TIDMBPCR
RNS Number : 1034L
BioPharma Credit PLC
04 September 2019
BIOPHARMA CREDIT PLC
(THE "COMPANY")
HALF-YEARLY REPORT FOR THE PERIODED 30 JUNE 2019
BioPharma Credit PLC (LSE: BPCR), a specialist life sciences
debt investment trust, is pleased to present the Half-Yearly Report
of the Company for the period ended 30 June 2019.
The full Half-Yearly 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
-- In the six-month period the Company made several investments
that continued to diversify the investment portfolio:
o $165.7m invested in total
o $80m senior secured loan commitment to BioDelivery Sciences
("BDSI") on 23 May 2019:
-- The first tranche of $60m was drawn on 28 May 2019
-- The loan will mature in May 2025 and bears an interest at
LIBOR plus 7.5 per cent., along with 2 per cent additional
consideration
-- The second tranche of $20m is available to be drawn by May
2020 at BDSI's option
o $25m equity investment in BDSI acquired at a cost of $5.00 per
share through participation in a public offering on 11 April
2019
o $38.6m further investment was funded to the commitment made in
2017 to acquire an interest in a stream of payments from Bristol
Myers Squibb
o $21.3m invested in convertible notes of a publicly traded life
sciences company based in the US.
-- GlaxoSmithKline completed its acquisition of TESARO Inc ("Tesaro") on 22 January:
o Triggering the early repayment of the Company's $322.0m
loan
o Generating $45.8m in prepayment and other fees
o Earning for the Company a 22.5% annualised rate of return on
its investment
-- During the half-year period the Company paid two quarterly
dividends totalling $0.0368 per Ordinary Share against the targeted
total distribution of 7 cents for the full year
-- As at 30 June 2019, the Company holds $612.9m in cash and
cash equivalents and continues to anticipate deploying the majority
of these resources in new investments by the end of 2019
FINANCIAL HIGHLIGHTS
ORDINARY SHARES ASSETS
as at 30 June 2019 As at 30 June 2019
Share price Net assets
$1.0600 $1,409.4m
(31 December 2018: $1.0600) (31 December 2018: $1,380.4m)
NAV per Share Leverage
$1.0258 0%
(31 December 2018: $1.0044) (31 December 2018: 0%)
Premium to NAV per Share Target dividend
3.3% 7 cents per annum
(31 December 2018: 6.0%)
Shares in issue
1,373.9m
(31 December 2018: 1,373.9m)
Portfolio Composition
($ in millions) As at 30 June As at 31 December
2019 2018
Sebela senior secured loan 164.8 188.7
Novocure senior secured loan 150.0 150.0
Amicus senior secured loan 150.0 150.0
Lexicon senior secured loan 124.5 124.5
BMS purchased payments 103.0 64.4
BioDelivery Sciences senior 83.3 -
secured loan and equity
Convertible bonds (undisclosed 21.3 -
issuer)
Cash and cash equivalents 612.9 363.6
Tesaro senior secured loan - 322.0
Limited partnership interest
in BioPharma III - 7.6
Other net assets (0.4) 9.2
-------------------------------- -------------- ------------------
Total net assets 1,409.4 1,380.0
-------------------------------- -------------- ------------------
Pedro Gonzalez de Cosio, CEO and co-founder of Pharmakon
Advisors L.P., the Investment Manager of BioPharma Credit PLC
said:
"We are pleased to report another period of strong progress
defined by acquisition of Tesaro by GSK that earned a considerable
22.5% annualised rate of return for the Company on its largest
investment. 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.
The significant cash resources currently held by the Company as
a result of the Tesaro prepayment and the US$305m equity raise
completed in November 2018 present a key opportunity to deploy
capital against a considerable and growing pipeline. We continue to
anticipate deploying the majority of these resources by the end of
2019 against a number of attractive opportunities and look forward
to updating shareholders in the coming months on our progress.
The Company continued to generate considerable revenue income
from its life sciences credit investment portfolio. These returns
are delivering the targeted $0.07 annual dividend for our
shareholders, offering our investors a long-term source of income
drawn from the life sciences sector, uncorrelated to other
markets."
Results presentation
As announced on 12 August 2019, a management presentation will
be delivered at the offices of Buchanan, (107 Cheapside, London
EC2V 6DN) at 09:30am GMT. A conference call facility will also be
available, to request dial-in details, please RSVP
henryw@buchanan.uk.com.
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 specialist debt investor
to the life sciences industry and joined the LSE in March 2017. The
Company seeks to provide long-term shareholder returns, principally
in the form of sustainable income distributions from exposure to
the life sciences industry. The Company seeks to achieve this
objective primarily through investments in debt assets secured by
royalties or other cash flows derived from the sales of approved
life sciences products.
CORPORATE SUMMARY
Investment Objective
The Company aims to generate long-term shareholder returns,
predominantly in the form of sustainable income distributions from
exposure to the life sciences industry.
Structure
The Company is a closed-ended publicly limited company
incorporated in the United Kingdom. It was registered in England
and Wales under the Act on 24 October 2016. The Company is listed
on the Specialist Fund Segment ("SFS") of the London Stock
Exchange.
Investment Adviser
Pharmakon Advisors, the Company's Investment Manager, was
founded in 2009 and has invested $1.9 billion in 27 transactions
across four private funds and BioPharma Credit PLC through 31
December 2017. The first four funds are now fully invested. Drawing
upon the expertise and successful track record of Pharmakon
Advisors, the Company enjoys access to its extensive,
industry-focused knowledge and contacts to source, analyse and
structure attractive investment opportunities.
Through a shared services agreement with Royalty Pharma, founded
in 1996, the Investment Manager is able to rely on the
complementary expertise of the team behind the market leading
investor in pharmaceutical royalties.
CHAIRMAN'S STATEMENT
DURING THE FIRST HALF OF 2019, THE COMPANY INVESTED $165.7
MILLION.
Introduction
During the first half of 2019, the Company invested $165.7
million. New commitments totalled $127.1 million, which included
our first ever equity investment which was for $25.0 million into
shares of BioDelivery Sciences International, Inc. ("BDSI"), a
NASDAQ listed company. Further details are provided in the
Investment Manager's report. In addition, the Company funded a
further $38.6 million of the commitment it made in 2017 to acquire
an interest in a stream of payments from Bristol Myers Squibb. On
22 January 2019, GlaxoSmithKline completed its acquisition of
TESARO Inc ("Tesaro"), triggering the repayment of the Company's
$322.0 million loan and generating $45.8 million in prepayment and
other fees. The Company had cash and short-term investments of
$612.9 million at 30 June 2019.
On 19 June 2019, the Company held its second Annual General
Meeting at which all resolutions were passed.
Shareholder Returns and Investment Performance
On 30 June 2019, the Company's Ordinary Shares closed at
$1.0600, slightly below the closing price on 31 December 2018 of
$1.0650. In the first half of 2019, the Net Asset Value ("NAV") per
Ordinary Share increased by $0.0214 from $1.0044 on 31 December
2018 to $1.0258 per share on 30 June 2019. Over the period, the
Company made two dividend payments, one of $0.0193 and the other of
$0.0175 in respect of the quarters ended 31 December 2018 and 31
March 2019, for a total of $0.0368 for the six-month period.
Outlook
As at 30 June 2019, the Company had total assets of $1,421.1
million, represented by $796.9 million of investments, $612.9
million in cash and $11.3 million in other assets. Pharmakon
Advisors, the Company's Investment Manager, is in continuing
discussions with a number of potential borrowers and, as you will
see from their report which follows, they aim to deploy a majority
of the cash available by the end of 2019.
Jeremy Sillem
Chairman
3 September 2019
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 $3.1billion in 34 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.
The Pharmakon team has extensive expertise investing in debt and
other cash flows backed by life sciences products. As at 30 June
2019, Pharmakon clients included four previous BioPharma Funds (I,
II, III and IV) that had reached the end of their investment
periods, seven managed co-investor accounts, and a fifth BioPharma
private fund (BioPharma V) that had its first closing on 27 June
2019 raising $268.4 million in commitments. The first four
BioPharma Funds are expected to generate net returns ranging from
7% to 11%.
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.
Key Highlights
-- 10% unlevered weighted average net returns on four private
funds after all fees and expenses
-- Pharmakon structured nine transactions worth approximately
$1.6 billion over the past 21 months
-- On 27 June 2019, Pharmakon had the first closing of BioPharma
V, accepting commitments of $268.4 million
Investment update
The Company's existing portfolio investments continue to perform
well. Pharmakon's engagement with multiple potential counterparties
resulted in the execution of new investments totalling $127.1
million, including making its first equity investment. BioPharma
Credit disbursed an additional $38.6 million during the period
corresponding to prior funding commitments, bringing the total
amount invested during the period to $165.7 million.
BioDelivery Sciences
On 23 May 2019, the Company entered into a senior secured loan
agreement for up to $80 million with BioDelivery Sciences
International, Inc. (Nasdaq: BDSI), a commercial-stage specialty
pharmaceutical company ("BDSI").
In addition, the Company acquired 5,000,000 BDSI shares at $5.00
each for a total cost of $25 million in a public offering that took
place on 11 April 2019. As at 28 June 2019, BDSI's shares closed at
$4.65. The first tranche of the loan for $60 million was funded on
28 May 2019 and an additional tranche of $20 million is available
to be drawn down by May 2020 at BDSI's option. The loan will mature
in May 2025 and bears interest at LIBOR plus 7.5 per cent., along
with 2 per cent. additional consideration. As at 26 August 2019
BDSI had a market capitalisation of $384 million.
Amicus Therapeutics
On 20 September 2018, the Company entered into a definitive
senior secured loan agreement for $150 million with Amicus
Therapeutics, Inc (NASDAQ: FOLD), a commercial stage, rare
metabolic disease-focused biopharmaceutical company ("Amicus"). The
$150 million loan has a five-year maturity and is 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.
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 26 August 2019 had a market
capitalisation of $2,495 million.
Sebela Pharmaceuticals
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 (un-capped) plus a
single-digit spread and includes additional consideration. Sebela
is a private specialty pharmaceutical company focused on
gastro-intestinal medicines, dermatology, and women's health. As at
30 June 2019, the principal amount outstanding of the Company's
investment was $164.8 million.
Novocure
On 7 February 2018, the Company entered into a senior secured
loan agreement for $150 million with Novocure Limited (NASDAQ:
NVCR), a commercial stage oncology company with a current market
capitalisation of approximately $9,205 million as at 26 August 2019
("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.
Novocure manufactures and sells the Optune system, a cancer
treatment centered 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
28 February 2019, Novocure reported 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.
On 23 May 2019, the FDA approved the NovoTTF-100L system in
combination with chemotherapy for the treatment of malignant
pleural mesothelioma. This is the first FDA approved mesothelioma
treatment in over 15 years.
Lexicon Pharmaceuticals
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 current market
capitalisation of approximately $135 million as at 26 August 2019.
The Company funded $124.5 million of the $200 million first tranche
and Lexicon did not draw the 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 Zynquista
(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
Zynquista.
Zynquista (sotagliflozin) received approval in Europe for Type 1
diabetes on 26 April 2019 and received a Complete Response Letter
("CRL") in the US on 22 March 2019. The drug is still being
evaluated for use in Type 2 patients with potential to generate
$110 million in development milestones by early 2020 plus $150
million upon approval. The Type 2 diabetes market is much larger
than the Type 1 market.
On 26 July 2019, Lexicon announced Sanofi's notice of
termination in relation to its collaboration and license agreement
with Lexicon for the development and commercialisation of
Zynquista. Sanofi's actions do not impact XERMELO(R) which is
marketed by Lexicon in the US and is partnered outside the US with
Ipsen. Lexicon and Sanofi have not yet finalised the details of the
termination and this process might take several weeks or
months.
Bristol-Myers Squibb.
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 of 30 June 2019, the Company funded
five of the Purchased Payments based on sales from 1 January 2018
to 31 March 2019 for a total of $103.1 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 was 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 2018 was a volatile year, with the BTK Index
essentially at the same levels as it started the year, the first
six months of 2019 were stronger with the BTK Index rising by
13%.
Global equity issuance by life sciences companies during the
first six months of 2019 was $32.1 billion, a 16.1 per cent.
increase from the $27.7 billion issued during the first six months
of 2018. 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 an important driver of capital needs in
the life sciences industry in general and a 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
the first half of 2019 was $38.5 billion, 84.7 per cent. less than
the $251.2 billion witnessed during the first half of 2018. It is
widely believed that the high M&A activity in 2018 was caused
by US tax reform in December 2017. We are encouraged by the number
of M&A opportunities that are starting to build up and should
lead to a more active market over the coming year.
In conclusion, Pharmakon aims to deploy a majority of the cash
available by the end of 2019. There continues to be a robust
pipeline of investment opportunities. As usual, the timing of their
execution is not completely within our control. We remain focussed
on our mission of creating the premier dedicated provider of debt
capital to the life sciences industry while generating attractive
returns and sustainable income to investors. Further, we remain
confident of our ability to deliver attractive returns that will
enable the Company to pay a robust dividend yield for our
investors.
Pedro Gonzalez de Cosio
Co-founder and CEO, Pharmakon
3 September 2019
PORTFOLIO INFORMATION
as at 30 June 2019
Fair Value Expected % of Gross
Asset Counterparty/Borrower Underlying Product ($M) Maturity Assets
-------------------------- ----------------------- ------------------------- ----------- ---------- -----------
Lexicon senior secured XERMELO(R) and
loan Lexicon sotagliflozin 124.5 2022 9%
Novocure senior secured
loan Novocure Optune 150.0 2023 11%
Sebela senior secured
loan Sebela SUPREP 164.8 2022 12%
BMS purchased payments Bristol-Myers Onglyza and Farxiga 103.0 2026 7%
Amicus senior secured
loan Amicus Galafold 150.0 2023 11%
BioDelivery Sciences
senior secured loan
and equity BioDelivery Sciences BELBUCA and Symproic 83.3 2025 6%
Convertible bonds Undisclosed Undisclosed 21.3 2%
-------------------------- ----------------------- ------------------------- ----------- ---------- -----------
Total investments $796.9 57%
------------------------------------------------------------------------------ ----------- ---------- -----------
Cash and cash equivalents 612.9 43%
Other net assets (0.4) 0%
Gross assets $1,409.4 100%
------------------------------------------------------------------------------ ----------- ---------- -----------
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Interim management report
The important events that have occurred during the period under
review, the key factors influencing the financial statements and
the principal factors that could impact the remaining six months of
the financial year are set out in the Chairman's statement and the
Investment Manager's report above.
The Directors consider that the principal risks facing the
Company are substantially unchanged since the date of the annual
report for the year ended 31 December 2018 and expect that, for the
remainder of the year ending 31 December 2019, these will continue
to be as set out on pages 20 to 23 of that report.
Risks faced by the Company include, but are not limited to:
-- Failure to achieve target returns;
-- The success of the Company depends on the ability and
expertise of the Investment Manager;
-- The Company may from time to time commit to make future
investments that exceed the Company's current liquidity;
-- The Investment Manager's ability to source and advise
appropriately on investments;
-- There can be no assurance that the Board will be able to find
a replacement investment manager if the Investment Manager
resigns;
-- Concentration in the Company's portfolio may affect the
Company's ability to achieve its investment objective;
-- Life sciences products are subject to intense competition and
various other risks;
-- Investments in debt obligations are subject to credit and
interest rate risks;
-- Counterparty risk;
-- Sales of life sciences products are subject to regulatory
actions that could harm the Company's ability to make distributions
to investors;
-- Net asset values published will be estimates only and may
differ materially from actual results; and
-- Changes in taxation legislation or practice may adversely
affect the Company and the tax treatment for shareholders investing
in the Company.
Going Concern
The financial statements continue to be prepared on a going
concern basis. The Directors have reviewed areas of potential
financial risk and cash flow forecasts. No material uncertainties
have been detected which would influence the Company's ability to
continue as a going concern for a period of not less than 12
months. Accordingly, the Board of Directors continue to adopt the
going concern basis in preparing the financial statements.
Directors' Responsibility Statement
The Directors confirm that to the best of their knowledge:
-- this set of financial statements has been prepared in
accordance with International Accounting Standard ("IAS") 34,
'Interim Financial Reporting', as adopted by the European Union
("EU"); and gives a true and fair view of the assets, liabilities,
financial position and profit of the Company; and
-- this Half-Yearly Report includes a fair review of the
information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place during the
first six months of the financial year and that have materially
affected the financial position or performance of the Company
during that period; and any changes in the related party
transactions that could do so.
This Half-Yearly Report was approved by the Board of Directors
on 3 September 2019 and the above responsibility statement was
signed on its behalf by Jeremy Sillem, Chairman.
On behalf of the Board
Jeremy Sillem
Chairman
3 September 2019
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
For the period ended 30 June 2019
(In $000s except per share amounts)
Period ended 30 June Period ended 30 June
2019 (Unaudited) 2018 (Unaudited)
------------------------------ ----------------------------
Note Revenue Capital Total Revenue Capital Total
------------------------- ----- -------- ---------- -------- -------- -------- --------
Income
Investment
income 3 73,145 - 73,145 37,726 - 37,726
Other income 3 17,046 - 17,046 2,438 - 2,438
Net (losses)/gains
on investments
at fair value 7 - (3,366) (3,366) - 2,014 2,014
Currency exchange
losses - (6) (6) - (16) (16)
------------------------- -----
Total income 90,191 (3,372) 86,819 40,164 1,998 42,162
Expenses
Management
fee 4 (7,053) - (7,053) (4,852) - (4,852)
Directors'
fees 4 (191) - (191) (163) - (163)
Other expenses 4 407 (48) 359 (1,390) (112) (1,502)
------------------------- -----
Total expenses 4 (6,837) (48) (6,885) (6,405) (112) (6,517)
------------------------- ----- -------- ---------- -------- -------- -------- --------
Return on ordinary
activities
before finance
costs and taxation 83,354 (3,420) 79,934 33,759 1,886 35,645
Finance costs
- general - - - (2) - (2)
Finance costs
- C share amortisation - - - (451) (23) (474)
------------------------- ----- -------- ---------- -------- -------- -------- --------
Return on ordinary
activities
after finance
costs and before
taxation 83,354 (3,420) 79,934 33,306 1,863 35,169
Taxation on
ordinary activities 5 - - - - - -
------------------------- -----
Return on ordinary
activities
after finance
costs and taxation 83,354 (3,420) 79,934 33,306 1,863 35,169
------------------------- ----- -------- ---------- -------- -------- -------- --------
Net revenue
and capital
return per
ordinary share
(basic and
diluted) 11 $0.0607 ($0.0025) $0.0582 $0.0364 $0.0020 $0.0384
The total column of this statement is the Company's Statement of
Comprehensive Income prepared in accordance with International
Financial Reporting Standards International Financial Reporting
Standards ("IFRS") as endorsed by the EU. The supplementary revenue
and capital columns are presented for information purposes as
recommended by the Statement of Recommended Practice ("SORP")
issued by the Association of Investment Companies ("AIC").
All items in the above Statement derive from continuing
operations.
There is no other comprehensive income, and therefore the return
on ordinary activities after finance costs and taxation is also the
total comprehensive income.
The notes below form part of these financial statements.
CONDENSED STATEMENT OF FINANCIAL POSITION
As at 30 June 2019
(In $000s except per share amounts)
30 June 2019
(Unaudited) 31 December
Note 2018 (Audited)
--------------------------------------- ----- -------------- ----------------
Non-current assets
Investments at fair value through
profit or loss 7 796,950 1,007,265
--------------------------------------- -----
Unlisted floating interest income
receivable 8 4,049 988
--------------------------------------- -----
800,999 1,008,253
Current assets
Trade and other receivables 8 7,241 21,448
Cash and cash equivalents 9 612,888 363,572
--------------------------------------- -----
620,129 385,020
--------------------------------------- ----- --------------
Total assets 1,421,128 1,393,273
--------------------------------------- -----
Current liabilities
Trade and other payables 10 3,904 5,457
Total current liabilities 3,904 5,457
Total assets less current liabilities 1,417,224 1,387,816
--------------------------------------- ----- -------------- ----------------
Non-current liabilities
Deferred performance fee 7,794 7,794
--------------------------------------- ----- -------------- ----------------
Net assets 1,409,430 1,380,022
--------------------------------------- ----- -------------- ----------------
Represented by:
Share capital 14 13,739 13,739
Share premium account 607,125 607,125
Special distributable reserve 706,587 734,309
Capital reserve (1,375) 2,045
Revenue reserve 83,354 22,804
--------------------------------------- -----
Total equity attributable to
ordinary shareholders of the
Company 1,409,430 1,380,022
--------------------------------------- ----- -------------- ----------------
Net asset value per ordinary
share (basic and diluted) 12 $1.0258 $1.0044
--------------------------------------- ----- -------------- ----------------
The financial statements of BioPharma Credit PLC registered
number 10443190 were approved and authorised for issue by the Board
of Directors on 3 September 2019 and signed on its behalf by:
Jeremy Sillem
Chairman
The notes below form part of these financial statements.
CONDENSED STATEMENT OF CHANGES IN EQUITY
For the period ended 30 June 2019
(In $000s)
Total equity
Share Special attributable
to shareholders
Share premium distributable Capital Revenue of the
For the period ended 30
June 2019
(Unaudited) Note capital account reserve* reserve* reserve* Company
Net assets attributable
to shareholders at 1
January
2019 13,739 607,125 734,309 2,045 22,804 1,380,022
Return on ordinary
activities
after finance costs and
taxation - - - (3,420) 83,354 79,934
Dividends paid 6 - - (27,722) - (22,804) (50,526)
-------------------------- -----
Net assets attributable
to shareholders at 30
June
2019 13,739 607,125 706,587 (1,375) 83,354 1,409,430
-------------------------- ----- -------- -------- -------------- --------- --------- -------------------------
Total equity
Share Special attributable
to shareholders
Share premium distributable Capital Revenue of the
For the period ended 30
June 2018 (Unaudited) Note capital account reserve* reserve* reserve* Company
Net assets attributable
to shareholders at 1
January
2018 9,143 150,379 734,356 1,845 26,851 922,574
Share issue costs - (2) - - - (2)
Return on ordinary
activities
after finance costs and
taxation - - - 1,863 33,306 35,169
-------------------------- -----
Dividends paid 6 - - (47) - (39,157) (39,204)
-------------------------- -----
Net assets attributable
to shareholders at 30
June
2018 9,143 150,377 734,309 3,708 21,000 918,537
-------------------------- ----- -------- -------- -------------- --------- --------- -------------------------
* The special distributable reserve and revenue reserves can be
distributed in the form of dividends. The capital reserve is not
used for distributions.
The notes below form part of these financial statements.
CONDENSED CASH FLOW STATEMENT
For the period ended to 30 June 2019
(In $000s)
Period ended Period ended
-----------------------------------------
30 June 2019 30 June 2018
-----------------------------------------
Note (Unaudited) (Unaudited)
----------------------------------------- ----- ------------- -------------
Cash flows from operating activities
Investment income received 94,208 37,890
Other income received 6,614 2,547
Investment management fee paid (6,737) (4,276)
Finance costs paid (3) (5)
Other expenses paid (1,649) (1,973)
----------------------------------------- ----- ------------- -------------
Cash generated from operations 16 92,433 34,183
Net cash flow generated from
operating activities 92,433 34,183
----------------------------------------- ----- ------------- -------------
Cash flow from investing activities
Purchase of investments (145,786) (464,265)
Redemptions of investments 352,735 108,065
----------------------------------------- ----- ------------- -------------
Net cash flow generated from/(used
in) investing activities 206,949 (356,200)
----------------------------------------- ----- ------------- -------------
Cash flow from financing activities
Ordinary Share issue costs 466 (328)
Dividends paid to Ordinary shareholders 6 (50,526) (39,204)
Gross proceeds of C share issue 13 - 163,782
C share issue costs - (3,845)
----------------------------------------- ----- ------------- -------------
Net cash flow (used in)/generated
from financing activities (50,060) 120,405
----------------------------------------- ----- ------------- -------------
Increase/(decrease) in cash
and cash equivalents for the
period 249,322 (201,612)
----------------------------------------- ----- ------------- -------------
Cash and cash equivalents at
start of period 9 363,572 350,822
Revaluation of foreign currency
balances (6) (16)
----------------------------------------- ----- ------------- -------------
Cash and cash equivalents at
end of period 9 612,888 149,194
----------------------------------------- ----- ------------- -------------
The notes below form part of these financial statements.
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's interim condensed financial statements or Half-Yearly
Report for the period ended 30 June 2019. The Half-Yearly Report,
including the interim condensed financial statements, for the
period ended 30 June 2018 was approved by the Board on 3 September
2019. 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.
NOTES TO THE FINANCIAL STATEMENTS
For the period ended 30 June 2019
1. GENERAL INFORMATION
BioPharma Credit PLC is a closed-ended investment company
incorporated and domiciled in England and Wales on 24 October 2016
with registered number 10443190. The registered office of the
Company is Beaufort House, 51 New North Road, Exeter, EX4 4EP. On 6
February 2017 the Company changed its name from PRECIS (2772)
PLC.
The Company carries on business as an investment trust company
within the meaning of Sections 1158/1159 of the Corporation Tax Act
2010.
The Company's Investment Manager is Pharmakon Advisors L.P.
("Pharmakon"). Pharmakon is a limited partnership established under
the laws of the State of Delaware. It is registered as an
investment adviser with the Securities and Exchange Commission
("SEC") under the United States Investment Advisers Act of 1940, as
amended.
Pharmakon is authorised as an Alternative Investment Fund
Manager ("AIFM") under the Alternative Investment Fund Managers
Directive ("AIFMD").
2. ACCOUNTING POLICIES
a) Basis of preparation
The Company's condensed half-year financial statements covers
the period from 1 January 2019 to 30 June 2019 and have been
prepared in conformity with IAS 34 'Interim Financial Reporting'.
They do not include all financial information required for full
annual financial statements and have been prepared using the
accounting policies adopted in the audited financial statements for
the year ended 31 December 2018. The Company's annual financial
statements were 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 Disclosure Guidance Transparency Rules
sourcebook of the Financial Conduct Authority (FCA) and the AIC
SORP (issued in November 2014, updated in 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, which remain consistent
with the accounting policies adopted in the audited financial
statements for the year ended 31 December 2018.
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
measured at fair value through profit or loss.
The Company's condensed half-year information contained in this
Half-Yearly Report does not constitute full statutory accounts as
defined in Section 434 of the Companies Act 2006. The financial
information for the periods ended 30 June 2019 and 30 June 2018 is
not a financial year and has not been audited. The information for
the year ended 31 December 2018 has been extracted from the latest
published financial statements, which have been delivered to the
Registrar of Companies. The Auditor's Report on those financial
statements contained no qualification or statement under Section
498 of the Companies Act 2006.
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 and it 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 Condensed 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 Condensed Statement of
Comprehensive Income between items of a revenue and capital nature
has been prepared alongside the Income Statement.
c) Segmental reporting
The Directors are of the opinion that the Company has one
operating and reportable segment being the investment in debt
assets secured by royalties or other cash flows derived from the
sales of approved life sciences products.
d) Investments at fair value through profit or loss
The principal activity of the Company is to invest in
interest-bearing debt assets with a contractual right to future
cash flows derived from royalties or sales of approved life
sciences products. In accordance with IFRS, the assets are measured
at fair value through profit or loss. They are accounted for on
their trade date at fair value, which is the cost of the
investment. The fair value of the asset reflects any contractual
amortising balance and accrued interest.
For unlisted investments where the market for a financial
instrument is not active, fair value is established using valuation
techniques which may include recent arm's length market
transactions between knowledgeable, willing parties, if available;
reference to the current fair value of another instrument that is
substantially the same; 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 Condensed 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 issue 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. For details
regarding previously held C Shares converted on 29 October 2018 see
note 13.
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 Condensed Statement of Comprehensive Income.
g) Income
There are three main sources of revenue for the Company:
interest income, royalty revenue and dividends.
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 Condensed
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 Condensed Statement of Comprehensive Income until the
Company's right to receive the income is established, when it is
transferred to revenue within the Condensed 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.
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.
Some investments include additional consideration in the form of
structuring income, which is earned and paid on completion of the
transaction. Such fees are recognised up front and are allocated to
revenue within the Condensed 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
period in which they are paid or approved by the Board and are
taken to in the Condensed 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). 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 as 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 carry 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 accrue interest and are measured
at fair value through profit and loss.
m) Taxation
Tax on the profit or loss for the period comprises current and
deferred tax. Corporation tax is recognised in the Condensed
Statement of Comprehensive Income.
Current tax is the expected tax payable on the taxable income
for the period, using tax rates enacted or substantively enacted at
the balance sheet date and any adjustment to tax payable in respect
of previous periods. The tax effect of different items of
expenditure is allocated between revenue and capital on the same
basis as the particular item to which it relates, using the
Company's marginal method of tax, as applied to those items
allocated to revenue, for the accounting period.
Deferred tax is provided, using the liability method, on all
temporary differences at the balance sheet date between the tax
basis of assets and liabilities and their carrying amount for
financial reporting purposes. Deferred tax liabilities are measured
at the tax rates that are expected to apply to the period when the
liability is settled, based on tax rates (and tax laws) that have
been enacted or substantively enacted at the balance sheet
date.
n) Share capital and reserves
The share capital represents the nominal value of the Company's
equity shares.
The share premium account represents the excess over nominal
value of the fair value of consideration received for the Company's
equity shares, net of expenses of the share issue.
The special distributable reserve was created on 29 June 2017 to
give the possibility or option of 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 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 provides 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 2019
Amendments to IFRS 9 'Financial Instruments'
The Directors have considered the implications of the amendments
to IFRS 9 and are of the opinion the Company's investments are
already measured at fair value. Therefore, there has been no impact
on the current and comparative financial statements for this
accounting standard.
IFRS 16 'Leases'
The Directors have considered the implications of the amendments
to IFRS 16 and are of the opinion there is no impact to the Company
as it does not have leases. Therefore, there has been no impact on
the current and comparative financial statements for this
accounting standard.
q) Accounting standards not yet effective
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 30 June 2019 and have
therefore not been applied in preparing these financial
statements.
Amendment to IFRS 3 'Business Combinations' - aims to resolve
the difficulties that arise when an entity determines whether it
has acquired a business or a group of assets, and is effective for
reporting periods beginning on or after 1 January 2020.
The Directors do not expect that the adoption of the standards
and interpretations will have a material impact on the financial
statements in the period of initial application.
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
Period ended Period ended
30 June 2019 30 June 2018
$000 $000
------------------------------------------ ------------- -------------
Income from investments
US unfranked investment income from
BioPharma III 844 2,970
US unfranked investment income from 4,133 -
BPCR Ongdapa
US fixed interest investment income 12,397 15,460
US floating interest investment income 19,669 14,383
US make whole interest investment 36,102 -
income
Additional consideration received* 1,200 4,913
------------------------------------------ ------------- -------------
74,345 37,726
Other income
Prepayment premium 9,660 -
Interest income from liquidity/money
market funds 3,539 2,075
Interest income from US treasury bonds 2,628 -
Interest income from fixed term deposits - 357
Other interest 19 6
------------------------------------------
15,846 2,438
Total income 90,191 40,164
------------------------------------------ ------------- -------------
* The Company's senior secured term loan to Biodelivery Services
included additional consideration in the form of structuring fees
of $1,200,000, which was paid upon the completion of the
transaction and recognised as income in the period (period to 30
June 2018: The Company's senior secured term loan to Sebela and the
second tranche of its senior secured loan to Tesaro included
additional consideration in the form of structuring fees of
$2,912,691 and $2,000,000, respectively, which were paid upon the
completion of the transaction or funding, in respect of the second
tranche of the Tesaro loan, and are recognised as income in the
period).
4. FEES AND EXPENSES
Expenses
Period ended 30 June Period ended 30 June
2019 2018
Revenue Capital Total Revenue Capital Total
------------------------
GBP000 $000 $000 GBP000 $000 $000
------------------------ -------- -------- -------- -------- -------- ------
Management fee (note
4a) 7,053 - 7,053 4,852 - 4,852
------------------------ -------- -------- -------- -------- -------- ------
Directors' fees
(note 4c) 191 - 191 163 - 163
------------------------ -------- -------- -------- -------- -------- ------
Other expenses
Company Secretarial
fee 44 - 44 41 - 41
Administration fee 62 - 62 58 - 58
Legal & professional
fees (1,029) - (1,029) 682 112 794
Public relations
fees 96 - 96 128 - 128
Auditor's remuneration
- statutory audit 167 - 167 88 - 88
Auditor's remuneration
- other audit related
services - Half-year
review 37 - 37 120 - 120
Other expenses 216 48 264 273 - 273
------------------------ -------- -------- -------- -------- -------- ------
(407) 48 (359) 1,390 112 1,502
------------------------ -------- -------- -------- -------- -------- ------
Total expenses 6,837 48 6,885 6,405 112 6,517
------------------------ -------- -------- -------- -------- -------- ------
The Auditors were paid $250,000 for services performed in
connection with the C share issue for the period ended 30 June
2018. There were no similar costs incurred in 2019. This amount was
not included within the Auditor's remuneration figures above, as it
was recognised as part of the C Share issue costs within the C
Share figure within the Condensed Statement of Financial
Position.
The negative balance of legal fees in the current period relates
to the reversal of an accrual for legal work carried out in
relation to a potential revolving credit facility. Following a
negotiation of the fee subsequent to the year end, the amount paid
in respect of the services was revised down from $1,658,000 to
$500,000.
a) Investment management fee
With effect from the Initial Admission, the Investment Manager
is entitled to a management fee ("Management Fee") calculated on
the following basis: 1/12 of 1 per cent. of the NAV on the last
business day of the month in respect of which the Management Fee is
to be paid (calculated before deducting any accrued Management Fee
in respect of such month) minus 1/12 of $100,000.
The Management Fee payable in respect of any quarter will be
reduced by an amount equal to the Company's pro rata share of any
transaction fees, topping fees, break-up fees, investment banking
fees, closing fees, consulting fees or other similar fees which the
Investment Manager (or an affiliate) receives in connection with
transactions involving investments of the Company ("Transaction
Fees"). The Company's pro rata share of any Transaction Fees will
be in proportion to the Company's economic interest in the
investment(s) to which such Transaction Fees relate.
b) Performance fee
Subject to (i) the NAV per ordinary share as at the end of a
performance period representing an increase of at least 6 per cent.
per annum compounded on the Company's IPO share issue price, (ii)
the total return on the ordinary shares exceeding 6 per cent. over
such performance period, and (iii) to a high watermark, the
Investment Manager will be entitled to receive a performance fee
equating to 10 per cent. of the total return over such performance
period on the basis of catch up arrangements whereby the Investment
Manager will receive 50 per cent. of the total return above 6 per
cent. (the "Excess Total Return") up to the point at which it has
received 10 per cent. of the overall total return allocated in this
manner, and thereafter 10 per cent. of the remaining Excess Total
Return, provided always that the amount of any performance fee
payable to the Investment Manager will be reduced to the extent
necessary to ensure that, after account is taken of such fee, the
net total return on the shares in respect of the relevant
performance period is at least 6 per cent.
The Performance Fee for a Performance Period shall be paid as
soon as practicable after the end of the relevant Performance
Period and, in any event, within three calendar months of the end
of such Performance Period.
If, during the last month of a Performance Period, the shares
have, on average, traded at a discount of 1 per cent. or more to
the NAV per share (calculated by comparing the middle market
quotation of the shares at the end of each business day in the
month to the prevailing published NAV per share (exclusive of any
dividend declared) as at the end of such business day and averaging
this comparative figure over the month), the Investment Manager
shall (or shall procure that its Associate does) apply 50 per cent.
of any Performance Fee paid by the Company to the Investment
Manager (or its Associate) in respect of that Performance Period
(net of all taxes and charges applicable to such portion of the
Performance Fee) to make market acquisitions of shares (the
"Performance Shares") as soon as practicable following the payment
of the Performance Fee by the Company to the Investment Manager (or
its Associate) and at least until such time as the shares have, on
average, traded at a discount of less than 1 per cent. to the NAV
per share over a period of five business days (calculated by
comparing the middle market quotation of the shares at the end of
each such business day to the prevailing
published NAV per share (exclusive of any dividend declared) and
averaging this comparative figure over the period of five business
days). The Investment Manager's obligation:
1) shall not apply to the extent that the acquisition of the
Performance Shares would require the Investment Manager to make a
mandatory bid under Rule 9 of the Takeover Code; and
2) shall expire at the end of the Performance Period which
immediately follows the Performance Period to which the obligation
relates.
During the period to 30 June 2019, no performance fee was
payable (2018: nil).
c) Directors fee
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 receives an additional $30,000 per annum;
and
-- the Chairman of the Audit and Risk Committee, who receives an
additional $15,000 per annum.
5. TAXATION
It is the intention of the Directors to conduct the affairs of
the Company so as to satisfy the conditions for approval of the
Company by HMRC as an investment trust under Section 1158 of the
Corporation Tax Act 2010 (as amended) and pursuant to regulations
made under Section 1159 of the Corporation Tax Act 2010. As an
investment trust, the Company is exempt from corporation tax on
capital gains.
The current taxation charge for the period is different from the
standard rate of corporation tax in the UK of 19.00 per cent. The
effective tax rate was 0.00 per cent. The differences are explained
below.
Period ended 30 June Period ended 30 June
2019 2018
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
-------------------------- --------- -------- --------- -------- -------- --------
Total return on ordinary
activities before
taxation 83,354 (3,420) 79,934 33,306 1,863 35,169
-------------------------- --------- -------- --------- -------- -------- --------
Theoretical tax at
UK Corporation tax
rate of 19.00% (30
June 2018: 19.00%)* 15,837 (650) 15,187 6,328 354 6,682
Effects of:
Capital items that
are not taxable - 650 650 - (354) (354)
Tax deductible interest
distributions (15,837) - (15,837) (6,328) - (6,328)
-------------------------- --------- -------- --------- -------- -------- --------
Actual tax charge - - - - - -
-------------------------- --------- -------- --------- -------- -------- --------
* The theoretical tax rate is calculated using a blended tax
rate over the period.
At 30 June 2019, 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 to meet for the foreseeable future
to meet) the conditions for approval as an Investment Trust
company.
6. DIVIDS
Dividends paid in respect of the period under review:
Period ended 30 June 2018 Period ended 30 June 2017
Revenue Capital* Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
------------------------------------------------------ --------- ---------- ------- ---------- --------- -------
In respect of the current period:
First interim dividend of $0.0175 per Ordinary share
(2018: $0.134 per Ordinary share) - 24,044 24,044 12,306 - 12,306
In respect of the previous period ended 31 December
2018:
Fourth interim dividend of $0.0175 per Ordinary share 22,804 1,240 24,044 - - -
Second special dividend of $0.00177441 per Ordinary
share - 2,438 2,438 - - -
In respect of the previous period ended 31 December
2017:
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
22,804 27,722 50,526 39,157 47 39,204
------------------------------------------------------ --------- ---------- ------- ---------- --------- -------
* Dividends paid out of capital are from the special
distributable reserve. The capital reserve is not used for
distributions.
7. INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS
As at As at
---------------------------------------------
30 June 31 December
---------------------------------------------
2019 2018
$000 $000
--------------------------------------------- -------- ------------
Investment portfolio summary
Listed investments at fair value through
profit and loss 23,300 -
Listed fixed interest investments through
profit and loss 21,338 -
Unlisted investments at fair value through
profit and loss - 7,645
Unlisted fixed investments at fair value
through profit and loss 274,500 274,500
Unlisted floating investments at fair value
through profit and loss 477,812 725,120
Closing fair value at the end of the period 796,950 1,007,265
--------------------------------------------- -------- ------------
Period ended 30 June 2019
Unlisted Unlisted
Listed fixed fixed floating
------------------------------
Listed interest Unlisted interest interest
------------------------------
investments investments investments investments investments Total
$000 $000 $000 $000 $000 $000
------------------------------ ------------ ------------- ------------ ------------ -------------- -------------
Investment portfolio
summary
Opening cost at beginning
of period - - 274,500 6,805 725,320 1,006,625
Opening unrealised
appreciation/ (depreciation)
at beginning of period - - 840 - (200) 640
------------------------------ ------------ ------------- ------------ ------------ -------------- -------------
Opening fair value
at beginning of period - - 7,645 274,500 725,120 1,007,265
Movements in the period:
Purchases at cost 25,000 22,064 - - 98,722 145,786
Redemption proceeds - - (6,805) - (345,930) (352,735)
Unrealised
appreciation/(depreciation) (1,700) (726) (840) - (100) (3,366)
------------------------------ ------------ ------------- ------------ ------------ -------------- -------------
-
Closing fair value
at the end of the period 23,300 - - 274,500 477,812 775,612
------------------------------ ------------ ------------- ------------ ------------ -------------- -------------
Closing cost at end
of period 25,000 22,064 - 274,500 478,112 799,676
Closing unrealised
depreciation at end
of period (1,700) (726) - - (300) (2,726)
------------------------------ ------------ ------------- ------------ ------------ -------------- -------------
Closing fair value
at the end of the period 23,300 21,338 - 274,500 477,812 796,950
------------------------------ ------------ ------------- ------------ ------------ -------------- -------------
Period ended Period ended
30 June
30 June 2019 2018
$000 $000
------------------------------ ------------ ------------- ------------ ------------ -------------- -------------
Unrealised (depreciation)/
appreciation (3,366) 2,014
------------------------------ ------------ ------------- ------------ ------------ -------------- -------------
(3,366) 2,014
------------------------------ ------------ ------------- ------------ ------------ -------------- -------------
Transaction costs (incurred at the point of the transaction)
incidental to the acquisition of investments totalled $nil (30 June
2018: $nil) and to the disposals of investments totalled $nil (30
June 2018: $nil) for the period. In addition, legal fees incidental
to the acquisition of investments totalled $48,000 (30 June 2018:
$112,000 and 31 December 2018: $193,000) as disclosed in Note 4,
and have been taken to the capital column in the Condensed
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 30 June 2019
Level
Total Level 1 Level 2 3
Financial assets $000 $000 $000 $000
---------------------------- ---------- -------- -------- --------
Investment portfolio
summary
Listed investments
at fair value through
profit and loss 23,300 23,300 - -
Listed fixed interest
at fair value through
profit or loss 21,338 21,338 - -
Unlisted fixed interest
investments at fair
value through profit
and loss 274,500 - - 274,500
---------------------------- ---------- -------- -------- --------
Unlisted floating interest
investments at fair
value through profit
and loss 477,812 - - 477,812
---------------------------- ---------- -------- -------- --------
796,950 44,638 - 752,312
Liquidity/money market
funds 611,525 611,525 - -
---------------------------- ---------- -------- -------- --------
Total 1,408,475 656,163 - 752,312
---------------------------- ---------- -------- -------- --------
As at 31 December 2018
Level
Total Level 1 Level 2 3
Financial assets $000 $000 $000 $000
---------------------------- ---------- -------- -------- ----------
Investment portfolio
summary
Unlisted investments
at fair value through
profit and loss 7,645 - - 7,645
Unlisted fixed interest
investments 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
---------------------------- ---------- -------- -------- ----------
A reconciliation of fair value measurements in Level 3 is set
out below.
Level 3 financial assets at fair value through profit or
loss
30 June 2019
Unlisted
fixed Unlisted floating
----------------------
Unlisted interest interest
----------------------
investments investments investments Total
---------------------- ------------ ------------ ------------------ ----------
$000 $000 $000 $000
---------------------- ------------ ------------ ------------------ ----------
Opening balance 7,645 274,500 725,120 1,007,265
Purchases - - 98,722 98,722
Redemptions* (6,805) - (345,930) (352,735)
Change in unrealised
depreciation (840) - (100) (940)
Closing balance
at 30 June 2019 - 274,500 477,812 752,312
---------------------- ------------ ------------ ------------------ ----------
* Redemptions are the proceeds received from the repayment of
investments.
There were no transfers between levels during the period.
Valuation techniques
Unrealised gains and losses recorded on Level 2 and 3 financial
instruments are reported in unrealised gain/(loss) on investments
on the Condensed 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
atLevel 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 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 30 June 2019 As at 31 December 2018
--------------------------------------------------------------- ---------------------------------------------------------------
Fair Fair
value value
at Level at Level
3 3
financial financial
assets at Fair value assets Fair value
fair sensitivity at fair sensitivity
value to a 100bps value to a 100bps
through increase through increase
profit or in the profit in the
loss Valuation Unobservable Discount IRR or loss Valuation Unobservable Discount IRR
Assets $000 technique input rate $000 $000 technique input rate $000
------------------ ---------- ----------- ------------- --------- ------------ ---------- ----------- ------------- --------- ------------
Limited
partnership
Interest in
BioPharma III - - - - - 7,645 N/A N/A N/A N/A
Lexicon
Pharmaceuticals, Discounted Discount Discounted Discount
Inc 124,500 cash flow rate 10.2 121,239 124,500 cash flow rate 10.1% 120,826
Discounted Discount
Tesaro, Inc - - - - - 322,000 cash flow rate 11.4% 312,943
Discounted Discount Discounted Discount
Novocure 150,000 cash flow rate 10.2 146,173 150,000 cash flow rate 10.6% 145,811
Discounted Discount Discounted Discount
Sebela 164,782 cash flow rate 12.0 162,623 188,711 cash flow rate 11.7% 185,622
Discounted Discount Discounted Discount
Amicus 150,000 cash flow rate 11.1 145,758 150,000 cash flow rate 11.1% 145,337
Discounted Discount Discounted Discount
BMS 103,031 cash flow rate 7.7 98,263 64,409 cash flow rate 8.1% 59,606
Discounted Discount
BDSI 60,000 cash flow rate 10.6 59,091 - - - - -
------------------ ---------- ----------- ------------- --------- ------------ ---------- ----------- ------------- --------- ------------
8. TRADE AND OTHER RECEIVABLES
At At
----------------------------------------------
30 June 31 December
----------------------------------------------
2019 2018
$000 $000
---------------------------------------------- -------- ------------
Unlisted fixed interest income receivable 2,851 2,864
Unlisted floating interest income receivable 3,828 17,079
Accrued on liquidity/money market funds 267 694
Share issue cost receivable - 466
Other debtors 295 345
---------------------------------------------- -------- ------------
7,241 21,448
---------------------------------------------- -------- ------------
Non-current assets
Unlisted floating interest income from
BPCR Ongdapa 4,049 988
---------------------------------------- ------ ----
9. CASH AND CASH EQUIVALENTS
At At
------------------------------
30 June 31 December
------------------------------
2019 2018
$000 $000
------------------------------ -------- ------------
Cash at bank 1,363 3,764
Liquidity/money market funds 611,525 359,808
612,888 363,572
------------------------------ -------- ------------
10. TRADE AND OTHER PAYABLES
At At
30 June 31 December
2019 2018
$000 $000
-------------------------- -------- ------------
Accrued management fees 3,510 3,194
Share issue costs - 1
C Share conversion costs - 22
Accruals 394 2,240
3,904 5,457
-------------------------- -------- ------------
11. RETURN PER ORDINARY SHARE
Revenue return per ordinary share is based on the net revenue
after taxation of $83,354,000 (30 June 2018: $33,306,000) and
1,373,932,067 (30 June 2018: 914,252,831) Ordinary Shares, being
the weighted average number of ordinary shares for the period.
Capital return per ordinary share is based on net capital loss
for the period of $3,420,000 (30 June 2018: $1,863,000) and on
1,313,932,067 (30 June 2018: 914,252,831) ordinary shares, being
the weighted average number of ordinary shares for the period.
Basic and diluted return per share are the same as there are no
arrangements 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 is based on the
net assets attributable to equity shareholders at 30 June 2019 of
$1,409,430,000 (30 June 2018: $918,537,000 and 31 December 2018:
$1,380,027,000) and ordinary shares of 1,373,932,067 (30 June 2018:
914,252,831 and 31 December 2018: 1,373,932,067), being the number
of ordinary shares in issue at 30 June 2019.
There is no dilution effect and therefore there is no difference
between the diluted total net assets per ordinary share and the
basic total net assets per ordinary share.
13. C SHARES
Period to Year ended
----------------------------------------
30 June 31 December
2019 2018
$000 $000
---------------------------------------- ---------- ------------
Balance at beginning of the period - -
Gross proceeds of C Shares 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 period - -
---------------------------------------- ---------- ------------
* 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 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 C Shares for
every Ordinary Share which gave a conversion rate of 989 Ordinary
Shares for every 1,000 C Shares held.
14. SHARE CAPITAL
Year ended 30 June Period ended 31 December
2019 2018
Number of Number of
----------------------------
shares $000 shares $000
---------------------------- -------------- ------- ----------------- --------
Issued and fully paid:
Ordinary shares of $0.01:
Balance at beginning
of the period 1,373,932,067 13,739 914,252,831 9,143
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
Balance at end of the
period 1,373,932,067 13,739 1,373,932,067 13,739
---------------------------- -------------- ------- ----------------- --------
Total voting rights at 30 June 2019 were 1,373,932,067 (31
December 2018: 1,373,932,067). 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.
On 29 October 2018, 162,118,260 Ordinary Shares were issued for
the conversion of the C shares for a consideration of
GBP164,402,000 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.
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 acquired by Royalty Pharma from Bristol-Myers Squibb
("BMS"). In accordance with IFRS 10, the Company is exempt from
consolidating a controlled investee as it is an investment trust.
Therefore, 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
---------------------------------------------
30 June 2019 30 June 2018
---------------------------------------------
$000 $000
--------------------------------------------- ------------- -------------
Total return for the period before taxation 79,934 35,169
Capital gains 3,372 (1,998)
Decrease in trade receivables 10,680 95
(Decrease)/increase in trade payables (1,553) 443
Finance costs - C share amortisation - 474
--------------------------------------------- ------------- -------------
Cash generated from operations 92,433 34,183
--------------------------------------------- ------------- -------------
Analysis of net cash and net debt
At 1 January Exchange At 30 June
2019 Cash flow movement 2019
Net cash $000 $000 $000 $000
Cash and cash equivalents 363,572 249,322 (6) 612,888
--------------------------- ------------- ---------- --------- -----------
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 in the Company's annual financial statements for the year
ended 31 December 2018 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 in the Company's annual financial statements for the year
ended 31 December 2018.
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 market price risk comprises movements in the value of
the Company's investments. See Note 7 above for investments that
fall into Level 3 of the fair value hierarchy and refer to the
description of valuation policies in Note 2(d). The nature of the
Company's investments, with a high proportion of the portfolio
invested in unlisted debt instruments, means that the investments
are valued by the Company after consideration of the most recent
available information from the underlying investments. The
Company's portfolio is diversified among counterparties and by the
sectors in which the underlying companies operate, minimising the
impact of any negative industry-specific trends.
The table below analyses the effect of a 10 per cent. Change in
the fair value of investments.
As at 30 June 2019 As at 30 June 2018 As at 31 December
2018
--------------------------- --------------------------- ---------------------------
10 per cent. 10 per cent. 10 per cent.
Increase/ Increase/ Increase/
decrease decrease decrease
in in in
Fair value market value Fair value market value Fair value market value
Asset $000 $000 $000 $000 $000 $000
------------------------------- ----------- -------------- ----------- -------------- ----------- --------------
Amicus Senior Secured Loan 150,000 15,000 - - 150,000 15,000
BioPharma III - - 64,790 6,479 7,645 765
BioDelivery Sciences
International
Equity 23,300 2,330 - - - -
BioDelivery Sciences
International
Loan 60,000 6,000 - - - -
BMS Purchased Payments (BPCR
Ongdapa) 103,031 10,303 20,085 2,008 64,409 6,441
Convertible bonds 21,337 2,134 - - - -
Lexicon Senior Secured Loan 124,500 12,450 124,500 12,450 124,500 12,450
Novocure Senior Secured Loan 150,000 15,000 150,000 15,000 150,000 15,000
RPS Note - - 52,289 5,229 - -
Sebela Senior Secured Loan 164,782 16,478 194,179 19,418 188,711 18,871
Tesaro Senior Secured Loan - - 310,879 31,088 322,000 32,200
------------------------------- ----------- -------------- ----------- -------------- ----------- --------------
Total 796,950 79,695 916,722 91,672 1,007,265 100,727
------------------------------- ----------- -------------- ----------- -------------- ----------- --------------
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 30 June 2019, the Company held cash balances in GBP Sterling
of GBP291,000 ($371,000) (30 June 2018: GBP58,000 ($77,000) and 31
December 2018: GBP245,000 ($312,000)) and in Euro of EUR3,000
($4,000) (30 June 2018: EUR1,000 ($2,000) and 31 December 2018:
EUR1,000 ($2,000)).
The currency exposures (including non-financial assets) of the
Company as at 30 June 2019:
Other net
-----------
assets/
-----------
Cash Investments (liabilities) Total
$000 $000 $000 $000
----------- -------- ------------ -------------- ----------
Sterling 371 - 2 -
Euro 4 - - 4
US Dollar 612,513 796,950 (410) 1,379,760
----------- -------- ------------ -------------- ----------
612,888 796,950 (408) 1,409,430
----------- -------- ------------ -------------- ----------
The currency exposures (including non-financial assets) of the
Company as at 30 June 2018:
Other net
-----------
assets/
Cash Investments (liabilities) Total
$000 $000 $000 $000
----------- -------- ------------ -------------- ----------
Sterling 77 - (95) (18)
Euro 2 - - 2
US Dollar 612,809 1,007,265 3,432 1,623,506
----------- -------- ------------ -------------- ----------
612,888 1,007,265 3,337 1,623,490
----------- -------- ------------ -------------- ----------
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
----------- -------- ------------ -------------- ----------
363,571 1,007,265 9,185 1,380,022
----------- -------- ------------ -------------- ----------
A 10 per cent. increase in the Sterling exchange rate would have
increased net assets by $30,000 (30 June 2018 $3,000 and 31
December 2018: $10,000). A 10 per cent. decrease would have
decreased net assets by the same amount (30 June 2018: same and 31
December 2018: same).
Interest rate risk
Interest rate risk is the risk that fair value of future cash
flows of a financial instrument will fluctuate because of changes
in market interest rates. Interest rate movements may potentially
affect future cash flows from:
-- investments in fixed interest rate securities and unquoted
loans; and
-- the level of income receivable on cash deposits and liquidity
funds.
The Lexicon loan, Novocure loans and the convertible bond have a
fixed interest rate and therefore are not subject to interest rate
risk. At 30 June 2019, the Lexicon, Novocure loan and the
convertible bond represented 8.83 per cent., 10.64 per cent and
1.51 per cent. of the Company's net assets, respectively (30 June
2018: 13.55 per cent., 16.33 per cent., and nil per cent and 31
December 2018: 9.02 per cent,10.87 per cent and nil per cent). The
RPS Note was fully redeemed in the year to 31 December 2018 (30
June 2018: representing 5.69 per cent. of the Company's Net
Assets).
The Amicus loan, Biodelivery Sciences loan, Sebela loan, BPCR
Ongdapa loan and cash and cash equivalents, including investments
in liquidity funds, have a floating rate of interest. At 30 June
2019, these represented nil per cent., nil per cent, 21.14 per
cent., 2.19 per cent. and 43.13 per cent. of the Company's net
assets, respectively (30 June 2018: nil per cent., nil per cent.,
21.14 per cent., 2.19 per cent. and 16.24 per cent. and 31 December
2018: 10.87 per cent., nil per cent., 13.67 per cent., 4.67 per
cent. and 26.35 per cent.). The Tranche A and B loans of Tesaro
were fully redeemed in the period to 30 June 2019 (June 2018:
representing 24.17 per cent. of the Company's net assets, 31
December 2018: representing 23.33 per cent. of the Company's net
assets).
(ii) Liquidity risk
This is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities. At 30
June 2019, the Company had cash and cash equivalents, including
investments in liquidity/money market funds with balances of
$612,888,000 (30 June 2018: $149,194,000 and 31 December 2018:
$363,572,000) and maximum unfunded commitments of
$56,969,000-$76,969,000 (30 June 2018: $161,500,000-$181,500,000
and 31 December 2018: $75,591,000-$95,591,000).
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 a 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 it's subsidiary. At 30 June 2019, the Company's
maximum exposure to credit risk was $800,999,000 (30 June 2018:
$927,844,000 and 31 December 2018: $1,008,253,000). The Company's
concentration of credit risk by counterparty can be found in the
Portfolio Information above.
Capital management
The Company's primary objectives in relation to the management
of capital are:
-- to ensure its ability to continue as a going concern;
-- to ensure that the Company conducts its affairs to enable it
to continue to meet the criteria to qualify as an investment trust;
and
-- to maximise the long-term shareholder returns in the form of
sustainable income distributions through an appropriate balance of
equity capital and debt.
The Company is subject to externally imposed capital
requirements:
-- as a public company, the Company has a minimum share capital
of GBP50,000.
The Company has complied with all the above requirements during
this financial period.
18. RELATED PARTY TRANSACTIONS
The amount incurred in respect of management fees during the
period to 30 June 2019 was $7,053,000, of which $3,510,000 was
outstanding at 30 June 2019. The amount due to the Investment
Manager for performance fees at 30 June 2019 was $7,794,000, all of
which was outstanding as at 30 June 2019.
The amount incurred in respect of Directors' fees during the
period to 30 June 2019 was $191,000 of which $nil was outstanding
at 30 June 2019.
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 the
period to 30 June 2019, the Company recorded interest of $6,788,000
(2018: $5,363,000). The outstanding balance as at 30 June 2019 was
$150,000,000 (2017: $150,000,000).
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 $38,622,000 to RPI Acquisitions in the first
half of 2019 (2018: $19,985,000) for the Purchased Payments. In the
first half of 2019, the Company recorded interest of $2,542,000
(2018: $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
was available for draw by March 2019 at Lexicon's option if net
XERMELO sales were greater than $25,000,000 in the preceding
quarter. The Company funded $124,500,000 of the first tranche on 18
December 2017 and Lexicon has not drawn the second tranche. In the
period to 30 June 2019, the Company recorded interest of $5,634,000
(2018: $5,634,000). The outstanding balance as at 30 June 2019 was
$124,500,000 (2018: $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 the period to 30 June 2019,
the Company recorded interest of $2,191,000 (2018: $11,194,000).
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 totaling
$45,762,000. The outstanding balance as at 30 June 2019 was $Nil
(2018: $322,000,000).
On 27 March 2017, the Company acquired a limited partnership
interest in BioPharma III for $153,482,000. In the period to 30
June 2019, the Company recorded $nil (2018: $2,970,000) of
investment income and repayments of $nil (2018: $63,673,000). The
Company also recorded net gain on investments at fair value of $nil
(2018: $2,014,000). On 31 January 2019 the limited partnership
interest in BioPharma III was disposed of in full at cost of
$6,804,967. The outstanding balance as at 30 June 2019 was $nil
(2018: $64,791,000).
BioPharma III, BioPharma IV, 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 30 June 2019, there were outstanding commitments of
$56,969,000 - $76,969,000 (30 June 2018: $161,500,000 -
$181,500,000 and 31 December 2018: $75,591,000 - $95,591,000) in
respect of investments (see Note 18 for further details).
20. SUBSEQUENT EVENTS
On 30 July 2019, the Company noted the announcement from Lexicon
regarding Sanofi's notice of termination in relation to its
collaboration and license agreement with Lexicon for the
development and commercialization of Zynquista. Sanofi's actions do
not impact XERMELO(R) which is marketed by Lexicon in the US and is
partnered outside the US with Ipsen. Lexicon and Sanofi have not
yet finalized the details of the termination and this process might
take several weeks or months.
COMPANY INFORMATION
The Company is a closed-ended investment company incorporated on
24 October 2016. The Ordinary Shares were admitted to trading on
the Specialist Fund Segment of the Main Market of the LSE and TISE
on 27 March 2017.
The Company intends to carry on business as an investment trust
within the meaning of Chapter 4 of Part 24 of the Corporation Tax
Act 2010 and an investment company within the meaning of Section
833 of the Companies Act 2006.
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.
Summary of investment policy
The Company will seek to achieve its investment objective
primarily through investments in debt assets secured by royalties
or other cash flows derived from sales of approved life sciences
products. Subject to certain restrictions and limitations, the
Company may also invest in unsecured debt and equity issued by
companies in the life sciences industry.
The Investment Manager will select investment opportunities
based upon in-depth, rigorous analysis of the life sciences
products backing an investment as well as the legal structure of
the investment. A key component of this process is to examine
future sales potential of the relevant product which is affected by
several factors, including but not limited to; clinical utility,
competition, patent estate, pricing, reimbursement (insurance
coverage), marketer strength, track record of safety, physician
adoption and sales history.
The Company will seek to build a diversified portfolio by
investing across a range of different forms of assets issued by a
variety of borrowers. In particular, no more than 30 per cent. of
the Company's gross assets will be exposed to any single
borrower.
DIRECTORS, ADVISERS AND OTHER SERVICE PROVIDERS
Directors
Jeremy Sillem (Chairman)
Harry Hyman (Senior Independent Director)
Colin Bond
Duncan Budge
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
Financial and strategic communications
Buchanan Communications Limited
107 Cheapside
London
EC2V 6DN
Independent Auditor
Pricewaterhouse Coopers 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
Company Website
www.bpcruk.com
SHAREHOLDER INFORMATION
Key dates
March Annual results announced
Payment of fourth interim dividend
June Annual General Meeting
Company's half-year end
Payment of first interim dividend
September Half-yearly results announced
Payment of second interim dividend
December Company's year end
Payment of third interim dividend
Frequency of NAV publication
The Company's NAV is released to the LSE and TISE on a monthly
basis and is published on the Company's website.
Annual and Half-yearly Report
Copies of the Company's Annual and Half-yearly Reports, stock
exchange announcements and further information on the Company can
be obtained from the Company's website www.bpcruk.com.
Identification codes
SEDOL: BDGKMY2
ISIN: GB00BDGKMY29
TICKER: BPCR
LEI: 213800AV55PYXAS7SY24
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of this
announcement.
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
IR BUGDCISGBGCX
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September 04, 2019 02:00 ET (06:00 GMT)
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