loss. They are accounted for on
their trade date at fair value, which is the cost of the
investment. The fair value of the asset reflects any contractual
amortising balance and accrued interest.
For unlisted investments where the market for a financial
instrument is not active, fair value is established using valuation
techniques which may include recent arm's length market
transactions between knowledgeable, willing parties, if available;
reference to the current fair value of another instrument that is
substantially the same; and discounted cash flow analysis and
option pricing models. Where there is a valuation technique
commonly used by market participants to price the instrument and
that technique has proved reliable from estimates of prices
obtained in actual market transactions, that technique is
utilised.
The fair value is either bid price or the last traded price on
the exchange where the investment is listed.
Changes in the fair value of investments held at fair value
through profit or loss and gains or losses on disposal are
recognised in the Statement of Comprehensive Income as gains or
losses from investments held at fair value through profit or loss.
Transaction costs incurred on the purchase and disposal of
investments are included within the cost or deducted from the
proceeds of the investments. All purchases and sales are accounted
for on trade date.
e) Foreign currency
Transactions denominated in currencies other than US dollars are
recorded at the rates of exchange prevailing on the date of the
transaction. Items which are denominated in foreign currencies are
translated at the rates prevailing on the balance sheet date. Any
gain or loss arising from a change in exchange rate subsequent to
the date of the transaction is included as an exchange gain or loss
in the Statement of Comprehensive Income.
f) Income
There are three main sources of revenue for the Company:
dividends, interest income and royalty revenue. Dividends are
receivable on equity shares and recognised on the ex-dividend date.
Where no ex-dividend date is quoted, dividends are recognised when
the Company's right to receive payment is established. Dividends
from investments in unquoted shares and securities are recognised
when they become receivable.
Interest income is recognised when it is probable that the
economic benefits will flow to the Company. Interest is accrued on
a time basis, by reference to the principal outstanding and the
effective interest rate that is applicable. Accrued interest is
included within trade and other receivables on the Statement of
Financial Position.
Any accrued income is reflected in the fair value of the
Company's limited partnership interest, and is allocated to capital
within the Statement of Comprehensive Income until the Company's
right to receive the income is established, when it is transferred
to revenue within the Statement of Comprehensive Income.
Royalty revenue is recognised on an accrual basis in accordance
with the substance of the relevant agreement (provided that it is
probable that the economic benefits will flow to the Company and
the amount of revenue can be measured reliably). Royalty
arrangements that are based on production, sales and other measures
are recognised by reference to the underlying arrangement.
Some investments include additional consideration in the form of
structuring fees, which are paid on completion of the transaction.
Such fees are recognised up front and are allocated to revenue
within the Statement of Comprehensive Income.
Bank interest and other interest receivable are accounted for on
an accruals basis.
g) Dividends paid to shareholders
Dividends to shareholders are recognised as a liability in the
period which they are paid or approved by the Board and are taken
to the Statement of Changes in Equity. Dividends declared and
approved after the balance sheet date are not recognised as a
liability of the Company at the balance sheet date.
The Company may, if it so chooses, designate as an "interest
distribution" all or part of the amount it distributes to
shareholders as dividends, to the extent that it has "qualifying
interest income" for the accounting period. Were the Company to
designate any dividend it pays in this manner, it should be able to
deduct such interest distributions from its income in calculating
its taxable profit for the relevant accounting period. The Company
intends to elect for the "streaming" regime to apply to the
dividend payments it makes to the extent that it has such
"qualifying interest income". Shareholders in receipt of such a
dividend will be treated for UK tax purposes as though they had
received a payment of interest, which results in a reduction of the
corporation tax payable by the Company.
h) Expenses
All expenses are accounted for on an accruals basis. Expenses,
including investment management fees, performance fees and finance
costs, are charged through the revenue account except as
follows:
-- expenses which are incidental to the acquisition or disposal
of an investment are treated as capital costs and separately
identified and disclosed in Note 4; and
-- expenses of a capital nature are accounted for through the
capital account.
i) Trade and other receivables
Trade and other receivables do not carry any interest and are
measured at fair value through profit and loss and reduced by
appropriate allowances for estimated unrecoverable amounts, where
necessary.
j) Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand
deposits and short-term, highly liquid investments readily
convertible to known amounts of cash and subject to insignificant
risk of changes in value.
k) Trade and other payables
Trade and other payables do not carry any interest and are
measured at fair value through profit and loss.
l) Taxation
Tax on the profit or loss for the period comprises current and
deferred tax. Corporation tax is recognised in the Statement of
Comprehensive Income.
Current tax is the expected tax payable on the taxable income
for the period, using tax rates enacted or substantively enacted at
the balance sheet date and any adjustment to tax payable in respect
of previous periods. The tax effect of different items of
expenditure is allocated between revenue and capital on the same
basis as the particular item to which it relates, using the
Company's marginal method of tax, as applied to those items
allocated to revenue, for the accounting period.
Deferred tax is provided, using the liability method, on all
temporary differences at the balance sheet date between the tax
basis of assets and liabilities and their carrying amount for
financial reporting purposes. Deferred tax liabilities are measured
at the tax rates that are expected to apply to the period when the
liability is settled, based on tax rates (and tax laws) that have
been enacted or substantively enacted at the balance sheet
date.
m) Share capital and reserves
The share capital represents the nominal value of the Company's
equity shares.
The share premium account represents the excess over nominal
value of the fair value of consideration received for the Company's
equity shares, net of expenses of the share issue.
The special distributable reserve was created on 30 June 2017 to
enable the Company to buy back its own shares and pay dividends out
of such distributable reserve, in each case when the Directors
consider it appropriate to do so, and for other corporate
purposes.
The capital reserve represents realised and unrealised capital
and exchange gains and losses on the disposal and revaluation of
investments and of foreign currency items. The realised capital
reserve can be used for the repurchase of shares.
The revenue reserve represents retained profits from the income
derived from holding investment assets less the costs and interest
on cash balances associated with running the Company. This reserve
can be distributed.
n) Critical accounting estimates and assumptions
The preparation of these financial statements in conformity with
IFRS requires the Directors to make judgements, estimates and
assumptions that affect the application of accounting policies and
therefore, the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these estimates.
These estimates and assumptions are reviewed on an ongoing
basis. Revisions to estimates are recognised prospectively.
In particular, estimates and assumptions made in the valuation
of unquoted investments for which there is no observable market may
cause material adjustments to the carrying value of those
investments. These are valued in accordance with Note 2(d)
above.
o) Accounting standards not yet effective
The IASB have issued and endorsed the following standards and
interpretations, applicable to the Company, which are not yet
effective for the period ended 31 December 2017 and have therefore
not been applied in preparing these financial statements.
The Company does not expect the adoption of IFRS 9 to have a
material impact on its financial statements as all investments are
measured at fair value through profit or loss. In addition, IFRS 15
does not apply to financial instruments, which comprise the
business of the Company as an investment trust. The Company will
continue to monitor future standards.
Effective date
for reporting
periods
New/Revised IFRSs Issued beginning on
or after
--------------------- ----------------------- ------------- ----------------
IFRS 9 Financial Instruments 24 July 2014 1 January 2018
IFRS 15 Revenue from Contracts
with Customers 28 May 2014 1 January 2018
Amendments to
IFRSs
IAS 7 Disclosure Initiative 1 January 1 January 2017*
2016
IFRS 1 Annual Improvements
to IFRS Standards 1 December
2014-2016 Cycle 2016 1 January 2018*
IFRIC Interpretation Foreign Currency
22 Transactions and 1 December
Advance Consideration 2016 1 January 2018*
--------------------- ----------------------- ------------- ----------------
* Not yet endorsed by the EU.
Other future developments include the IASB undertaking a
comprehensive review of existing IFRSs. The Company will consider
the financial impact of these new standards as they are
finalised.
3. INCOME
Period ended
31 December
2017
$000
----------------------------------------------- -------------
Income from investments
US unfranked investment income from BioPharma
III 11,758
US fixed interest investment income 12,439
US floating interest investment income 1,468
Additional considerations received* 7,553
----------------------------------------------- -------------
33,218
Other income
Interest from liquidity/money market funds 3,600
Fixed term deposit interest 172
Other interest 2
----------------------------------------------- -------------
3,774
Total income 36,992
----------------------------------------------- -------------
* The Company's senior secured loans to Tesaro, Inc. and Lexicon
Pharmaceuticals, Inc. included additional consideration in the form
of structuring fees of $4,440,000 and $3,112,500, respectively,
which were paid upon the completion of the transaction and are
recognised as income in the period. Refer to Note 2(f).
4. FEES AND EXPENSES
EXPENSES
Period ended 31 December 2017
----------------------------------
Revenue Capital Total
$000 $000 $000
------------------------------------- ----------- ----------- --------
Management fee (Note 4a) 5,830 - 5,830
------------------------------------- ----------- ----------- --------
Directors' fees (Note 4c) 250 - 250
------------------------------------- ----------- ----------- --------
Other expenses
Company Secretarial fee 59 - 59
Administration fee 66 - 66
Legal & professional fees 12 471 483
Public relations fees 255 - 255
Auditor's remuneration - Statutory
audit 256 - 256
Auditor's remuneration - Other
audit related services - Half-year
review 122 - 122
Auditor's remuneration - Other
audit related services - Initial
accounts 28 - 28
Other expenses 264 - 264
------------------------------------- ----------- ----------- --------
1,062 471 1,533
------------------------------------- ----------- ----------- --------
Total expenses 7,142 471 7,613
------------------------------------- ----------- ----------- --------
The Directors' were also paid $162,500, as detailed in Note
4(c). This amount is not included within the Directors' fees figure
above. The Auditors were also paid $176,000 for services performed
in connection with the IPO. This amount is not included within the
Auditor's remuneration figures above. Both these amounts were
recognised as part of share issue costs in the Statement of Changes
in Equity.
a) Investment management fee
With effect from the Initial Admission, the Investment Manager
is entitled to a management fee ("Management Fee") calculated on
the following basis: (1/12 of 1 per cent of the NAV on the last
business day of the month in respect of which the Management Fee is
to be paid (calculated before deducting any accrued Management Fee
in respect of such month)) minus (1/12 of $100,000).
The Management Fee payable in respect of any quarter will be
reduced by an amount equal to the Company's pro rata share of any
transaction fees, topping fees, break-up fees, investment banking
fees, closing fees, consulting fees or other similar fees which the
Investment Manager (or an affiliate) receives in connection with
transactions involving investments of the Company ("Transaction
Fees"). The Company's pro rata share of any Transaction Fees will
be in proportion to the Company's economic interest in the
investment(s) to which such Transaction Fees relate.
b) Performance fee
Subject to (i) the total return on NAV (calculated per ordinary
share) exceeding 6 per cent over such performance period, (ii) the
total return on NAV (calculated per ordinary share) as at the end
of a performance period representing an increase of at least 6 per
cent per annum compounded on the Company's IPO ordinary share issue
price, and (iii) to high watermark (which is the total return on
NAV (calculated per ordinary share) as at the end of the last
performance period in respect of which a performance fee was
payable to the Investment Manager), the Investment Manager will be
entitled to receive a performance fee equating to 10 per cent of
the total return over such performance period, on the basis of
catch up arrangements whereby the Investment Manager will receive
50 per cent of the total return above 6 per cent (the "Excess Total
Return") up to the point at which it has received 10 per cent of
the overall total return allocated to itself and shareholders in
this manner, and thereafter 10 per cent of the remaining Excess
Total Return; provided always that the amount of any performance
fee payable to the Investment Manager will be reduced to the extent
necessary to ensure that, after account is taken of such fee,
conditions (i), (ii) and (iii) above are still satisfied.
The Performance Fee for a Performance Period shall be paid as
soon as practicable after the end of the relevant Performance
Period and, in any event, within three calendar months as of the
end of such Performance Period.
If, during the last month of a Performance Period, the shares
have, on average, traded at a discount of 1 per cent or more to the
NAV per share (calculated by comparing the middle market quotation
of the shares at the end of each business day in the month to the
prevailing published NAV per share (exclusive of any dividend
declared) as at the end of such business day and averaging this
comparative figure over the month), the Investment Manager shall
(or shall procure that its Associate does) apply 50 per cent of any
Performance Fee paid by the Company to the Investment Manager (or
its Associate) in respect of that Performance Period (net of all
taxes and charges applicable to such portion of the Performance
Fee) to make market acquisitions of shares (the "Performance
Shares") as soon as practicable following the payment of the
Performance Fee by the Company to the Investment Manager (or its
Associate) and at least until such time as the shares have, on
average, traded at a discount of less than 1 per cent to the NAV
per share over a period of five business days (calculated by
comparing the middle market quotation of the shares at the end of
each such business day to the prevailing published NAV per share
(exclusive of any dividend declared) and averaging this comparative
figure over the period of five business days). The Investment
Manager's obligation:
1) shall not apply to the extent that the acquisition of the
Performance Shares would require the Investment Manager to make a
mandatory bid under Rule 9 of the Takeover Code; and
2) shall expire at the end of the Performance Period which
immediately follows the Performance Period to which the obligation
relates.
c) Directors
Each of the Directors is entitled to receive a fee from the
Company at such rate as may be determined in accordance with the
Articles. The Directors' remuneration is $70,000 per annum for each
Director other than:
-- the Chairman, who will receive an additional $30,000 per
annum; and
-- the Chairman of the Audit and Risk Committee, who will
receive an additional $15,000 per annum.
In addition, in consideration for the work done between
Incorporation and Admission, for the period up to 31 December 2017,
each Director will be entitled to an additional $35,000 other
than:
-- the Chairman, who will receive an additional $50,000 for this
period; and
-- the Chairman of the Audit and Risk Committee, who will
receive an additional $42,500 for this period.
Fees owed to Directors will be paid to each Director in three
equal quarterly instalments for 2017.
A breakdown of Directors' fees is provided in the Remuneration
Report in the full Annual Report.
d) Finance costs
Period ended
31 December 2017
$000
--------------- -----------------
Interest paid 4
--------------- -----------------
4
--------------- -----------------
5. TAXATION
It is the intention of the Directors to conduct the affairs of
the Company so as to satisfy the conditions for approval of the
Company by HMRC as an investment trust under Section 1158 of the
Corporation Tax Act 2010 (as amended) and pursuant to regulations
made under Section 1159 of the Corporation Tax Act 2010. As an
investment trust, the Company is exempt from corporation tax on
capital gains.
The current taxation charge for the period is different from the
standard rate of corporation tax in the UK of 19.00 per cent, the
effective tax rate was 0.00 per cent. The differences are explained
below.
Period ended 31 December
2017
-----------------------------
Revenue Capital Total
$000 $000 $000
--------------------------------------- --------- -------- --------
Total return on ordinary activities
before taxation 29,846 1,845 31,691
--------------------------------------- --------- -------- --------
Theoretical tax at UK Corporation
tax rate of 19.36%* 5,778 357 6,135
Effects of:
Capital items that are not taxable - (357) (357)
Tax deductible interest distributions (5,778) - (5,778)
Actual tax charge - - -
--------------------------------------- --------- -------- --------
* The theoretical tax rate is calculated using a blended tax
rate over the period.
At 31 December 2017, the Company had no unprovided deferred tax
liabilities. At that date, based on current estimates and including
the accumulation of net allowable losses, the Company had no
unrelieved losses.
Deferred tax is not provided on capital gains and losses arising
on the revaluation or disposal of investments because the Company
meets (and intends to continue for the foreseeable future to meet)
the conditions for approval as an Investment Trust company.
6. DIVIDS
Dividend paid in the period
Revenue Capital Total
$000 $000 $000
----------------------------------------- -------- -------- ------
First interim dividend for the period
ended 31 December 2017 in reference to
the period ended 30 June 2017: $0.01
per ordinary share 2,995 4,624 7,619
----------------------------------------- -------- -------- ------
Dividends declared but not yet paid
Revenue Capital Total
$000 $000 $000
Second interim dividend for the period
ended 31 December 2017 in reference to
the period ended 30 September 2017: $0.01
per ordinary share* 7,572 47 7,619
Third interim dividend for the period
ended 31 December 2017 in reference to
the period ended 31 December 2017: $0.01
per ordinary share 9,143 - 9,143
Special dividend for the period ended
31 December 2017 in reference to the
period ended 31 December 2017: $0.011
per ordinary share 10,136 - 10,136
-------------------------------------------- --------- -------- ---------
26,851 47 26,898
-------------------------------------------- --------- -------- ---------
Set out below are the interim dividends paid or proposed on
ordinary shares in respect of the financial period, which is the
basis on which the requirements of Section 1159 of the Corporation
Tax Act 2010 are considered.
Revenue Capital Total
$000 $000 $000
--------------------------------------------- -------- -------- --------
First interim dividend for the period
ended 31 December 2017 in reference to
the period ended 31 December 2017: $0.01
per ordinary share 2,995 4,624 7,619
Second interim dividend for the period
ended 31 December 2017 in reference to
the period ended 31 December 2017: $0.01
per ordinary share* 7,572 47 7,619
Third interim dividend for the period
ended 31 December 2017: $0.01 per ordinary
share 9,143 - 9,143
--------------------------------------------- -------- -------- --------
Special dividend for the period ended
31 December 2017: $0.011 per ordinary
share 10,136 - 10,136
--------------------------------------------- -------- -------- --------
29,846 4,671 34,517
--------------------------------------------- -------- -------- --------
* This dividend is not included in the financial statements and
was paid on 31 January 2018.
7. INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS
Period ended
31 December 2017
$000
--------------------------------------------- -----------------
Investment portfolio summary
Unlisted investments at fair value through
profit and loss 123,479
Unlisted fixed interest investment at fair
value through profit and loss 224,151
Unlisted floating interest investments
at fair value through profit and loss 222,000
--------------------------------------------- -----------------
Closing fair value at the end of the period 569,630
--------------------------------------------- -----------------
Period ended 31 December 2017
----------------------------------------------------------------------------
Unlisted fixed Unlisted floating Listed fixed
Unlisted interest interest interest
investments investments investments investments Total
$000 $000 $000 $000 $000
---------------------------------------- ------------ --------------- ------------------ ------------- ----------
Investment portfolio summary
Opening cost at beginning of period - - - - -
Opening unrealised
appreciation/(depreciation)
at beginning of period - - - - -
Opening fair value at beginning of - - - - -
period
Movements in the period:
Purchases at cost 153,482 309,630 222,000 17,112 702,224
Redemption proceeds (29,995) (85,479) - - (115,474)
Sales - proceeds - - - (19,385) (19,385)
- realised gains on sales - - - 2,273 2,273
Unrealised appreciation/(depreciation) (8) - - - (8)
---------------------------------------- ------------ --------------- ------------------ ------------- ----------
Closing fair value at the end of
the period 123,479 224,151 222,000 - 569,630
---------------------------------------- ------------ --------------- ------------------ ------------- ----------
Closing cost at end of period 123,487 224,151 222,000 - 569,638
Closing unrealised
appreciation/(depreciation)
at end of period (8) - - - (8)
---------------------------------------- ------------ --------------- ------------------ ------------- ----------
Closing fair value at the end of
the period 123,479 224,151 222,000 - 569,630
---------------------------------------- ------------ --------------- ------------------ ------------- ----------
Analysis of investment gains/(losses)
Period ended
31 December 2017
$000
---------------------------------------------------- -----------------
Realised gains on sale of investments 2,273
Unrealised movement in appreciation/(depreciation) (8)
2,265
---------------------------------------------------- -----------------
Transaction costs, (incurred at the point of the transaction)
incidental to the acquisition of investments totalled $303,000 and
the disposals of investments totalled $Nil for the period. In
addition, legal fees incidental to the acquisition of investments
totalled $471,000 as disclosed in Note 4, have been taken to the
capital column in the Statement of Comprehensive Income since they
are capital in nature.
The Company is required to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy
consists of the following three levels:
-- Level 1 - Quoted prices (unadjusted) in active markets for
identical assets or liabilities.
-- Level 2 - Inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from
prices).
-- Level 3 - Inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
The level of the fair value hierarchy, within which the fair
value measurement is categorised, is determined on the basis of the
lowest level input that is significant to the fair value of the
investment.
The following table analyses the Company's investments and
liquidity/money market funds at 31 December 2017:
Total Level Level Level
1 2 3
$000 $000 $000 $000
-------------------------------- -------- -------- ------- --------
Investment portfolio summary
Unlisted investments at fair
value through profit and loss 123,479 - - 123,479
Unlisted fixed interest at
fair value through profit
and loss 224,151 - 99,651 124,500
Unlisted floating interest
investments at fair value
through profit and loss 222,000 - - 222,000
-------------------------------- -------- -------- ------- --------
569,630 - 99,651 469,979
Liquidity/money market funds 346,767 346,767 - -
-------------------------------- -------- -------- ------- --------
Total 916,397 346,767 99,651 469,979
-------------------------------- -------- -------- ------- --------
A reconciliation of fair value measurements in Level 3 is set
out below.
Level 3 financial assets at fair value through profit or
loss
Unlisted Unlisted floating
fixed
Unlisted interest interest
investments investments investments Total
31 December 2017 $000 $000 $000 $000
------------------------------ ------------ ------------ ------------------ ---------
Opening balance - - - -
Purchases 153,482 124,500 222,000 499,982
Redemptions* (29,995) - - (29,995)
Change in unrealised
appreciation/(depreciation) (8) - - (8)
------------------------------ ------------ ------------ ------------------ ---------
Closing balance at 31
December 2017 123,479 124,500 222,000 469,979
------------------------------ ------------ ------------ ------------------ ---------
* Redemptions are the proceeds received from the repayment of
investments.
There were no transfers between levels during the period.
Valuation techniques
Unrealised gains and losses recorded on Level 2 and 3 financial
instruments are reported in unrealised gain/(loss) on investments
on the Statement of Compressive Income. At the time the investments
are made, the Investment Manager calculates an expected rate of
return based on the purchase price and the cash flows as projected
at that time. The projected cash flows are calculated at the time
of the investment by estimating future product sales and applying
the corresponding royalty rate for capped royalty investments.
Estimates of future product sales are generated through models
driven by several factors that include the potential size of the
market (disease incidence and prevalence), the product's market
share over time and the price of the product.
During the periods following the initial investment of assets
classified as Level 3 investments, the Investment Manager reviews
and, if appropriate, revises the assumptions in the sales models
and calculates the net present value of the remaining cash flows
using the expected rate of return. Inputs reflect management's best
estimate of what market participants would use in pricing the
assets or liabilities at the measurement date. Consideration is
given to the risk inherent in the valuation techniques and the risk
inherent in the inputs of the model. All investments are valued at
fair value using a discounted cash flow methodology. For capped
royalty investments, discount rates are applied to the consensus
forecasts for sales of the underlying products to determine fair
value.
The RPS Note, which is a Level 2 investment, is valued using the
stated 12 per cent interest rate and Wall Street analyst consensus
forecasts for products underlying the Note.
The Company's unlisted investments, with the exception of the
RPS Note, are all classified as Level 3 investments. The fair
values of the unlisted investments have been determined principally
by reference to discounted cash flows. The significant unobservable
input used is detailed below:
Fair value
at level
3 financial Fair value
assets sensitivity Fair value
at fair to a 100bps sensitivity
value increase to a 100bps
through in the decrease
profit discount in the
or loss Valuation Unobservable rate discount
Assets $000 technique input Range $000 $000
-------------------------- -------------- ------------- --------------- ---------- -------------- --------------
Limited partnership
interest in
BioPharma Discounted Discount 9.3%
III 123,479 cash flow rate - 12.1% 653 (3,126)
Lexicon
Pharmaceuticals, Discounted Discount
Inc. 124,500 cash flow rate 10.0% 4,500 (4,500)
Discounted Discount
Tesaro, Inc. 222,000 cash flow rate 10.4% 7,000 (8,000)
-------------------------- -------------- ------------- --------------- ---------- -------------- --------------
8. TRADE AND OTHER RECEIVABLES
31 December 2017
$000
---------------------------------------------- -----------------
Unlisted fixed interest income receivable 2,863
Unlisted floating interest income receivable 1,468
Interest accrued on liquidity/money market
funds 390
Other debtors 317
---------------------------------------------- -----------------
5,038
---------------------------------------------- -----------------
9. CASH AND CASH EQUIVALENTS
31 December 2017
$000
------------------------------ -----------------
Cash at bank 4,055
Liquidity/money market funds 346,767
------------------------------ -----------------
350,822
------------------------------ -----------------
10. TRADE AND OTHER PAYABLES
31 December 2017
$000
------------------------- -----------------
Management fees accrual 2,004
Share issue costs 326
Accruals 586
2,916
------------------------- -----------------
11. RETURN PER ORDINARY SHARE
Revenue return per ordinary share is based on the net revenue
after taxation of $29,846,000 and 766,976,882 ordinary shares,
being the weighted average number of ordinary shares for the
period.
Capital return per ordinary share is based on net capital gains
for the period of $1,845,000 and on 766,976,882 ordinary shares,
being the weighted average number of ordinary shares for the
period.
Basic and diluted return per share are the same as there are no
arrangements in place which could have a dilutive effect on the
Company's ordinary shares.
The Company's weighted average number of ordinary shares for the
period has been calculated from 27 March 2017, being the date the
initial shares were listed for trading.
12. NET ASSET VALUE PER ORDINARY SHARE
The basic total net assets per ordinary share is based on the
net assets attributable to equity shareholders at 31 December 2017
of $922,574,000 and ordinary shares of 914,252,831, being the
number of ordinary shares in issue at 31 December 2017.
There is no dilution effect and therefore there is no difference
between the diluted total net assets per ordinary share and the
basic total net assets per ordinary share.
The NAV per share differs from the NAV prepared under AIC
guidelines by $0.0076. This is due to the second interim dividend
of $0.01, payable on 761,877,360 shares, which went ex-dividend on
14 December 2017 being included in the NAV in accordance with AIC
guidelines but excluded from the financial statements until paid,
in accordance with the Companies Act 2006.
13. SHARE CAPITAL
Period ended 31 December
2017
---------------------------
Number of shares $000
------------------------------------ ------------------- ------
Issued and fully paid:
Ordinary shares of $0.01:
Balance at beginning of the period 1 -
Initial share issue 526,747,199 5,268
Subsequent share issue 235,130,160 2,351
Further share issue 152,375,471 1,524
------------------------------------ ------------------- ------
Balance at end of the period 914,252,831 9,143
------------------------------------ ------------------- ------
Total voting rights at 31 December 2017 was 914,252,831.
The Company was incorporated with 1 ordinary share issued at
$0.01 and 5,000,000 redeemable preference shares issued at
GBP0.01.
The initial placing of 526,747,199 ordinary shares took place on
27 March 2017, with a subsequent issue of 235,130,160 ordinary
shares on 30 March 2017, raising gross proceeds of $761,877,000.
The Company commenced business on 27 March 2017 when the ordinary
shares in issue were admitted to the Official List of TISE and to
trading on the Specialist Fund Segment of the LSE.
A further issue of 152,375,471 ordinary shares made on a non
pre-emptive basis, took place on 18 December 2017, raising gross
proceeds of $154,113,000.
Following approval of the Court on 29 June 2017 and the filing
of the court order with the Registrar of Companies on 30 June 2017,
the share premium account cancellation was effective. The share
premium account of $739,021,000 at 29 June 2017 was transferred to
a special distributable reserve. The issue costs of $15,237,000
relating to the initial and subsequent listings were offset against
the share premium account. At 31 December 2017, the special
distributable reserve was $734,356,000 after costs of $41,000
relating to the cancellation and a $4,624,000 dividend paid to
shareholders.
Following approval of the Court on 29 June 2017 and the filing
of the court order with the Registrar of Companies on 30 June 2017,
5,000,000 redeemable preference shares with an aggregate nominal
value of GBP50,000 were cancelled. At 31 December 2017, the Company
held no redeemable preference shares.
14. SUBSIDIARY
The Company formed a wholly-owned subsidiary, BPCR Ongdapa
Limited ("BPCR Ongdapa"), incorporated in Ireland on 5 October 2017
for the purpose of entering into a purchase, sale and assignment
agreement with a wholly-owned subsidiary of Royalty Pharma for the
purchase of a 50 per cent interest in a stream of payments acquired
by Royalty Pharma from Bristol-Myers Squibb. BPCR Ongdapa has had
no activity since inception other than entering into the above
referenced agreement. In accordance with IFRS 10, the Company is
exempted from consolidating a controlled investee as it is an
investment trust. Therefore, the Company's investment in BPCR
Ongdapa, when funded, will be recognised at fair value through
profit and loss.
15. RECONCILIATION OF TOTAL RETURN FOR THE PERIOD BEFORE
TAXATION TO CASH GENERATED FROM OPERATIONS
Period ended
31 December 2017
Revenue
$000
--------------------------------------------- -----------------
Total return for the period before taxation 31,691
Capital gains (2,316)
Increase in trade receivables (5,038)
Increase in trade payables* 2,590
Effective yield adjustment* (14)
--------------------------------------------- -----------------
Cash generated from operations 26,913
--------------------------------------------- -----------------
* The increase differs from trade and other payables due to
$326,000 of share issue costs forming part of financing
activities.
Analysis of net cash and net debt
At 24 October Exchange At 31 December
2016 Cash flow movement 2017
Net cash $000 $000 $000 $000
--------------------------- -------------- ---------- --------- ---------------
Cash and cash equivalents - 350,771 51 350,822
--------------------------- -------------- ---------- --------- ---------------
16. FINANCIAL INSTRUMENTS
The Company's financial instruments include its investment
portfolio, cash balances, trade receivables and trade payables that
arise directly from its operations. Adherence to the Company's
investment policy is key in managing risk. Refer to the Strategic
Overview above for a full description of the Company's investment
objective and policy.
The Investment Manager monitors the financial risks affecting
the Company on an ongoing basis and the Directors regularly receive
financial information, which is used to identify and monitor risk.
All risks are actively reviewed and monitored by the Board. Details
of the Company's principal risks can be found in the Strategic
Report above.
The main risks arising from the Company's financial instruments
are:
i) market risk, including market price risk, currency risk and
interest rate risk;
ii) liquidity risk; and
iii) credit risk.
(i) Market risk
Market risk is the risk of loss arising from movements in
observable market variables. The fair value of future cash flows of
a financial instrument held by the Company may fluctuate because of
changes in market prices. The Investment Manager assesses the
exposure to market risk when making each investment decision and
these risks are monitored by the Investment Manager on a regular
basis and the Board at quarterly meetings with the Investment
Manager.
Market price risk
The Company is exposed to price risk arising from its
investments whose future prices are uncertain. The Company's
exposure to market price risk comprises movements in the value of
the Company's investments. See Note 7 above for investments that
fall into Level 3 of the fair value hierarchy and refer to the
description of valuation policies in Note 2(d). The nature of the
Company's investments, with a high proportion of the portfolio
invested in unlisted debt instruments, means that the investments
are valued by the Company after consideration of the most recent
available information from the underlying investments. The
Company's portfolio is diversified among counterparties and by the
sectors in which the underlying companies operate, minimising the
impact of any negative industry-specific trends.
A 10 per cent increase in the market value of the limited
partnership interest in BioPharma III would have increased net
assets by $12.3 million. A 10 per cent increase in the market value
of the RPS Note would have increased net assets by $10.0 million. A
10 per cent increase in the market value of the Lexicon Note would
have increased net assets by $12.5 million. A 10 per cent increase
in the market value of the Tesaro Note would have increased net
assets by $22.2 million. An equal change in the opposite direction
would have decreased the net assets by an equal and opposite
amount. The analysis is based on closing balances only and is not
representative of the period as a whole.
The Board manages the risks inherent in the investment portfolio
by ensuring full and timely reporting of relevant information from
the Investment Manager. Investment performance and exposure are
reviewed at each Board meeting.
Currency Risk
Currency risk is the risk that fair values of future cash flows
of a financial instrument fluctuate because of changes in foreign
exchange rates.
At 31 December 2017, the Company held cash balances in GBP
Sterling of GBP276,000 ($374,000).
The currency exposures (including non-financial assets) of the
Company as at 31 December 2017 are set out below:
Other net
assets/
Cash Investments (liabilities) Total
$000 $000 $000 $000
----------- -------- ------------ -------------- --------
Sterling 374 - (823) (449)
US dollar 350,448 569,630 2,945 923,023
----------- -------- ------------ -------------- --------
350,822 569,630 2,122 922,574
----------- -------- ------------ -------------- --------
A 10 per cent increase in the Sterling exchange rate would have
increased net assets by $45,000. A 10 per cent decrease would have
decreased net assets by the same amount.
Interest rate risk
Interest rate risk is the risk that fair value of future cash
flows of a financial instrument will fluctuate because of changes
in market interest rates. Interest rate movements may potentially
affect future cash flows from:
-- investments in fixed interest rate securities and unquoted
loans; and
-- the level of income receivable on cash deposits and liquidity
funds.
The RPS Note and the Lexicon Loan have a fixed interest rate and
therefore are not subject to interest rate risk. At 31 December
2017, the RPS Note and the Lexicon Loan represented 10.80 per cent
and 13.49 per cent of the Company's net assets, respectively.
The Tranche A loan of Tesaro and cash and cash equivalents,
including investments in liquidity funds, have a floating rate of
interest. At 31 December 2017, these represented 24.06 per cent and
38.03 per cent of the Company's net assets, respectively.
A 100 basis point increase or decrease in interest rates
associated with the limited partnership interest in BioPharma III
would not have materially impacted net income for the period ended
31 December 2017.
(ii) Liquidity risk
This is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities. At 31
December 2017, the Company had cash and cash equivalents, including
investments in liquidity/money market funds with balances of
$350,822,000 and maximum unfunded commitments of
$329,500,000-$349,500,000.
The Company maintains sufficient liquid investments through its
cash and cash equivalents to pay accounts payable, accrued expenses
and ongoing expenses of the Company. Liquidity risk is manageable
through a number of options, including the Company's ability to
issue debt and/or equity and by selling all or a portion of an
investment in the secondary market.
(iii) Credit risk
This is the risk the Company's trade and other receivables will
not meet their obligations to the Company. While the Company will
often seek to be a secured lender for each debt asset, there is no
guarantee that the relevant borrower will repay the loan or that
the collateral will be sufficient to satisfy the amount owed. All
of the Company's investments are senior secured investments as
detailed in the Portfolio Information above.
When the Investment Manager makes an investment, the
creditworthiness of the counterparty is taken into account so as to
minimise the risk to the Company of default. Creditworthiness is
assessed on an ongoing basis and changes to counterparty's risk
profile are monitored by the Investment Manager on a regular basis,
and discussed with the Board at quarterly meetings.
The Company's maximum exposure to credit risk at any given time
is the fair value of its investment portfolio. At 31 December 2017,
the Company's maximum exposure to credit risk was $569,630,000. The
Company's concentration of credit risk by counterparty can be found
in the Portfolio Information above.
Capital Management
The Company's primary objectives in relation to the management
of capital are:
-- to ensure its ability to continue as a going concern;
-- to ensure that the Company conducts its affairs to enable it
to continue to meet the criteria to qualify as an investment trust;
and
-- to maximise the long-term shareholder returns in the form of
sustainable income distributions through an appropriate balance of
equity capital and debt.
The Company is subject to externally imposed capital
requirements:
-- as a public company, the Company has a minimum share capital of GBP50,000;
The Company has complied with all the above requirements during
this financial period.
17. RELATED PARTY TRANSACTIONS
The amounts incurred in respect of management fees during the
period to 31 December 2017 was $5,830,000, of which $2,004,000 was
outstanding at 31 December 2017. The amount due to the Investment
Manager for performance fees at 31 December 2017 was $Nil.
The amount incurred in respect of Directors' fees during the
period to 31 December 2017 was $413,000 ($163,000 of this figure
has been included within share issue costs) of which $Nil was
outstanding at 31 December 2017.
The Shared Services Agreement was entered into by and between
Royalty Pharma, an affiliate of Pharmakon Advisors, L.P., and the
Investment Manager on 30 November 2016 and deemed effective as of 1
January 2016. Under the terms of the Shared Services Agreement, the
Investment Manager will have access to the expertise of certain
Royalty Pharma employees, including its research, legal and
compliance, and finance teams.
On 8 December 2017, the Company's wholly owned subsidiary
entered into a purchase, sale and assignment agreement with RPI
Acquisitions (Ireland) ("RPI Acquisitions"), an affiliate of
Royalty Pharma, for the purchase of a 50 per cent interest in a
stream of payments acquired by RPI Acquisitions from Bristol-Myers
Squibb through a purchase agreement dated 14 November 2017. The
Purchased Payments are linked to tiered worldwide sales of Onglyza
and Farxiga, diabetes agents marketed by AstraZeneca, and related
products. The Company is expected to fund $140,000,000 to
$160,000,000 during 2018 and 2020, determined by product sales and
will receive payments from 2020 through 2025. Based on current
sell-side analyst estimates for the products, the Investment
Manager estimates that the rate of return on the transaction will
be in the high single-digits per annum. The first advance to RPI
Acquisitions is expected to be made in May 2018.
On 4 December 2017, the Company and BioPharma Credit Investments
IV, S.àr.L. ("BioPharma IV"), a fund managed by the Investment
Manager, entered into a definitive term loan agreement for up to
$200,000,000 with Lexicon Pharmaceuticals, Inc. (NASDAQ: LXRX), a
fully integrated biopharmaceutical company ("Lexicon"). The loan is
secured by substantially all of Lexicon's assets, including its
rights to XERMELO and Sotagliflozin. The $200,000,000 loan will be
available in two tranches, each maturing in December 2022 and
bearing interest at 9.0 per cent per annum. The first $150,000,000
is available immediately and an additional tranche of $50,000,000
is available for draw by March 2019 at Lexicon's option if net
XERMELO sales are greater than $25,000,000 in the preceding
quarter. Under the terms of the transaction, the Company will
invest up to $166,000,000 ($124,500,000 in the first tranche and up
to an additional $41,500,000 by 30 March 2019) and BioPharma IV
will invest up to $34,000,000 in parallel with the Company acting
as collateral agent. The Company funded the first tranche on 18
December 2017 and recorded accrued interest of $405,000 for the
period ended 31 December 2017. The outstanding balance as at 31
December 2017 was $124,500,000.
On 21 November 2017, the Company and BioPharma IV entered into a
definitive loan agreement for up to $500,000,000 with Tesaro, Inc.
(NASDAQ: TSRO), an oncology focused biopharmaceutical company
("Tesaro"). Under the terms of the transaction, the Company will
invest up to $370,000,000 ($222,000,000 in the first tranche and up
to an additional $148,000,000 by 20 December 2018) and BioPharma IV
will invest up to $130,000,000 in parallel with the Company acting
as collateral agent. The loan has a term of seven periods and is
secured by Tesaro's US rights to ZEJULA and VARUBI. The first
$300,000,000 tranche bears interest at LIBOR plus 8 per cent, with
the second optional tranche bearing interest at LIBOR plus 7.5 per
cent. The LIBOR rate is subject to a floor of 1 per cent and
certain caps. Each tranche of the loan is interest-only for the
first two periods, amortises over the remaining term, and can be
prepaid at Tesaro's discretion, at any time, subject to prepayment
fees. The Company funded the first tranche on 6 December 2017 and
the Company recorded accrued interest of $1,468,000 for the period
ended 31 December 2017. The outstanding balance as at 31 December
2017 was $222,000,000.
During the period, the Company entered into the RPS Note with
RPS BioPharma Investments, L.P. on 30 March 2017 for $185,130,000.
The Note bears a fixed interest rate of 12 per cent, matures on 30
June 2026 and is secured by rights to royalty payments from 21
pharmaceutical products. In the period, the Company recorded
$11,758,000 of interest and amortisation payments of $85,479,000.
The outstanding balance as at 31 December 2017 was
$123,479,000.
On 27 March 2017, the Company acquired a limited partnership
interest in BioPharma Secured Investments III Holdings Cayman L.P.
("BioPharma III") for $153,482,000. During the period, the Company
recorded $11,758,000 of investment income and repayments of
$29,995,000. The Company also recorded net loss on investments at
fair value of $(8,000). The outstanding balance as at 31 December
2017 was $123,479,000.
BioPharma III, BioPharma IV, RPS BioPharma Investments, L.P.,
and RPI Acquisitions are related entities of the Company due to a
principal of the Investment Manager having significant influence
over each of these entities.
18. CONTINGENCIES, GUARANTEES AND FINANCIAL COMMITMENTS
At 31 December 2017, there were outstanding commitments of
$329.5 million - 349.5 million in respect of investments (see Note
17 for further details).
19. SUBSEQUENT EVENTS
On 8 February 2018, the Company entered into a definitive term
senior secured loan agreement for $150 million with NovoCure
Limited (NASDAQ: NVCR), a commercial stage oncology company with a
current market capitalisation of approximately $1.9 billion
("Novocure"). The $150 million loan will mature in February 2023
and bears interest at 9.0 per cent per annum. Novocure will use
$100 million of the net proceeds to entirely prepay the $100
million 10.0 per cent coupon loan made by BioPharma III in 2015
that was scheduled to mature in 2020. As a limited partner in
BioPharma III, the Company will receive a distribution of
approximately $46 million from BioPharma III as a result of the
prepayment from Novocure.
CORPORATE INFORMATION
Directors
Jeremy Sillem (Chairman)
Colin Bond
Duncan Budge
Harry Hyman
Investment Manager and AIFM
Pharmakon Advisors L.P.
110 East 59th Street #3300
New York, NY 10022
USA
Administrator
Link Alternative Fund Administrators Limited
Beaufort House
51 New North Road
Exeter
EX4 4EP
Company Secretary and registered office
Link Company Matters Limited
Beaufort House
51 New North Road
Exeter
EX4 4EP
Financial and strategic communications
Buchanan Communications Limited
107 Cheapside
London
EC2V 6DN
Independent Auditor
PricewaterhouseCoopers L.L.P.
7 More London Riverside
London
SE1 2RT
Joint brokers
J.P. Morgan Cazenove
25 Bank Street
London
E14 5JP
Goldman Sachs International
Peterborough Court
133 Fleet Street
London
EC4A 2BB
Legal adviser
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London
EC2A 2EG
Registrar
Link Market Services Limited
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
TISE sponsor
Carey Commercial Limited
1st and 2nd Floors
Elizabeth House
Les Ruettes Brayes
St Peter Port
Guernsey
GY1 1EW
National Storage Mechanism
A copy of the full Annual Report and Financial Statements will
shortly be submitted to the National Storage Mechanism ("NSM") and
will be available for inspection at the NSM, which is situated
at:
www.morningstar.co.uk/uk/NSM
END
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on this announcement (or
any other website) is incorporated into, or forms part of, this
announcement.
LEI: 213800AV55PYXAS7SY24
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SSIFUWFASEDD
(END) Dow Jones Newswires
March 08, 2018 02:00 ET (07:00 GMT)
Biopharma Credit (LSE:BPCR)
Historical Stock Chart
From Apr 2024 to May 2024
Biopharma Credit (LSE:BPCR)
Historical Stock Chart
From May 2023 to May 2024