TIDMBPCR
RNS Number : 8020R
BioPharma Credit PLC
05 March 2019
BIOPHARMA CREDIT PLC
(THE "COMPANY")
ANNUAL REPORT FOR THE YEARED 31 DECEMBER 2018
SUCCESSFULLY INCREASING THE SCALE AND DIVERSITY OF THE
PORTFOLIO
BioPharma Credit PLC (LSE: BPCR), the specialist life sciences
debt investment trust, is pleased to present the annual results of
the Company for the period ended 31 December 2018.
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
-- A landmark year of investment activity including three new
investments totalling $494m which significantly increased the scale
and diversity of the portfolio:
o $194m deployed as lead investor and collateral agent for a
$316m loan to Sebela BT Holdings, a subsidiary of Sebela
Pharmaceuticals, a private speciality pharmaceutical company
focused on gastro-intestinal medicines, dermatology and women's
health.
o $150m senior secured loan agreement with NovoCure Limited
(NASDAQ: NVCR), a commercial stage oncology company.
o $150m senior secured loan agreement with Amicus Therapeutics,
Inc. (NASDAQ: FOLD), a rare metabolic disease-focused
biopharmaceutical company.
o A further $164m was deployed to support existing investment
commitments.
-- In December 2018 and January 2019, GlaxoSmithKline plc
announced and subsequently completed the acquisition of Tesaro Inc.
(NASDAQ: TSRO), then the Company's largest portfolio holding, for
$5.1 billion in cash, triggering a repayment, make-whole and
prepayment premium payment to the Company of $369.9m on its $322.0m
investment generating a 28.8% IRR.
-- Additionally, $216m was received by the Company from payments
of principal derived from other investments in the portfolio.
-- The scale of the investment activity provided the opportunity
for further issuance of shares in two separate highly successful
capital raises:
o In April 2018, the Company successfully raised $164m in a
placing of C Shares at $1.00 each. These shares were invested
efficiently and conversion into 162 million Ordinary Shares was
achieved in October 2018.
o In November 2018, the Company announced an oversubscribed,
upscaled placing of $305m Ordinary Shares.
-- During the twelve-month period, the Company made five
dividend payments totalling 7.94 cents per Ordinary Share in
respect of the five quarters ending 30 September 2018 including a
special dividend of $0.011 related to the period ended 31 December
2017. For each of the last two quarters ending on 30 June 2018 and
September 2018, the Company has declared a dividend of 1.75 cents
per Share, in line with the expectation set out in the IPO
prospectus of paying a dividend yield of 7% on the IPO price, once
the Company's assets were substantially invested.
-- The Board was delighted to appoint Stephanie Léouzon as a
non-executive Director of the Company on 5 December 2018
contributing additional transactional and financing expertise
across the pharmaceutical sector.
FINANCIAL HIGHLIGHTS
ORDINARY SHARES ASSETS
as at 31 December 2018 as at 31 December 2018
Share price Net assets
$1.0650 $1,380.0m
(31 December 2017: $1.0470) (31 December 2017: $922.6m)
NAV per share Leverage
$1.0044 0%
(31 December 2017: $1.0091) (31 December 2017: 0%)
Premium to NAV per share Target dividend
6.0% 7 cents per annum
(31 December 2017: 3.8%)
Shares in issue
1,373.9m
(31 December 2017: 914.3m)
PORTFOLIO HIGHLIGHTS
Asset Counterparty Underlying Fair value Expected % of net
/ borrower product(s) ($m) maturity assets
--------------------- --------------- -------------------- ----------- ---------- ---------
Limited partnership
interest
in BioPharma
III
Senior secured
loan Valneva Ixiaro 6.6 2018 0
Other net
assets 1.0 0
------------------------------------------------------------ ----------- ---------- ---------
Limited partnership
interest
in BioPharma
III 7.6 0
------------------------------------------------------------ ----------- ---------- ---------
Tesaro senior ZEJULA(R)
secured loan Tesaro and VARUBI(R) 322.0 2024 23
Lexicon senior XERMELO(R)
secured loan Lexicon and sotagliflozin 124.5 2022 9
Novocure
senior secured
loan Novocure Optune 150.0 2023 11
Sebela senior
secured loan Sebela SUPREP 188.7 2022 14
BMS purchased Onglyza and
payments Bristol-Myers Farxiga 64.4 2026 5
Amicus senior
secured loan Amicus Galafold(R) 150.0 2023 11
--------------------- --------------- -------------------- ----------- ---------- ---------
Total investments 1,007.2 73
------------------------------------------------------------ ----------- ---------- ---------
Cash & cash
equivalents 363.6 26
Other net
assets 9.2 1
------------------------------------------------------------ ----------- ---------- ---------
Gross assets 1,380.0 100
------------------------------------------------------------ ----------- ---------- ---------
The above table excludes maximum unfunded commitments for the
following investments:
1) Lexicon sales covenants necessary to drawdown the Tranche B
commitment of $41.5 million have not been met. As at 31 December
2018, no outstanding commitment to Lexicon exists.
2) Bristol-Myers Squibb priority royalty tranche: $76 to $96 million.
See the Investment Manager's report for additional information
on Tesaro and Lexicon senior security notes.
PERFORMANCE
Cumulative Since launch 1 month period 3 month period 6 month period
Performance to 31 December to 31 December to 31 December
(%) 2018 2018 2018
Share price 6.50% 1.43% -0.93% 2.40%
NAV per Share(1) 2.49% -0.10% -0.96% -0.03%
1 As set out in the IPO Prospectus the opening NAV per Share was
98 cents on the date of IPO.
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 landmark year for the Company with significant
progress achieved in securing major new investments, highly
supportive fundraising activity and delivering a robust income
dividend to shareholders. Our investment activity has meaningfully
increased both the diversity and scale of our life sciences debt
portfolio backed by industry leading players in the life sciences
industry. GSK's acquisition of Tesaro for $5.1 billion, more than
10 times the amount of the secured debt, demonstrates the extensive
collateral value provided by approved life sciences products.
Pharmakon's investment flexibility, expertise and broad industry
relationships were essential for the successful execution of this
investment that generated a 28.8% IRR to the Company. We start the
2019 financial year with significant investment capital to deploy
towards a healthy pipeline of attractive debt investment
opportunities. We look forward to another productive year of
supporting shareholder returns predominantly through continuing
income distributions, uncorrelated to traditional equity market
movements, from unique debt investment exposure to the life
sciences industry."
Results Presentation
As announced on 27 February 2019, a presentation for analysts
will be delivered via conference facility today at 2:00pm. To
request dial-in details, please contact Buchanan.
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 $3.0 billion in 32 transactions
across four private funds and BioPharma Credit PLC to 31 December
2018. The first four funds are now fully invested. Drawing upon the
expertise and successful track record of Pharmakon Advisors, the
Company enjoys access to its extensive, industry-focused knowledge
and contacts to source, analyse and structure attractive investment
opportunities.
Through a shared services agreement with Royalty Pharma, founded
in 1996, the Investment Manager is able to rely on the
complementary expertise of the team behind the market leading
investor in pharmaceutical royalties.
INVESTMENT
Portfolio composition
As at As at
Key statistics 31 December 31 December
($ in millions) 2018 2017 % change
------------------------------ ------------- ------------- ---------
Cash and cash equivalents 363.6 350.8 3.6%
Limited partnership interest
in BioPharma III 7.6 123.5 -93.8%
RPS Note - 99.7 N/A
Tesaro senior secured loan 322.0 222.0 45.0%
Lexicon senior secured loan 124.5 124.5 -
Novocure senior secured loan 150.0 - N/A
Sebela senior secured loan 188.7 - N/A
BMS purchased payments 64.4 - N/A
Amicus senior secured loan 150.0 - N/A
Other net assets 9.2 2.1 338.1%
------------------------------ ------------- ------------- ---------
Total net assets 1,380.0 922.6 49.6%
------------------------------ ------------- ------------- ---------
Portfolio diversification as at 31 December
2018
Type Percentage
--------------------------------- ------------
Cash and cash equivalents 26.3%
Tesaro senior secured loan 23.3%
Sebela senior secured loan 13.7%
Novocure senior secured loan 10.9%
Amicus senior secured loan 10.9%
Lexicon senior secured loan 9.0%
BMS purchased payments 4.7%
Limited partnership interest
in BioPharma III 0.5%
Other net assets 0.7%
--------------------------------- ------------
CHAIRMAN'S STATEMENT
Increasing the diversification and scale of our portfolio
2018 was the Company's first full year of operations and was
marked by a number of significant achievements both in terms of new
investments and capital raising.
Over the course of the year, we announced three new investments
totaling $494 million which, when combined with funding existing
commitments of $164 million, led to total new investments of $659
million. This investment activity was funded in part by the
scheduled repayments of $216 million of original seed assets.
This level of new investment activity, together with the
development of a pipeline of additional opportunities, led the
Board to seek additional support from the equity markets through
two new issues. On 13 April 2018, the Company announced the
completion of the Placing and Offer for Subscription of 164 million
c shares at $1.00 each, which were converted into 162 million
ordinary shares on 29 October 2018. Subsequently, on 1 November
2018, the Company announced the successful placing of 298 million
new ordinary shares at a price of $1.025 each, raising gross
proceeds of $305 million.
Shareholder Returns and Investment Performance
On 31 December 2018, the Company's shares closed at $1.0650 and
its NAV at $1.0044, compared with a closing price of $1.0470 and
NAV of $1.0091 on 31 December 2017. Over the twelve-month period,
the Company made five dividend payments totalling 7.94 cents per
ordinary share in respect of the five quarters ending 30 September
2018 including a special dividend of $0.011 related to the period
ended 31 December 2017. For each of the last two quarters, ending
on 30 June 2018 and 30 September 2018, the Company has declared a
dividend of 1.75 cents per share, in line with the expectation set
out in the IPO prospectus of paying a dividend yield of 7% on the
IPO price, once the Company's assets were substantially
invested.
On 21 February 2019, the Company announced a dividend in respect
of the quarter ended 31 December 2018 of $0.01927441 per ordinary
share, comprising an ordinary dividend of $0.0175 and a special
dividend of $0.00177441.
The Board
On behalf of the Board, I am delighted to welcome Stephanie
Léouzon who was appointed as a non-executive Director of the
Company on 5 December 2018. Stephanie has a wealth of experience
working on strategic and financing transactions within the
biopharmaceutical industry and we look forward to working with
her.
Outlook
As at 31 December 2018, the Company had total assets of $1.39
billion, represented by $1 billion of investments, $364 million in
cash and $22 million in other assets. On 22 January 2019,
GlaxoSmithKline completed its acquisition of TESARO Inc ("Tesaro"),
triggering the prepayment of Tesaro's $500 million senior secured
loan. As a result, the Company was repaid its $322 million
participation together with make-whole and prepayment fees,
generating an attractive return on its investment. As a
consequence, the Company's cash position has been substantially
enhanced.
Pharmakon Advisors, the Company's Investment Manager, is in
ongoing discussions with a number of potential borrowers and,
notwithstanding the cash position following the repayment of the
TESARO loan, they consider the existing pipeline of opportunities
is likely to be sufficient for these resources to be deployed in
the course of 2019.
In 2019, we expect there to be four quarterly dividends payable
in March, June, September and December.
On behalf of the Board, I should like to express my thanks to
Pharmakon for their achievements on behalf of the Company in this
important year and to our shareholders for their support, whether
at the IPO or at a subsequent Share offering.
Jeremy Sillem
Chairman
4 March 2019
MARKET OVERVIEW
LIFE SCIENCES IS A LARGE, VITAL INDUSTRY WITH A TRACK RECORD OF
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 a track
record of strong, consistent growth. Worldwide industry revenues in
2015 were 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 ageing 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 U.S. Food and Drug Administration
("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 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.
INVESTMENT MANAGER'S REPORT
An attractive investment environment to build on past
performance
INTRODUCTION TO THE INVESTMENT MANAGER
Pharmakon Advisors, the Company's Investment Manager, was
founded in 2009 and has invested $3.0 billion in 32 transactions on
behalf of its clients.
Pharmakon 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.
As at 31 December 2018, Pharmakon clients included four previous
BioPharma Funds (I, II, III and IV) and seven 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 11% with zero defaults.
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.
INVESTMENT UPDATE
Pharmakon is pleased to present an update on the Company's
portfolio and investment outlook. We are delighted with the results
over the past year and look forward to a productive 2019, a year
that will mark Pharmakon's 10-year anniversary as the leading
investor in life sciences debt. The Company's existing portfolio
investments continued to perform well and in line with
expectations. Pharmakon's continued engagement with multiple
potential counterparties resulted in the execution of three new
transactions during the year, investing $494.2 million.
In addition, BioPharma Credit disbursed an additional $164.4
million during the year in relation to prior funding commitments,
bringing the total amount invested during the year to $658.6
million. The Company also raised a total of $469.4 million,
consisting of 164.4 million ordinary shares converted from the C
shares and 297.6 million new ordinary shares at a price of $1.025
each.
Investments
Amicus Therapeutics.
Amicus has commercial operations in the United States, Europe,
Japan and several other geographies in which it currently markets
Galafold(R) (migalastat HCl) for Fabry disease with sales of $91
million during 2018. As at 28 February 2019, Amicus had a market
capitalisation of $2,707 million.
On 20 September 2018, the Company entered into a definitive
senior secured loan agreement for $150 million with Amicus
Therapeutics, Inc (NASDAQ: FOLD) ("Amicus"), a commercial stage,
rare metabolic disease-focused biopharmaceutical company. The $150
million loan has a five-year maturity and will be interest only for
the first four years. The loan bears interest at 3-month Libor plus
7.5 per cent. (subject to certain caps) and includes 2 per cent.
additional consideration. Amicus can prepay the loan at any time
subject to a two year make-whole premium and prepayment fees.
Investment type Date
Secured loan September 2018
Loan amount Company investment
$150m $150m
Maturity
28 September 2023
Sebela Pharmaceuticals, Inc.
Sebela is a private specialty pharmaceutical company focused on
gastro-intestinal medicines, dermatology, and women's health with
pro-forma sales of approximately $250 million for the year ended 31
December 2018. As at 31 December 2018, the principal amount
outstanding of the Company's investment was $188.7 million.
On 1 May 2018, the Company was lead arranger of a $316 million
senior secured term loan for Sebela BT Holdings Inc. ("Sebela"), a
subsidiary of Sebela Pharmaceuticals. The Company committed to a
$194 million investment, with the remaining $122 million balance
coming from co-investors. The five-year senior secured loan began
amortising in the third quarter of 2018 and fully matures in
December 2022. The loan bears interest at 3-month Libor (uncapped)
plus a single-digit spread and includes additional
consideration.
Investment type Date
Secured loan April 2018
Loan amount Company investment
$316m $194m
Maturity
1 May 2023
Novocure(TM)
Novocure manufactures and sells the Optune system, a cancer
treatment centred on a proprietary therapy called TTFields, which
involves the use of electric fields tuned to specific frequencies
to disrupt solid tumor cancer cell division. Optune is currently
approved for the treatment of adults with Glioblastoma ("GBM"). On
7 January 2019, Novocure reported unaudited revenues of $248.0
million for the year ended 31 December 2018 a 40 per cent. increase
over 2017. Novocure invests meaningfully in R&D and has late
stage trials (Phase III pivotal studies) underway for TTFields in
brain metastases, non-small cell lung cancer and pancreatic cancer.
Novocure is a commercial stage oncology company with a current
market capitalisation of approximately $5,102 million as at 28
February 2019.
On 7 February 2018, the Company entered into a senior secured
loan agreement for $150 million with Novocure Limited (NASDAQ:
NVCR) ("Novocure").
The $150 million loan will mature in February 2023 and bears
interest at 9.0 per cent. per annum. Novocure used $100 million of
the net proceeds to entirely prepay the $100 million, 10.0 per
cent. coupon loan made by BioPharma III Holdings, LP ("BioPharma
III") in 2015 that was scheduled to mature in 2020. BioPharma
Credit is a limited partner in BioPharma III and therefore received
a distribution of approximately $46 million from BioPharma III as a
result of the prepayment from Novocure.
Investment type Date
Secured loan February 2018
Loan amount Company investment
$150m $150m
Maturity
7 February 2023
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 $564 million as at 28 February 2019. The Company
funded $124.5 million of the $150 million first tranche and Lexicon
will not draw the $50 million second tranche. Lexicon markets
Xermelo(R) (teloristat ethyl) for the treatment of carcinoid
syndrome diarrhoea in the United States and has licensed Xermelo(R)
to Ipsen Pharma SA for commercialisation in territories outside of
the United States and Japan. Lexicon is also developing
sotagliflozin for the treatment of type 1 and type 2 diabetes in
partnership with Sanofi. 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.
On 1 November 2018, Lexicon reported sales of Xermelo of $6.3
million for the quarter ended 30 September 2018. In May 2018, the
FDA accepted Lexicon collaborator Sanofi's New Drug Application
("NDA") for sotagliflozin for use in combination with insulin
therapy to improve glycemic control in adults with type 1 diabetes
mellitus with a PDUFA date of 22 March 2019. On 17 January 2019,
the Endocrinologic and Metabolic Drugs Advisory Committee of the
FDA voted eight to eight on the question of whether the overall
benefits of sotagliflozin outweighed the risks to support approval.
While the FDA is not required to follow the committee's vote, the
agency considers the committee's recommendations when making its
decision, which is anticipated by 22 March 2019. In addition,
Lexicon and Sanofi should be receiving feedback on sotagliflozin's
potential approval from the European regulatory authorities during
the first quarter of 2019.
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 are
each 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 million 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. As at 31 December 2018, the Company had
funded three of the Purchased Payments based on sales from 1
January 2018 to 30 September 2018 for a total of $64.4 million out
of the originally expected range.
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. (NASDAQ:
TSRO) ("Tesaro"). The Company funded $222 million of the $300
million first tranche on 6 December 2017 and $100 million of the
$200 million second tranche on 29 June 2018 for a total investment
of $322 million.
The Tesaro loan had a term of seven years and is secured by
Tesaro's US rights to ZEJULA(R). The first $300 million tranche
bore interest at Libor plus 8 per cent. and the second tranche bore
interest at Libor plus 7.5 per cent. The Libor rate was subject to
a floor of 1 per cent. and certain caps. Each tranche of the loan
was interest only for the first two years, amortises over the
remaining term.
Following its acquisition by GlaxoSmithKline, Tesaro repaid the
$500 million loan on 23 January 2019. The Company received a
payment of $370.0 million on its $322.0 million share of the loan,
including the make-whole and prepayment premium totalling $45.8
million, or 14.2 per cent. of the $322.0 million investment, which
is the equivalent of what the Company would have received had the
loan remained outstanding for another fifteen months,
approximately. The Company earned a 22.5 per cent. annualised rate
of return on its Tesaro investment.
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. On
15 October 2018, the Company received its final payment on the RPS
Note of $20.2 million, realising a 12.9 per cent. IRR. On 29
January 2019, the Company received $7.6 million as its final
payment from BioPharma III, realising a 13.6 per cent. IRR.
Investment outlook
The life sciences industry is expected to continue to have
substantial capital needs during the coming years as the number of
products undergoing clinical trials continues to grow. All else
being equal, companies seeking to raise capital are generally more
receptive to straight debt financing alternatives at times when
equity markets are soft, increasing the number and size of
fixed-income investment opportunities for the Company, and will be
more inclined to issue equity or convertible bonds at times when
equity markets are strong. A good indicator of the life sciences
equity market is the New York Stock Exchange Biotechnology Index
("BTK Index"). While 2017 was a very strong year with the BTK Index
rising by 37 per cent., 2018 proved to be much more volatile.
Having increased 28 per cent. through September 2018, the BTK Index
saw most of those gains disappear during the last quarter, ending
2018 essentially at the same levels as it started the year.
Global equity issuance by life sciences companies during 2018
was $54.9 billion, a 0.5 per cent. increase from the $54.6 billion
issued during 2017. US issuance of life sciences convertible bonds
increased 52.1 per cent. from $5.5 billion during 2017 to $8.3
billion in 2018. The BTK index has recovered some gains during the
first few weeks of 2019 but is still well below its September 2018
highs. Given this volatility in the equity markets, we anticipate
an increased appetite for fixed income as a source of capital in
2019. As a result of the downside protection embedded in the debt
nature of the Company's investments, the volatility in equity
prices does not affect the value or quality of the assets in the
portfolio.
Acquisition financing is a very important driver of capital
needs in the life sciences industry in general and a key source of
investment opportunities. An active M&A market helps drive
opportunities for investors such as the Company, as acquiring
companies need capital to fund acquisitions. In fact, two of the
Company's investments during 2018, Amicus and Sebela, were driven
by the need to fund acquisitions. Global life sciences M&A
volume during 2018 was $270.2 billion, 41.5 per cent. more than the
$190.9 billion witnessed during 2017, driven by an increase in
biotech consolidation. Life sciences M&A was robust compared to
the broader market, which saw a 13.0 per cent. decline. It is
widely believed that this increase in M&A activity was caused
by the uncertainty surrounding US tax reform, which was resolved in
December 2017. We benefited from this increase in M&A and are
encouraged by the number of M&A opportunities that are starting
to build up and should lead to a more active market over the coming
year.
In conclusion, there continues to be a robust pipeline of
investment opportunities, but as usual, the timing of their
execution is not completely within our control. We remain focused
on our mission of creating the premier dedicated provider of debt
capital to the life sciences industry while generating attractive
returns and sustainable income to investors. Further, we remain
confident of our ability to deliver attractive returns that will
enable the Company to pay a robust dividend yield for our
investors.
Pedro Gonzalez de Cosio
Co-founder and CEO, Pharmakon
4 March 2019
PORTFOLIO INFORMATION
Counterparty/ Fair value Expected % of
Asset borrower Underlying product(s) ($m) maturity net assets
--------------------------- --------------- --------------------------- ----------- --------- -----------
Limited partnership
interest in
BioPharma III:
Senior secured loan Valneva Ixiaro 6.6 2018 0
Other net assets 1.0 0
Limited partnership interest in
BioPharma III 7.6 0
-------------------------------------------- --------------------------- ----------- --------- -----------
Tesaro senior secured
loan Tesaro ZEJULA and VARUBI 322.0 2024 23
Lexicon senior secured
loan Lexicon XERMELO and Sotagliflozin 124.5 2022 9
Novocure senior secured
loan Novocure Optune 150.0 2023 11
Sebela senior secured
loan Sebela SUPREP 188.7 2022 14
BMS purchased payments Bristol-Myers Onglyza and Farxiga 64.4 2026 5
Amicus senior secured
loan Amicus Galafold 150.0 2023 11
--------------------------- --------------- --------------------------- ----------- --------- -----------
Total investments 1,007.2 73
------------------------------------------------------------------------- ----------- --------- -----------
Cash and cash equivalents 363.6 26
Other net assets 9.2 1
------------------------------------------------------------------------- ----------- --------- -----------
Gross assets 1,380.0 100
------------------------------------------------------------------------- ----------- --------- -----------
The above table excludes maximum unfunded commitments for the
following investments:
1) Lexicon sales covenants necessary to drawdown the Tranche B
commitment of $41.5 million have not been met. As at 31 December
2018, no outstanding commitment to Lexicon exists.
2) Bristol-Myers Squibb priority royalty tranche: $76 to $96
million.
See Recent Investments below for additional information on
Tesaro and Lexicon senior secured loans.
Performance
Cumulative Performance (%) 1 month period 3 month period 6 month period
to to to
Since launch 31 December 2018 31 December 2018 31 December 2018
---------------------------- ------------- ------------------ ------------------ ------------------
Share price 6.50% 1.43% -0.93% 2.40%
---------------------------- ------------- ------------------ ------------------ ------------------
NAV per share(1) 2.49% -0.10% -0.96% -0.03%
---------------------------- ------------- ------------------ ------------------ ------------------
(1) As set out in the IPO Prospectus the opening NAV per share
was 98 cents on the date of IPO.
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;
-- 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 at the
time of each proposed 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 year ended 31 December 2018 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 15 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 2018 was $1.0044 per Share, compared to
$1.0091 per Share at 31 December 2017.
A full description of the Company's performance for the year
ended 31 December 2018 is included in the Investment Manager's
Report above.
Share price return
The Company's Share price at 31 December 2018 was $1.0650,
giving a return since 31 December 2017 of 1.7 per cent.
Share price premium to NAV per Share
The Company's Share price was at a premium to the NAV per Share
consistently throughout the year, ending the period at a premium of
6.0 per cent. The daily closing price of the Company's Shares
ranged from $1.01 - $1.12 throughout the year.
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 as the Share price discount to
NAV per Share moves below 1 per cent.
Dividend yield
The Company declared and paid dividends during the year in line
with the expected 7 per cent. annual yield as disclosed in its IPO
Prospectus dated 1 March 2017.
Ongoing charges
The Company's ongoing charges ratio is shown in the table
below.
Year ended Period ended
31 December 2018 31 December 2017
% %
--------------------------------------- ----------------- -----------------
Ongoing charges excluding performance
fee* 1.2 1.2
Performance fee 0.8 N/A
Ongoing charges including performance 2.0 N/A
fee
--------------------------------------- ----------------- -----------------
* Ongoing charges are the Company's expenses (excluding
performance fees) expressed as a percentage of its average monthly
net assets and follow the AIC recommended methodology.
Dividends
Dividends totalling 7.94 cents per Ordinary Share, including a
special dividend of 1 cent, have been paid during the year ended 31
December 2018.
RISK MANAGEMENT AND THE INTERNAL CONTROL ENVIRONMENT
Board
Responsibilities
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
Audit and Risk Committee
Responsibilities
The Board undertakes a formal risk review with the assistance of
the Audit and Risk Committee at least twice a year in order to
robustly assess the effectiveness of the Company's risk management
and internal control systems. During the course of its review in
respect of the year ended 31 December 2018, 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.
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 principal risks and the Company's policies for managing
these risks are set out below and the policy and practice with
regard to financial instruments are summarised in Note 17 to the
financial statements.
Risk Description and mitigation
---------------------- ------------------------------------------------------------
Failure to The target returns are targets only and are based
achieve target on financial projections that are themselves based
returns 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 In accordance with the Investment Management Agreement,
of the Company the Investment Manager is responsible for the
depends on investment management of the Company's assets.
the ability The Company does not have its own employees and
and expertise all of its Directors are appointed on a non-executive
of the Investment basis. All investment and asset management decisions
Manager 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 wilful
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 wilful misconduct or
acted in bad faith, or knowingly violated applicable
securities' laws. The performance of the Company
is dependent on the diligence, skill and judgement
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 7 per cent. of the Company as at
31 December 2018, creating a strong alignment
of interests between the Investment Manager and
its affiliates and Shareholders of the Company.
---------------------- ------------------------------------------------------------
The Company From time to time, the Company may commit to make
may from time future investments for which the Company will
to time commit need to raise funds by issuing equity and/or debt,
to make future or by selling all or part of other investments.
investments Investment opportunities may require the Company
that exceed to fund transactions in two or more tranches,
its current with the later tranches to be funded six or more
liquidity 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 in 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 Returns on the shareholders' investments will
Manager's depend upon the Investment Manager's ability to
ability to source and make successful investments on behalf
source and of the Company. There can be no assurance that
advise appropriately the Investment Manager will be able to do so on
on investments 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 complementary
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 Under the terms of the Investment Management Agreement,
be no assurance the Investment Management Agreement may be terminated
that the Board by: (A) the Investment Manager on not less than
will be able six months' notice to the Company, such notice
to find a not to expire earlier than 18 months following
replacement Admission; or (B) the Company on not less than
investment six months' notice to the Investment Manager,
manager if such notice not to expire earlier than: (i) 36
the Investment months following Admission, unless approved by
Manager resigns 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 7 per cent. of the Company
as at 31 December 2018. This affiliate ownership
level, coupled with the fact that the Investment
Manager is fairly compensated, provide further
incentive for them to remain as Investment Manager
to the Company.
---------------------- ------------------------------------------------------------
Concentration The Company's published investment policy allows
in the Company's the Company to invest up to 30 per cent. of the
portfolio Company's assets in a single debt asset or in
may affect debt assets issued to a single borrower. While
the Company's the investment limits in the investment policy
ability to have been set keeping in mind the debt capital
achieve its requirements of the life sciences industry and
investment the investment opportunities available to the
objective 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.
---------------------- ------------------------------------------------------------
Life sciences The biopharmaceutical and pharmaceutical industries
products are are highly competitive and rapidly evolving. The
subject to length of any life sciences product's commercial
intense competition life cannot be predicted. There can be no assurance
and various that the life sciences products will not be rendered
other risks 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 Debt instruments are subject to credit and interest
in debt obligations rate risks. Credit risk refers to the likelihood
are subject that the borrower will default in the payment
to credit of principal and/or interest on an instrument.
and interest Financial strength and solvency of a borrower
rate risks 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 The Company intends to hold debt assets that will
risk 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 There can be no assurance that any regulatory
sciences products approvals for indications granted to one or more
are subject life sciences products will not be subsequently
to regulatory revoked or restricted. Such revocation or restriction
actions that may have a material adverse effect on the sales
could harm of such products and on the ability of borrowers
the Company's under the relevant Debt Asset to make continuing
ability to payments of interest on, and repayment of the
make distributions principal of, that Debt Asset, in which case the
to investors 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 advisers and the Investment Manager will
maintain awareness of new approvals or revoked
approvals.
---------------------- ------------------------------------------------------------
Net asset Generally, there will be no readily available
values published market for a significant number of the Company's
will be estimates investments and hence, the majority of the Company's
only and may investments are not valued based on market-observable
differ materially inputs.
from actual
results 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 Any change in the Company's tax status, or in
taxation legislation taxation legislation or practice in the UK, US
or practice or elsewhere, could affect the value of the Company's
may adversely investments and the Company's ability to achieve
affect the its investment objective, or alter the post-tax
Company and returns to Shareholders. It is the intention of
the tax treatment the Directors to conduct the affairs of the Company
for Shareholders so as to satisfy the conditions for approval of
investing the Company by HMRC as an investment trust under
in the Company 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 has been granted approval
from HMRC as an investment trust 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.
There are five Directors, four male and one female. Further
information on the composition and operation of the Board is
detailed in the full Annual Report.
The Strategic Report has been approved by the Board and signed
on its behalf.
Jeremy Sillem
Chairman
4 March 2019
EXTRACTS FROM THE DIRECTORS REPORT
The Directors are pleased to present the Annual Report and
financial statements for the year ended 31 December 2018.
Directors
The Directors in office 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
Stephanie Léouzon - Director
Share capital
At the general meeting held on 28 February 2017, the Company was
granted authority to allot ordinary shares or C shares up to an
aggregate nominal amount of $20 million on a non pre-emptive basis
for a period of 5 years from the date of the resolution.
At the annual general meeting held on 29 June 2018, the Company
was granted authority to purchase up to 14.99% of the Company's
Ordinary Share capital in issue at that date, amounting to
137,046,499 Ordinary Shares. No Ordinary Shares have been bought
back under this authority. This authority will expire at the
conclusion of, and renewal will be sought at, the annual general
meeting to be held on 19 June 2019.
On 14 March 2018, the Company published a prospectus in relation
to an Initial Placing and Offer for Subscription of up to 500
million C Shares and a Placing Programme and Offer for Subscription
of up to 2,000 million new ordinary shares and / or C shares.
On 13 April 2018, the Company issued 163,782,307 C Shares (with
a nominal value of $1,637,823.07) at an issue price of $1.00 each,
raising gross proceeds of approximately $164 million. The C Shares
were issued to institutional investors and professionally advised
private investors and were admitted to trading on the SFS of the
LSE and to listing and trading on the Official List of The
International Stock Exchange ("TISE") on 16 April 2018. The Company
announced on 19 October 2018 that its C Shares would be converted
into Ordinary Shares at a rate of 0.98984 Ordinary Shares for every
C Share, resulting in 162,118,260 new Ordinary Shares. Any
fractional entitlements were cancelled by the Company on the same
date and accordingly, 162,118,260 new Ordinary Shares were admitted
to trading on the SFS of the LSE and to listing and trading on the
Official List of the TISE on 29 October 2018.
On 1 November 2018, the Company issued 297,560,976 Ordinary
Shares (with a nominal value of $2,975,609.76) at a price of $1.025
each, raising gross proceeds of approximately $305 million. These
Shares were issued pursuant to the prospectus published on 14 March
2018. The Shares were issued to institutional investors and
professionally advised private investors and admitted to trading on
the SFS of the LSE and to listing and trading on the Official List
of the TISE on 5 November 2018.
As at the date of this report, the Company may allot further
Ordinary Shares or C Shares up to an aggregate nominal amount of
$6,244,038.87 under its existing authority.
At 31 December 2018, and as at the date of this report, there
are 1,373,932,067 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 2018 were 1,373,932,067.
Dividends
Dividends paid in respect of the year ended 31 December 2018 are
set out in Note 6 to the financial statements.
Dividend policy
The Company pays dividends in US dollars or GBP Sterling, if
requested by a specific Shareholder, 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 targets 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 existing investments. 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 year. 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 IFRS 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 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 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 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.
Directors' confirmations
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 position and 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 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 Strategic 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
4 March 2019
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's statutory accounts for the years ended 31 December 2017
and 31 December 2018 but is derived from those accounts. Statutory
accounts for the year ended 31 December 2017 have been delivered to
the Registrar of Companies, and those for the year ended 31
December 2018 will be delivered in due course. 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. The text of the Auditor's report can be
found in the Company's full Annual Report and Financial
Statements.
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2018
(In $000s except per Share amounts)
Period from 24 October 2016
(date of
incorporation) to 31 December
Year ended 31 December 2018 2017
-------------------------------- ----------------------------------
Note Revenue Capital Total Revenue Capital Total
---------------------------------- ----- ---------- --------- --------- ---------- ---------- ----------
Income
Investment income 3 92,091 - 92,091 33,218 - 33,218
Other income 3 4,582 - 4,582 3,774 - 3,774
Net gains on investments
at fair value 7 - 648 648 - 2,265 2,265
Currency exchange (losses)/gains - (38) (38) - 51 51
---------------------------------- ----- ---------- ---------- ----------
Total income 96,673 610 97,283 36,992 2,316 39,308
Expenses
Management fee 4 (10,765) - (10,765) (5,830) - (5,830)
Performance fee 4 (7,794) - (7,794) - - -
Directors' fees 4 (330) - (330) (250) - (250)
Other expenses 4 (4,158) (192) (4,350) (1,062) (471) (1,533)
---------------------------------- ----- ---------- ---------- ----------
Total expenses 4 (23,047) (192) (23,239) (7,142) (471) (7,613)
---------------------------------- ----- ---------- --------- --------- ---------- ---------- ----------
Return on ordinary activities
before finance costs
and taxation 73,626 418 74,044 29,850 1,845 31,695
Finance costs - general 4 (3) - (3) (4) - (4)
Finance costs - C Share
amortisation 13 (3,677) (218) (3,895) - - -
---------------------------------- ----- ---------- --------- --------- ---------- ---------- ----------
Return on ordinary activities
after finance costs and
before taxation 69,946 200 70,146 29,846 1,845 31,691
Taxation on ordinary
activities 5 - - - - - -
---------------------------------- ----- ---------- ---------- ----------
Return on ordinary activities
after finance costs and
taxation 69,946 200 70,146 29,846 1,845 31,691
---------------------------------- ----- ---------- --------- --------- ---------- ---------- ----------
Net revenue and capital
return per Ordinary Share
(basic and diluted) 11 $0.0707 $0.0002 $0.0709 $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 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 year ended 31 December 2018
(In $000s)
Total equity
attributable
Share Special to
For the year ended 31 December Share premium distributable Capital Revenue Shareholders
2018 Note capital account reserve* reserve reserve* of the Company
Net assets attributable
to Shareholders at 1 January
2018 9,143 150,379 734,356 1,845 26,851 922,574
Gross proceeds of Ordinary
Share issue 2,975 302,025 - - - 305,000
Proceeds following C Share
conversion to Ordinary
Shares 1,621 162,781 - - - 164,402
Ordinary Share issue costs - (8,005) - - - (8,005)
C Share conversion costs - (55) - - - (55)
Return on ordinary activities
after finance costs and
taxation - - - 200 69,946 70,146
Dividends paid to Ordinary
Shareholders 6 - - (47) - (73,993) (74,040)
------------------------------- -----
Net assets attributable
to Shareholders at 31
December
2018 13,739 607,125 734,309 2,045 22,804 1,380,022
------------------------------- ----- --------- --------- --------------- --------- ---------- ----------------
Total equity
For the period from 24 attributable
October 2016 (Date of Share Special to
Incorporation) Share premium distributable Capital Revenue Shareholders
to 31 December 2017 Note capital account reserve* reserve reserve* of the Company
Net assets attributable
to Shareholders at 24 October
2016 - - - - - -
Gross proceeds of Ordinary
Share issues 9,143 906,847 - - - 915,990
Ordinary Share issue costs - (17,447) - - - (17,447)
Transfer to special
distributable
reserve 14 - (739,021) 739,021 - - -
Share premium cancellation
costs 14 - - (41) - - (41)
Return on ordinary activities
after finance costs and
taxation - - - 1,845 29,846 31,691
Dividends paid to Ordinary
Shareholders 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 a dividend.
The notes below form part of these financial statements.
STATEMENT OF FINANCIAL POSITION
As at 31 December 2018
(In $000s except per Share amounts)
31 December 31 December
Note 2018 2017
---------------------------------------------- ----- ------------ ------------
Non-current assets
Investments at fair value through profit
or loss 7 1,007,265 569,630
Unlisted floating interest income receivable 8 988 -
---------------------------------------------- -----
1,008,253 569,630
Current assets
Trade and other receivables 8 21,448 5,038
Cash and cash equivalents 9 363,572 350,822
---------------------------------------------- -----
385,020 355,860
---------------------------------------------- -----
Total assets 1,393,273 925,490
---------------------------------------------- -----
Current liabilities
Trade and other payables 10 5,457 2,916
---------------------------------------------- -----
Total current liabilities 5,457 2,916
---------------------------------------------- ----- ------------ ------------
Total assets less current liabilities 1,387,816 922,574
---------------------------------------------- ----- ------------ ------------
Non-current liabilities
Deferred performance fee 10 7,794 -
---------------------------------------------- ----- ------------ ------------
7,794 -
---------------------------------------------- ----- ------------ ------------
Net assets 1,380,022 922,574
---------------------------------------------- ----- ------------ ------------
Represented by:
Share capital 14 13,739 9,143
Share premium account 14 607,125 150,379
Special distributable reserve 14 734,309 734,356
Capital reserve 2,045 1,845
Revenue reserve 22,804 26,851
---------------------------------------------- -----
Total equity attributable to Shareholders
of the Company 1,380,022 922,574
---------------------------------------------- ----- ------------ ------------
Net asset value per Ordinary Share (basic
and diluted) 12 $1.0044 $1.0091
---------------------------------------------- ----- ------------ ------------
The financial statements of BioPharma Credit PLC registered
number 10443190 were approved and authorised for issue by the Board
of Directors on 4 March 2019 and signed on its behalf by:
Jeremy Sillem
Chairman
The notes below form part of these financial statements.
CASH FLOW STATEMENT
For the year ended 31 December 2018
(In $000s)
Period from
24 October
2016
Year ended (date of incorporation)
31 December to 31 December
Note 2018 2017
----------------------------------------- ----- ------------- -------------------------
Cash flows from operating activities
Investment income received 75,491 28,872
Other income received 4,279 3,384
Investment management fee paid (9,575) (3,826)
Finance costs paid (5) (2)
Other expenses paid (3,052) (1,515)
----------------------------------------- ----- ------------- -------------------------
Cash generated from operations 16 67,138 26,913
Taxation paid - -
----------------------------------------- ----- ------------- -------------------------
Net cash flow generated from
operating activities 67,138 26,913
----------------------------------------- ----- ------------- -------------------------
Cash flow from investing activities
Purchase of investments (658,788) (548,728)
Redemptions of investments 221,801 115,474
Sales of investments - 19,385
----------------------------------------- ----- ------------- -------------------------
Net cash flow used in investing
activities (436,987) (413,869)
----------------------------------------- ----- ------------- -------------------------
Cash flow from financing activities
Gross proceeds of Ordinary Share
issue 14 305,000 762,508
Ordinary Share issue costs (8,797) (17,121)
Dividends paid to Ordinary Shareholders 6 (74,040) (7,619)
Gross proceeds of C Share issue 13 163,782 -
C Share issue costs 13 (3,275) -
C Share conversion costs (33) -
Share premium cancellation costs - (41)
----------------------------------------- ----- ------------- -------------------------
Net cash flow generated from
financing activities 382,637 737,727
----------------------------------------- ----- ------------- -------------------------
Increase in cash and cash equivalents
for the year/period 12,788 350,771
----------------------------------------- ----- ------------- -------------------------
Cash and cash equivalents at
start of period 350,822 -
Revaluation of foreign currency
balances (38) 51
----------------------------------------- ----- ------------- -------------------------
Cash and cash equivalents at
end of year/period 9 363,572 350,822
----------------------------------------- ----- ------------- -------------------------
The notes below form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2018
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.
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 cover the period from
1 January 2018 to 31 December 2018 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 and February
2018 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.
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 equivalent to 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; 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) C Share financial liability
Any C Share issued that meets the definition of a financial
liability under IAS 32 'Financial Instruments: Presentation',
rather than an equity instrument will be recognised on issue at
fair value less directly attributable issuance costs.
f) 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.
g) 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 execution of the transaction.
Income from additional consideration is recognised up front and is
allocated to revenue within the Statement of Comprehensive
Income.
Bank interest and other interest receivable are accounted for on
an accruals basis.
h) Dividends paid to Shareholders
Dividends to Shareholders are recognised as a liability in the
year which they are paid or approved by the Board and are reflected
in 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.
i) 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.
The performance fee is considered to be an annual fee and is
only recognised at the end of each performance period. It is
calculated in accordance with the details in note 4(b) below, any
performance fee triggered whether payable or deferred is recognised
in the Statement of Comprehensive Income. Where a performance fee
is payable it is treated as a current liability in the Statement of
Financial Position. Where a performance fee is deferred, it is
treated a non-current liability in the Statement of Financial
Position, it becomes payable to the Investment Manager at the end
of the first performance period in respect to which the compounding
condition is satisfied.
j) Trade and other receivables
Trade and other receivables do not accrue any interest and are
measured at fair value through profit and loss and reduced by
appropriate allowances for estimated unrecoverable amounts, where
necessary.
k) 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.
l) Trade and other payables
Trade and other payables do not carry any interest and are
measured at fair value through profit and loss.
m) Taxation
Tax on the profit or loss for the year 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 year.
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.
n) Share capital and reserves
The Share capital represents the nominal value of the Company's
Ordinary Shares (equity shares).
The Share premium account represents the excess over nominal
value of the fair value of consideration received for the Company's
Ordinary Shares (equity shares), net of expenses of the Share
issue.
The special distributable reserve was created on 29 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.
o) Critical accounting estimates and assumptions
The preparation of these financial statements in conformity with
IFRS requires the Directors to make accounting estimates which will
not always equal the actual results. The Directors also need to
exercise judgement in applying the Company's accounting
policies.
This note provide an overview of the areas that involve a higher
degree of judgement or complexity and of items which are more
likely to be materially adjusted due to estimates and judgements
included in other notes, together with information about the basis
of calculation for each line in the financial statements.
In particular, judgements and estimates are made in the
determining the fair valuation of unquoted investments for which
there is no observable market and may cause material adjustments to
the carrying value of those investments. These are valued in
accordance with note 2(d) above and using the valuation techniques
described in note 7 below.
Also, judgements are made when determining any deferred
performance fee, this may be affected by future changes in the
Company's portfolio and other assets and liabilities. Any deferred
performance fee is calculated in accordance with note 4(b) below
and is recognised in accordance with note 2(i) above.
These judgements and estimates are reviewed on an ongoing basis.
Revisions to these judgements and estimates are reviewed on an
ongoing basis. Revisions are recognised prospectively.
p) New accounting standards effective since 1 January 2018
IFRS 9 'Financial Instruments'
The Directors have considered the implications of IFRS 9 which
has replaced IAS 39 'Financial Instruments: Recognition and
Measurement'. IFRS 9 changes the classification and measurement of
financial assets and introduces an 'expected credit loss' model for
impairment of financial assets. The adoption of IFRS 9 did not
result in any change to the classification or measurement of the
Company's Investments in either the current or comparative
financial statements, as the investments remain classified at fair
value.
IFRS 15 'Revenue from Contracts with Customers'
The Directors have considered the implications of IFRS 15 and
are of the opinion this does not apply to financial instruments,
which comprise the business of the Company as an investment trust.
Therefore, there has been no impact on the current or comparative
financial statements for this accounting period.
q) Accounting standards not yet effective
The IASB and International Financial Reporting Interpretations
Committee ("IFRIC") have issued and endorsed the following
standards and interpretations, applicable to the Company, which are
not yet effective for the period ended 31 December 2018 and have
therefore not been applied in preparing these financial
statements.
Amendment to IFRS 9 'Financial Instruments' - relates to
prepayment features with negative compensation and modifications of
financial liabilities, and is effective for reporting periods on or
after 1 January 2019.
The Directors do not expect that the adoption of the standards
and interpretations will have a material impact on the financial
statements.
Other future development includes 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
Year ended Period ended
31 December 31 December
2018 2017
$000 $000
---------------------------------------- ------------ -------------
Income from investments
US unfranked investment income from
BioPharma III 9,045 11,758
US fixed interest investment income 29,421 12,439
US floating interest investment income 44,724 1,468
US floating interest investment income 988 -
from subsidiary
Additional considerations received* 7,913 7,553
---------------------------------------- ------------ -------------
92,091 33,218
Other income
Interest from liquidity/money market
funds 4,198 3,600
Fixed term deposit interest 357 172
Other interest 27 2
---------------------------------------- ------------ -------------
4,582 3,774
---------------------------------------- ------------ -------------
Total income 96,673 36,992
---------------------------------------- ------------ -------------
* The Company's senior secured loan to Sebela, the second
tranche of its senior secured loan to Tesaro and its senior secured
loan to Amicus included additional consideration in the form of
structuring income of $2,913,000, $2,000,000 and $3,000,000,
respectively, which were paid upon the completion of the
transaction or funding of each tranche, and are recognised as
income in the period. Refer to Note 2(g). In 2017, the first
tranches of the Company's senior secured loans to Tesaro and Lexion
included additional consideration of $4,440,000 and $3,112,500,
respectively.
4. FEES AND EXPENSES
EXPENSES
Year ended 31 December 2018 Period ended 31 December 2017
-------------------------------- ----------------------------------
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
------------------------------------- ---------- ---------- -------- ----------- ----------- --------
Management fee (note 4a) 10,765 - 10,765 5,830 - 5,830
------------------------------------- ---------- ---------- -------- ----------- ----------- --------
Performance fee (note 4b) 7,794 - 7,794 - - -
------------------------------------- ---------- ---------- -------- ----------- ----------- --------
Directors' fees (note 4c) 330 - 330 250 - 250
------------------------------------- ---------- ---------- -------- ----------- ----------- --------
Other expenses
Company Secretarial fee 85 - 85 59 - 59
Administration fee 121 - 121 66 - 66
Legal & professional fees 2,825 192 3,017 12 471 483
Public relations fees 245 - 245 255 - 255
Auditor's remuneration - Statutory
audit 357 - 357 256 - 256
Auditor's remuneration - Other
audit related services - Half-year
review 39 - 39 122 - 122
Auditor's remuneration - Other
audit related services - Initial
accounts - - - 28 - 28
Other expenses 486 - 486 264 - 264
------------------------------------- ---------- ---------- -------- ----------- ----------- --------
4,158 192 4,350 1,062 471 1,533
------------------------------------- ---------- ---------- -------- ----------- ----------- --------
Total expenses 23,047 192 23,239 7,142 471 7,613
------------------------------------- ---------- ---------- -------- ----------- ----------- --------
For the year ended 31 December 2018, the Auditor was also paid
$352,000 for services performed in connection with the C Share
issue and conversion and additional Share issue. This total is not
included within the Auditor's remuneration figure above.
For the period ended 31 December 2017, 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.
These amounts were recognised as part of Share issue costs in
the Statement of Changes in Equity above.
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
Period from IPO in March 2017 to 19 September 2018
Subject to: (i) the NAV attributable to the Ordinary Shares as
at the end of a performance period representing a minimum of 6 per
cent. annualised rate of return annualised on the Company's IPO
gross proceeds (adjusted for dividends, Share issues and buybacks
as appropriate), (ii) the total return on the NAV attributable to
the Ordinary Shares (adjusted for dividends, Share issues and
buybacks as appropriate) exceeding 6 per cent. over such
performance period, and (iii) a high watermark, the Investment
Manager will be entitled to receive a performance fee equal to the
lesser of: (a) 50 per cent of the total return above 6 per cent;
and (b) 10 per cent. of the total return over such performance
period 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,
condition (iii) above remains satisfied.
Where the Investment Manager is not entitled to a performance
fee solely because condition (i) has not been satisfied, such fee
will be deferred and paid in a subsequent performance period in
which such condition is satisifed. Where condition (i) is satisfied
in a performance period but the payment of a performance fee (or
any deferred performance fee from previous performance periods) in
full would result in that condition failing, the Investment Manger
shall be entitled to such a portion of such fee that does not
result in the failure of the condition (i) above and the balance
would be deferred to a future performance period.
Any performance fee (whether deferred or otherwise) shall be
paid as soon as practicable after the end of the relevant
performance period and, in any event, within 15 Business Days of
the publication of the Company's audited annual financial
statements relating to such period.
Effective from 19 September 2018
The Board of Directors approved an amendment, effective 19
September 2018, to the performance fee provisions. The amendment
was to provide that where the payment of performance fee (or any
deferred performance fee from previous performance periods) in full
would result in the failure of condition (i) above, the Investment
Manager shall only be entitled to 50 per cent. of such fee that
does not result in the failure of condition (i) with the balance
being deferred to a future 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 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 was entitled to an additional $35,000 other than:
-- the Chairman, who received an additional $50,000 for this
period; and
-- the chairman of the Audit and Risk Committee, who received an
additional $42,500 for this period.
Fees were paid to each Director in equal quarterly instalments
for 2017 and 2018.
A breakdown of Directors' fees is provided in the Directors'
Remuneration Report in the full Annual Report.
d) Finance costs
Year ended Period ended
31 December 2018 31 December 2017
$000 $000
--------------- ----------------- -----------------
Interest paid 3 4
--------------- ----------------- -----------------
3 4
--------------- ----------------- -----------------
Following the conversion of the C Shares, the amortisation of
the C Share liability as at the conversion date, 30 September 2018,
is shown as finance costs within the Statement of Comprehensive
Income, the total of this amount is shown in Note 13 below.
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.
Year ended 31 December 2018 Period ended 31 December
2017
-------------------------------- -----------------------------
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
--------------------------------------- ---------- --------- --------- --------- -------- --------
Total return on ordinary activities
before taxation 69,946 200 70,146 29,846 1,845 31,691
--------------------------------------- ---------- --------- --------- --------- -------- --------
Theoretical tax at UK Corporation
tax rate of 19.00% (2017:19.36%*) 13,290 38 13,328 5,778 357 6,135
Effects of:
Capital items that are not taxable - (38) (38) - (357) (357)
Disallowed expenses 699 - 699 - - -
Tax deductible interest distributions (13,989) - (13,989) (5,778) - (5,778)
--------- -------- --------
Actual tax charge - - - - - -
--------------------------------------- ---------- --------- --------- --------- -------- --------
* The theoretical tax rate is calculated using a blended tax
rate over the period.
At 31 December 2018, 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 respect of the period under review:
Year ended 31 December Period ended 31 December
2018 2017
--------------------------- -----------------------------
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
---------------------------------------- -------- -------- ------- ---------- --------- ------
In respect of the current year:
First interim dividend $0.0134 (2017:
$0.01) per Ordinary Share 12,306 - 12,306 2,995 4,624 7,619
Second interim dividend of $0.0175 per
Ordinary Share 15,999 - 15,999 - - -
Third interim dividend of $0.0175 per
Ordinary Share 18,837 - 18,837 - - -
In respect of the previous period:
Second interim dividend of $0.01 per
Ordinary Share 7,572 47 7,619 - - -
Third interim dividend of $0.01 per Ordinary
Share 9,143 - 9,143 - - -
Special dividend of $0.011 per Ordinary
Share 10,136 - 10,136 - - -
---------------------------------------------- ------- --- ------- ------ ------ ------
73,993 47 74,040 2,995 4,624 7,619
---------------------------------------------- ------- --- ------- ------ ------ ------
Set out below are the interim dividends paid or proposed on
Ordinary Shares in respect of the financial year, which is the
basis on which the requirements of Section 1159 of the Corporation
Tax Act 2010 are considered.
Year ended 31 December Period ended 31 December
2018 2017
--------------------------- -----------------------------
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
---------------------------------------------- -------- -------- ------- --------- -------- --------
First interim dividend of $0.134 (2017:
$0.01) per Ordinary Share 12,306 - 12,306 2,995 4,624 7,619
Second interim dividend of $0.0175 (2017:
$0.01) per Ordinary Share 15,999 - 15,999 7,572 47 7,619
Third interim dividend of $0.0175 (2017:
$0.01) per Ordinary Share 18,837 - 18,837 9,143 - 9,143
Fourth interim dividend of $0.0175 (2017:
n/a) per Ordinary Share 22,804 1,240 24,044 - - -
Special dividend of $0.00177441(2017:$0.011)
per Ordinary Share - 2,438 2,438 10,136 - 10,136
---------------------------------------------- -------- -------- ------- --------- -------- --------
69,946 3,678 73,624 29,846 4,671 34,517
---------------------------------------------- -------- -------- ------- --------- -------- --------
On 21 February 2019, the Board approved a fourth interim
dividend, for the year ended 31 December 2018, of $0.0175 per
Ordinary Share and a special dividend of $0.0017741 per Ordinary
Share, both payable on 29 March 2019. In accordance with IFRS, this
dividend has not been included as a liability in these financial
statements.
7. INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS
As at As at
31 December 2018 31 December 2017
$000 $000
-------------------------------------------- ----------------- -----------------
Investment portfolio summary
Unlisted investments at fair value through
profit and loss 7,645 123,479
Unlisted fixed interest investment at
fair value through profit and loss 274,500 224,151
Unlisted floating interest investments
at fair value through profit and loss 725,120 222,000
-------------------------------------------- ----------------- -----------------
Closing fair value at the end of the
year 1,007,265 569,630
-------------------------------------------- ----------------- -----------------
Year ended 31 December 2018
-----------------------------------------------------------------------------
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 year 123,487 224,151 222,000 - 569,638
Opening unrealised depreciation at
beginning of year (8) - - - (8)
--------------------------------------- ------------ --------------- ------------------ ------------- -----------
Opening fair value at beginning of
year 123,479 224,151 222,000 - 569,630
Movements in the year:
Purchases at cost - 150,000 508,788 - 658,788
Redemption proceeds (116,682) (99,651) (5,468) - (221,801)
Movement in unrealised
appreciation/(depreciation) 848 - (200) - 648
--------------------------------------- ------------ --------------- ------------------ ------------- -----------
Closing fair value at the end of
the year 7,645 274,500 725,120 - 1,007,265
--------------------------------------- ------------ --------------- ------------------ ------------- -----------
Closing cost at end of year 6,805 274,500 725,320 - 1,006,625
Closing unrealised
appreciation/(depreciation)
at end of year 840 - (200) - 640
--------------------------------------- ------------ --------------- ------------------ ------------- -----------
Closing fair value at the end of
the year 7,645 274,500 725,120 - 1,007,265
--------------------------------------- ------------ --------------- ------------------ ------------- -----------
Period ended 31 December 2017
-------------------------------------------------------------------------
Unlisted Unlisted floating Listed fixed
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
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
------------------------------------ ------------ ------------ ------------------ ------------- ----------
Movement in unrealised
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 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)
Year ended Period ended
31 December 2018 31 December 2017
$000 $000
---------------------------------------------------- ----------------- -----------------
Realised gains on sale of investments - 2,273
Unrealised movement in appreciation/(depreciation) 648 (8)
648 2,265
---------------------------------------------------- ----------------- -----------------
Transaction costs, (incurred at the point of the transaction)
incidental to the acquisition of investments totalled $Nil (2017:
$303,000) and the disposals of investments totalled $Nil
(2017:$Nil) for the year. In addition, legal fees incidental to the
acquisition of investments totalled $193,000 (2017: $471,000) as
disclosed in Note 4, have been reflected in 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.
As at 31 December 2018
----------------------------------------
Total Level Level Level
1 2 3
$000 $000 $000 $000
-------------------------------- ---------- -------- ------ ----------
Investment portfolio summary
Unlisted investments at fair
value through profit and loss 7,645 - - 7,645
Unlisted fixed interest at
fair value through profit
and loss 274,500 - - 274,500
Unlisted floating interest
investments at fair value
through profit and loss 725,120 - - 725,120
-------------------------------- ---------- -------- ------ ----------
1,007,265 - - 1,007,265
Liquidity/money market funds 359,808 359,808 - -
-------------------------------- ---------- -------- ------ ----------
Total 1,367,073 359,808 - 1,007,265
-------------------------------- ---------- -------- ------ ----------
As 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 2018 $000 $000 $000 $000
------------------------------ ------------ ------------ ------------------ ----------
Opening balance 123,479 124,500 222,000 469,979
Purchases - 150,000 508,788 658,788
Redemptions* (116,682) - (5,468) (122,150)
Change in unrealised
appreciation/(depreciation) 848 - (200) 648
------------------------------ ------------ ------------ ------------------ ----------
Closing balance at
31 December 2018 7,645 274,500 725,120 1,007,265
------------------------------ ------------ ------------ ------------------ ----------
* Redemptions are the proceeds received from the repayment of
investments.
There were no transfers between levels during the year.
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 Comprehensive 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 valued at
Level 3, 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 was a level 2 fair value measurement, was
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:
As at 31 December 2018 As at 31 December 2017
------------------ -------------------------------------------------- -----------------------------------------------------
Fair
value
at Level
3
financial Fair value
assets at sensitivity
fair to a 100bps
value increase
through in the
profit or discount
loss Valuation Unobservable Discount rate Valuation Unobservable Discount
Assets $000 technique input rate $000 technique input rate
------------------ ---------- ----------- ------------- ---------- ------------ ----------- ------------- -----------
Limited
partnership
interest in
BioPharma Discounted Discount
III 7,645 n/a n/a n/a n/a cash flow rate 9.3%-12.1%
Lexicon
Pharmaceuticals, Discounted Discount Discounted Discount
Inc. 124,500 cash flow rate 10.1% 120,826 cash flow rate 10.0%
Discounted Discount Discounted Discount
Tesaro, Inc. 322,000 cash flow rate 11.4% 312,943 cash flow rate 10.4%
Discounted Discount
Novocure 150,000 cash flow rate 10.6% 145,811 - - -
Discounted Discount
Sebela 188,711 cash flow rate 11.7% 185,622 - - -
Discounted Discount
Amicus 150,000 cash flow rate 11.1% 145,377 - - -
Discounted Discount
BMS 64,409 cash flow rate 8.1% 59,606 - - -
------------------ ---------- ----------- ------------- ---------- ------------ ----------- ------------- -----------
* The BioPharma III fair value balance as at 31 December 2018
represents a receivable. BioPharma III made a distribution for
$7,645,000 on 31 January 2019. For this reason, no valuation
technique is applicable.
8. TRADE AND OTHER RECEIVABLES
As at As at
31 December 2018 31 December
2017
$000 $000
------------------------------------- ----------------- ------------
Unlisted fixed interest income
receivable 2,864 2,863
Unlisted floating interest income
receivable 17,079 1,468
Interest accrued on liquidity/money
market funds 694 390
Share issue cost receivable 466 -
Other debtors 345 317
------------------------------------- ----------------- ------------
21,448 5,038
------------------------------------- ----------------- ------------
Non-current assets
Unlisted floating interest income
receivable from subsidiary 988 -
------------------------------------- ----------------- ------------
Total 22,436 5,038
------------------------------------- ----------------- ------------
9. CASH AND CASH EQUIVALENTS
As at As at
31 December 2018 31 December
2017
$000 $000
------------------------------ ----------------- ------------
Cash at bank 3,764 4,055
Liquidity/money market funds 359,808 346,767
------------------------------ ----------------- ------------
Total 363,572 350,822
------------------------------ ----------------- ------------
10. TRADE AND OTHER PAYABLES
As at As at
31 December 2018 31 December
2017
Current liabilities $000 $000
-------------------------- ----------------- ------------
Management fees accrual 3,194 2,004
Share issue costs 1 326
C Share conversion costs 22 -
Accruals 2,240 586
5,457 2,916
-------------------------- ----------------- ------------
Non-current liabilities
Deferred performance fee 7,794 -
-------------------------- ----------------- ------------
Total 13,251 2,916
-------------------------- ----------------- ------------
11. RETURN PER ORDINARY SHARE
Revenue return per Ordinary Share is based on the net revenue
after taxation of $69,947,000 (2017: $29,846,000) and 989,147,473
(2017: 766,976,882) Ordinary Shares, being the weighted average
number of ordinary shares for the year.
Capital return per Ordinary Share is based on net capital gains
for the period of $199,000 (2017: $1,845,000) and on 989,147,473
(2017: 766,976,882) Ordinary Shares, being the weighted average
number of Ordinary Shares for the year.
Basic and diluted return per Ordinary Share are the same as
there are no arrangements in place which could have a dilutive
effect on the Company's Ordinary Shares.
12. NET ASSET VALUE PER ORDINARY SHARE
The basic total net assets per ordinary share of $1.0044 is
based on the net assets attributable to equity Shareholders at 31
December 2018 of $1,380,027,000 (2017: $922,574,000) and Ordinary
Shares of 1,373,932,067 (2017: 914,252,831), being the number of
Ordinary Shares in issue at 31 December 2018.
There is no dilution effect and therefore no difference between
the diluted total net assets per Ordinary Share and the basic total
net assets per Ordinary Share.
As at 31 December 2017, the NAV per Ordinary 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
Ordinary Shares, which went ex-dividend on 14 December 2017 being
included in the NAV prepared in accordance with AIC guidelines but
excluded from the financial statements until paid, in accordance
with the Companies Act 2006.
13. C SHARES
Year ended
-------------------------------------------
31 December
-------------------------------------------
2018
$000
------------------------------------------- ------------
Balance at beginning of the year -
Gross proceeds of C Share issue 163,782
C Share issue costs (3,275)
Amortisation of C Share liability* 3,895
Balance of C Share liability converted to
Ordinary Shares (164,402)
------------------------------------------- ------------
Balance at end of the year -
------------------------------------------- ------------
* The amortisation of C Share liability represents the net
return from the C Share, per the Statement of Comprehensive
Income.
On 16 April 2018, the Company issued 163,782,307 C shares
raising gross proceeds of $163,782,000. These C shares were
admitted to the Official List of TISE and to trading on the
Specialist Fund Segment of the LSE on 16 April 2018.
For Shareholder resolutions in respect of amendments to the
Articles or in respect of a winding up of the Company, each class
of Shares will vote as a separate class. For all other resolutions,
the holders of Ordinary Shares and each class of C Shares shall
vote as one class.
Under IAS 32 'Financial Instruments: Presentation', these C
Shares met the definition of a financial liability rather than
equity instrument and were presented in the financial statements as
a liability of the Company carried at amortised cost.
On 29 October 2018 the C Shares were converted to Ordinary
Shares on the basis of a conversion ratio of 0.98984 Ordinary
Shares for every C Share which gave a conversion rate of 989
Ordinary Shares for every 1,000 C Shares held.
The table below gives a summary of the movements in net assets
of the C Share pool up to date of conversion:
Period ended
30 September
2018
-------------
C share
pool
$000
Balance at beginning of
the year -
Gross proceeds of C share
issue 163,782
C share issue costs (3,275)
Net income 4,669
Expenses (995)
Net gains on investments
at fair value 196
Currency exchange gains 25
Value of C shares on conversion
date 164,402
--------------------------------- -------------
Represented by:
As at
30 September 2018
C share
pool
$000
Investment at fair value
through profit or loss 148,315
Trade and other receivables 1,103
Cash and cash equivalents 15,621
Trade and other payables (637)
Value of C shares on conversion 164,402
--------------------------------- ------------------
14. SHARE CAPITAL
Year ended 31 December Period ended 31 December
2018 2017
-------------------------- ---------------------------
Number of
Number of shares $000 shares $000
---------------------------- ----------------- ------- ----------------- --------
Issued and fully paid:
Ordinary Shares of $0.01:
Balance at beginning of
the year 914,252,831 9,143 1 -
Ordinary Shares issued
on conversion of C Shares
- 29 October 2018 162,118,260 1,621 - -
Ordinary Share issue -
5 November 2018 297,560,976 2,975 - -
Initial Ordinary Share
issue - 27 March 2017 - - 526,747,199 5,268
Subsequent Ordinary Share
issue - 30 March 2017 - - 235,130,160 2,351
Further Ordinary Share
issue - 18 December 2017 - - 152,375,471 1,524
---------------------------- ----------------- ------- ----------------- --------
Balance at end of the
year / period 1,373,932,067 13,739 914,252,831 9,143
---------------------------- ----------------- ------- ----------------- --------
Total voting rights at 31 December 2018 was 1,373,932,067 (2017:
914,252,831).
The Company was incorporated with 1 Ordinary Share issued at
$0.01 and 5,000,000 Redeemable Preference Shares issues at
GBP0.01.
On 29 October 2018, 162,118,260 Ordinary Shares were issued
following the conversion of the C Shares for a consideration of
$164,402,000 representing the value of the C Share asset pool, the
balance of C Shares were redeemed.
On 5 November 2018, a further issue of 297,560,976 Ordinary
Shares took place, raising gross proceeds of $305,000,000.
The initial placing of 526,747,200 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 initial
Ordinary Shares were admitted to the Official List of TISE and
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 Registrar of Company 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 2018, the special
distributable reserve was $734,309,000.
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 issues costs of $15,237,000
relating to the initial and subsequent listings were offset against
the share premium account. At 31 December 2018, the special
distributable reserve was $734,309,000 (2017: $734,356,000).
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,
5,000,000 Redeemable Preference Shares with an aggregate nominal
value of GBP50,000 were cancelled. At 31 December 2018, the Company
held no Redeemable Preference Shares (2017: none).
15. 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 (the
"Purchased payments") acquired by Royalty Pharma from Bristol-Myers
Squibb ("BMS"). In accordance with IFRS 10, the Company is exempt
from consolidating a controlled investee as an investment trust.
The Company's investment in BPCR Ongdapa is recognised at fair
value through profit and loss.
16. RECONCILIATION OF TOTAL RETURN FOR THE PERIOD BEFORE
TAXATION TO CASH GENERATED FROM OPERATIONS
Period ended Period ended
31 December 31 December
2018 2017
--------------------------------------
$000 $000
-------------------------------------- ------------- -------------
Total return for the year before
taxation 70,146 31,691
Capital gains (610) (2,316)
Increase in trade receivables (16,931) (5,038)
Increase in trade payables* 10,638 2,590
Finance costs - C Share amortisation 3,895 -
Effective yield adjustment - (14)
-------------------------------------- ------------- -------------
Cash generated from operations 67,138 26,913
-------------------------------------- ------------- -------------
* For the year ended 31 December 2018, the increase differs from
trade and other payables due to $1,000 (2017: $326,000) of Share
issue costs forming part of financing activities. For the year
ended 31 December 2018, the increase differs from trade and other
receivables due to $466,000 (2017:Nil) of Share issue costs forming
part of financing activities.
Analysis of net cash and net debt
At At
1 January Exchange 31 December
2018 Cash flow movement 2018
Net cash $000 $000 $000 $000
--------------------------- ----------- ---------- --------- ------------
Cash and cash equivalents 350,822 12,788 (38) 363,572
--------------------------- ----------- ---------- --------- ------------
At At
24 October Exchange 31 December
2016 Cash flow movement 2017
Net cash $000 $000 $000 $000
--------------------------- ----------- ---------- --------- ------------
Cash and cash equivalents - 350,771 51 350,822
--------------------------- ----------- ---------- --------- ------------
Following the conversion of the C Shares, there is no debt
within the Company, therefore no net debt table is shown.
17. 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 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 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.
As at As at
31 December 2018 31 December 2017
-------------------------- -----------------------
10 per
10 per cent. cent.
Increase/ Increase/
decrease decrease
in in
market
Fair value market value Fair value value
Asset $000 $000 $000 $000
------------------------- ----------- ------------- ----------- ----------
Amicus Senior Secured
Loan 150,000 15,000 - -
BioPharma III 7,645 765 123,479 12,348
BMS Purchased Payments
(BPCR Ongdapa) 64,409 6,441 - -
------------------------- ----------- ------------- ----------- ----------
Lexicon Senior Secured
Loan 124,500 12,450 124,500 12,450
------------------------- ----------- ------------- ----------- ----------
Novocure Senior Secured
Loan 150,000 15,000 - -
RPS Note - - 99,651 9,965
Sebela Senior Secured
Loan 188,711 18,871 - -
Tesaro Senior Secured
Loan 322,000 32,200 222,000 22,200
Total 1,007,265 100,727 569,630 56,963
------------------------- ----------- ------------- ----------- ----------
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 2018, the Company held cash balances in GBP
Sterling of GBP245,000 ($312,000) (2017: GBP276,000) ($374,000) and
in Euro of EUR1,000 ($2,000) (2017:$Nil ($Nil)).
The currency exposures (including non-financial assets) of the
Company as at 31 December 2018:
Other net
assets/
Cash Investments (liabilities) Total
$000 $000 $000 $000
----------- -------- ------------ -------------- ----------
Sterling 312 - (52) 260
Euro 2 - - 2
US Dollar 363,258 1,007,265 9,237 1,379,760
----------- -------- ------------ -------------- ----------
363,572 1,007,265 9,185 1,380,022
----------- -------- ------------ -------------- ----------
The currency exposures (including non-financial assets) of the
Company as at 31 December 2017:
Other net
assets/
Cash Investments (liabilities) Total
$000 $000 $000 $000
----------- -------- ------------ -------------- --------
Sterling 374 - (619) (245)
US Dollar 350,448 569,630 2,741 922,819
----------- -------- ------------ -------------- --------
350,822 569,630 2,122 922,574
----------- -------- ------------ -------------- --------
A 10 per cent. increase in the Sterling exchange rate would have
increased net assets by $10,000 (2017: $45,000 decrease). A 10 per
cent. decrease would have decreased net assets by the same amount
(2017: increased by the same amount).
Interest rate risk
Interest rate risk is the risk that fair value of future 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 floating rate securities and unquoted loans;
and
-- the level of income receivable on cash deposits and liquidity
funds.
The Lexicon and Novocure loans and the RPS Note, prior to
repayment in full in 2018, have a fixed interest rate and therefore
are not subject to interest rate risk. At 31 December 2018, Lexicon
and the Novocure loans represented, 9.02 per cent. and 10.87 per
cent. of the Company's net assets, respectively (2017: 13.49 per
cent. and Nil per cent, RPS Note 10.80 per cent).
The Tesaro loan, Sebela loan, Amicus loan, BMS Purchased
Payments and cash and cash equivalents, including investments in
liquidity funds, have a floating rate of interest. At 31 December
2018, these represented 23.33 per cent, 13.67 per cent, 10.87 per
cent, 4.67 per cent and 26.35 per cent. of the Company's net
assets, respectively. (2017: 24.06 per cent, Nil per cent, Nil per
cent, Nil per cent, and 38.03 per cent).
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 year ended 31
December 2018 (2017: not material).
(ii) Liquidity risk
This is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities. At 31
December 2018, the Company had cash and cash equivalents, including
investments in liquidity funds with balances of $363,572,000 (2017:
$350,822,000) and maximum unfunded commitments of $75,591,000
-$95,591,000 (2017: $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 and the non-current
accrued income from its subsidiary. At 31 December 2018, the
Company's maximum exposure to credit risk was $1,008,263,000 (2017:
$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 year.
18. RELATED PARTY TRANSACTIONS
The amount incurred in respect of management fees during the
year ended 31 December 2018 was $10,765,000 (2017: $5,830,000), of
which $3,194,000 was outstanding at 31 December 2018 (2017:
$2,004,000). The amount due to the Investment Manager for
performance fees at 31 December 2018 was $7,794,000 (2017: $Nil),
all of which was outstanding at 31 December 2018 (2017: $Nil).
The amount incurred in respect of Director's fees during the
year ended 31 December 2018 was $330,000 (2017: $413,000 ($163,000
of this figure has been included within Share issue costs)) of
which $Nil was outstanding at 31 December 2018 (2017: $Nil).
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 7 February 2018, the Company entered into senior secured term
loan agreement for $150,000,000 with Novocure Limited (NASDAQ:
NVCR) ("Novocure"). The $150,000,000 loan will mature in February
2023 and bears interest at 9.0 per cent. per annum. Novocure used
$100,000,000 of the net proceeds to entirely prepay the
$100,000,000, 10.0 per cent. coupon loan made by BioPharma III
Holdings, LP ("BioPharma III") in 2015 that was scheduled to mature
in 2020. The Company is a limited partner in BioPharma III and
therefore received a distribution of approximately $46,000,000 from
BioPharma III as a result of the prepayment from Novocure. In 2018,
the Company recorded interest of $12,263,000 (2017: $Nil). The
outstanding balance as at 31 December 2018 was $150,000,000 (2017:
$Nil).
On 8 December 2017, the Company's wholly-owned subsidiary BPCR
Ongdapa entered into a purchase, sale and assignment agreement with
RPI Acquisitions (Ireland) Limited ("RPI Acquisitions"), an
affiliate of Royalty Pharma, for the purchase of a 50 per cent.
Interest in a stream of Purchased Payments acquired by RPI
Acquisitions from Bristol-Myers Squibb through a purchase agreement
dated 14 November 2017. As a result of the arrangements, RPI's
subsidiary and the Company's subsidiary are each 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
$140,000,000 to $160,000,000 between 2018 and 2020, determined by
product sales and will receive payments from 2020 through 2025
estimated to yield a return in the high single-digits per annum.
The Company advanced $64,409,000 to RPI Acquisitions in 2018 (2017:
$Nil) for the Purchased Payments. In 2018, the Company recorded
interest of $988,000 (2017: $Nil).
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(R) 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
was 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 $124,500,000 of the first
tranche on 18 December 2017 and Lexicon will not draw the second
tranche. In 2018, the Company recorded interest of $11,361,000
(2017: $405,000). The outstanding balance as at 31 December 2018
was $124,500,000 (2017: $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 funded
$222,000,000 of the $300,000,000 first tranche on 6 December 2017
and committed to invest up to $148,000,000 of the $200,000,000
second tranche by 20 December 2018 at Tesaro's option with
BioPharma IV committing to invest up to $130,000,000 in parallel
with the Company acting as collateral agent. The Company funded
$100,000,000 of the second tranche on 29 June 2018 and assigned its
remaining $48,000,000 commitment to other investors. The loan has a
term of seven periods and is secured by Tesaro's U.S. rights to
ZEJULA(R) and VARUBI(R). The first $300,000,000 tranche bears
interest at Libor plus 8 per cent. and the second tranche bears
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. In 2018, the Company recorded
interest of $28,001,000 (2017: $1,468,000). The outstanding balance
as at 31 December 2018 was $322,000,000 (2017: $222,000,000).
Following its acquisition by GlaxoSmithKline, Tesaro repaid the
$500,000,000 loan on 23 January 2019. The Company received a
payment of $369,953,000 on its $322,000,000 share of the loan,
including the make-whole and prepayment premium totalling
$45,762,000.
During the period ended 31 December 2017, the Company entered
into the RPS Note with RPS BioPharma Investments, LP on 30 March
2017 for $185,130,000. The Note, which was repaid in full in
October 2018, bore interest at a fixed interest rate of 12 per
cent, was scheduled to mature on 30 June 2026 and was secured by
rights to royalty payments from 21 pharmaceutical products. In the
year end 31 December 2018, the Company recorded $5,797,000 (2017:
$11,758,000) of interest and amortisation payments of $99,651,000
(2017: $85,479,000). The outstanding balance as at 31 December 2018
was $Nil (2017: $99,651,000).
On 27 March 2017, the Company acquired a limited partnership
interest in BioPharma III for $153,482,000. In 2018, the Company
recorded $9,045,000 (2017: $11, 758,000) of investment income and
repayments of $116,682,000 (2017: $29,995,000). The Company also
recorded net gain on investments at fair value of $848,000 (2017:
net loss of $8,000). The outstanding balance as at 31 December 2018
was $7,645,000 (2017: $123,479,000).
BioPharma III, BioPharma IV, RPS BioPharma Investments, LP, 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.
19. CONTINGENCIES, GUARANTEES AND FINANCIAL COMMITMENTS
At 31 December 2018, there were outstanding commitments of
between $75,591,000 - $95,591,000 (2017: $329,500,000-$349,500,000)
in respect of investments (see Note 18 for further details).
20. SUBSEQUENT EVENTS
Tesaro
Following its acquisition by GlaxoSmithKline, Tesaro repaid the
$500 million loan on 23 January 2019. The Company received a
payment of $370.0 million on its $322.0 million share of the loan,
including the make-whole and prepayment premium totalling $45.8
million, or 14.2 per cent. of the $322.0 million investment, which
is the equivalent of what the Company would have received had the
loan remained outstanding for another fifteen months,
approximately. The Company earned a 22.5 per cent. annualised rate
of return on its Tesaro investment.
BioPharma III
On 29 January 2019, the Company received $7.6 million as its
final payment from BioPharma III, realising a 13.6 per cent.
IRR.
CORPORATE INFORMATION
Directors
Jeremy Sillem (Chairman)
Colin Bond
Duncan Budge
Harry Hyman
Stephanie Léouzon
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
Tel: 01392 477500
Company Website
www.bpcruk.com
Financial and Strategic Communications
Buchanan Communications Limited
107 Cheapside
London
EC2V 6DN
Independent Auditor
PricewaterhouseCoopers LLP
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 news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LLFFDVFISIIA
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