TIDMBPCR
RNS Number : 3305S
BioPharma Credit PLC
16 March 2021
BIOPHARMA CREDIT PLC
(THE "COMPANY")
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2020
ONGOING ROBUST PORTFOLIO PERFORMANCE
BioPharma Credit PLC (LSE: BPCR), the specialist life sciences
debt investor, today announces the Annual Report of the Company for
the period ended 31 December 2020.
The full Annual Report and Financial Statements can be accessed
via the Company's website at www.bpcruk.com or by contacting the
Company Secretary by telephone on 01392 477500.
SHAREHOLDER RETURNS
-- 8.29 cents per share in total dividends during period
referencing net income for the four quarters ending 30 September
2020, comfortably ahead of the target to distribute at least 7
cents per share
-- Post period end, the Company declared a further dividend of
2.04 cents per share including a special dividend of 0.29 cents per
share in addition to the ordinary quarterly dividend of 1.75 cents
per share
-- Company NAV was highly stable during the period decreasing by
$0.018 from $1.0217 to $1.0037
-- The Company reported total net income for 2020 of $89m, this
is down from $122m reported during 2019 which included $46m in fees
linked to the prepayment of the Company's Tesaro loan
-- No material impact on the credit quality of any loan as a
result of the global disruption caused by the Covid-19 pandemic
INVESTMENT HIGHLIGHTS
-- In the twelve month-period, the Company's portfolio continued
to mature and perform robustly with significant further investments
and a number of attractive realisations:
o The Company and its subsidiaries invested $548m in the
period
o This included $308m of commitments entered into prior to the
start of the year, $165m for the new senior secured loan with
Collegium Pharmaceutical, Inc. (NASDAQ: COLL) announced 7 February
2020 and $75m as part of the amendment and upsizing of the
Company's loan with Epizyme (NASDAQ: EPZM) announced 9 November
2020
o The Company saw increased liquidity from three early
attractive repayments from Amicus, Novocure and Lexicon totalling
$425m. Additional prepayment and other fees totalled an additional
$14m enhancing attractive overall rates of return on these
investments:
-- Novocure 10.2% Realised gross IRR
-- Lexicon 12.1% Realised gross IRR
-- Amicus 13.4% Realised gross IRR
-- The Company's investment manager, Pharmakon Advisors
continues to progress an active pipeline of additional potential
investments to further grow and diversify the portfolio
PERFORMANCE HIGHLIGHTS
Shares Assets
as at 31 December 2020 as at 31 December 2020
Share price Net assets
$0.9960 $1,378.9m
(31 December 2019: $1.0200) (31 December 2019: $1,403.7m)
NAV per share Shares in issue
$1.0037 1,373.9m
(31 December 2019: $1.0217) (31 December 2019: 1,373.9m)
Discount to NAV per share Target dividend
0.8% 7 cents per annum
(31 December 2019: 0.2%) Dividend paid 7.3 cents
(31 December 2019: 8.3 cents)
Net income per share* Leverage
$0.0732 0%
(31 December 2019: $0.0828) (31 December 2019: 0%)
* Net income includes $20.5 million relating to the change in
fair value of the Company's subsidiary, BPCR Limited Partnership.
This change in fair value of $20.5 million is equal to the
undistributed net income earned by BPCR Limited Partnership in the
year, reflecting changes in the fair value of and income earned on
the investment it holds. Details of these investments are set out
in Note 2F, accounting policy for income and Note 7, investment at
fair value through profit or loss. Details of its subsidiaries
including its newly formed entities in 2020 are set out in Note
14.
PORTFOLIO COMPOSITION
($ in millions) As at 31 December As at 31 December % Change
2020 2019
Sarepta Therapeutics senior
secured loan 350 175 100%
BMS purchased payments 160 150 6.7%
Collegium Therapeutics 134 - -
senior secured loan
Epizyme senior secured
loan 110 13 746.2%
Sebela senior secured
loan 92 130 -29.2%
Global Blood Therapeutics
senior secured loan 83 41 100%
BioDelivery Sciences senior
secured loan 80 60 33.3%
OptiNose senior secured
note and warrants 72 46 56.5%
Akebia senior secured
loan 50 40 25.0%
BioDelivery Sciences equity 11 17 -35.3%
Novocure senior secured - 150 -
loan
Amicus senior secured - 150 -
loan
Lexicon senior secured - 125 -
loan
Convertible bonds - 20 -
Cash and cash equivalents 250* 297 -15.7%
Other net assets (13) (9) 44.4%
----------------------------- ------------------ ------------------ ---------
Total net assets 1,379 1,405 -1.8%
----------------------------- ------------------ ------------------ ---------
* Includes cash at the Company and its subsidiaries
Pedro Gonzalez de Cosio, CEO and co-founder of Pharmakon
Advisors L. P., the Investment Manager of BioPharma Credit PLC,
said:
"During 2020, Covid-19 caused considerable economic turmoil
leading to volatile equity markets and major stress for business
models in many staple sectors for investor income resulting in
widespread disruption for dividend distributions.
Against an uncertain macro backdrop, portfolio performance has
been exceptional, with 8.28 cents per share paid for the four
quarters ended September 2020, ahead of the Company's target to
distribute at least 7 cents. The Company has also recently declared
a special dividend after this period end of 0.29 cents per share.
The high level of distributed income has been complemented by an
exceptionally resilient NAV, decreasing by $0.018 in the period to
$1.0037.
The stable nature of the Company's return profile over the past
12 month period further underlines the uncorrelated nature of the
underlying revenue streams, uniquely among London listed investment
companies drawn from cash flows linked to approved life science
products. There has been no material change in the Company's
investment market during the period, which continues to be capital
intensive and suffers from a major shortfall in supply. It remains
clear that the senior secured loans that form the majority of the
Company's portfolio continue to be one of the most attractive
financing options for the life sciences sector.
Accordingly, the Company continues to seek additional attractive
investment opportunities and is consistently engaged in a number of
productive discussions from our considerable investment pipeline.
We look forward to further updating the market in due course."
Results presentation
As announced on 17 February 2021, a management presentation for
analysts will be delivered via a conference call facility at 2:00pm
GMT on the day of results. To request dial-in details please RSVP
biopharmacredit@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.
2020 Investments
Collegium GBT Sarepta Akebia Epizyme Optinose BioDelivery
Funded in Funded Funded in Funded in Funded in Funded in Funded in
2020: in 2020: 2020: 2020: 2020: 2020: 2020:
$165 million $41 million $175 million $10 million $97 million $28 million $20 million
Previously Previously Previously Previously Previously Previously Previously
funded: funded: funded: funded: funded: funded: funded:
$nil $41 million $175 million $40 million $13 million $44 million $60 million
Total Total Total Total Total Total Total
investment: investment: investment: investment: investment: investment: investment:
$165 million $83 million $350 million $50 million $110 million $72 million $80 million
--------------- --------------- --------------- --------------- --------------- ----------------
In addition, $12 million was advanced to BMS in 2020.
All remaining investment commitments are $0 as at 31 December 2020.
2020 Repayments
Novocure Lexicon Amicus
Investment date: Investment date: Investment date:
7 February 2018 18 December 2017 28 September 2018
Amount: $150 million Amount: $125 million Amount: $150 million
Prepayment fees: Prepayment fees: Prepayment fees:
$3 million $6 million $5 million
Reali s ed gross IRR Reali s ed gross IRR Reali s ed gross IRR
10.2% 12.1% 13.4%
---------------------- ----------------------
INVESTMENT
As at As at
31 Dec 2020 31 Dec 2019
(in millions) (in millions) % change
------------------------------- --------------- --------------- -------------
Cash and cash equivalents 250* 297 -15.7%
Lexicon senior secured loan - 125 -
Novocure senior secured - 150 -
loan
Sebela senior secured loan 92 130 -29.2%
BMS purchased payments 160 150 6.7%
Amicus senior secured loan - 150 -
BioDelivery Sciences senior
secured loan 80 60 33.3%
BioDelivery Sciences equity 11 17 -35.3%
OptiNose senior secured
note and warrants 72 46 56.5%
Epizyme senior secured loan 110 13 746.2%
Akebia senior secured loan 50 40 25.0%
Sarepta Therapeutics senior
secured loan 350 175 100.0%
Global Blood Therapeutics
senior secured loan 83 41 100.0%
Collegium Therapeutics senior 134 - -
secured loan
Convertible bonds - 20 -
Other net assets (13) (9) 44.4%
------------------------------- --------------- --------------- -------------
Total net assets 1,379 1,405 -1.8%
------------------------------- --------------- --------------- -------------
Investment Type as at 31 December Percentage Percentage
2020 as at 31 December as at 31 December
2020 2019
--------------------------------------- ------------------- -------------------
Cash and cash equivalents 18.1% 21.1%
Lexicon senior secured loan - 8.9%
Novocure senior secured loan - 10.7%
Sebela senior secured loan 6.7% 9.3%
BMS purchased payments 11.6% 10.7%
Amicus senior secured loan - 10.7%
BioDelivery Sciences senior secured
loan 5.8% 4.3%
BioDelivery Sciences equity 0.8% 1.2%
OptiNose senior secured note and
warrants 5.2% 3.3%
Epizyme senior secured loan 8.0% 0.9%
Akebia senior secured loan 3.6% 2.8%
Sarepta Therapeutics senior secured
loan 25.4% 12.5%
Global Blood Therapeutics senior
secured loan 6.0% 2.9%
Collegium Therapeutics senior secured
loan 9.7% 0.0%
Convertible bonds - 1.4%
Other net assets -0.9% -0.6%
--------------------------------------- ------------------- -------------------
Total net assets 100.0% 100.0%
--------------------------------------- ------------------- -------------------
* includes cash at the Company and its subsidiaries
CHAIRMAN'S STATEMENT
During 2020, the Company invested $548 million, including $322
million from its financing subsidiary, BPCR Limited
Partnership.
INTRODUCTION
2020 was the Company's third full year of operations and I am
pleased to be able to report on another year of consistent returns
and targets met.
INVESTMENTS
Over the course of 2020, the Company and its subsidiaries
invested $548 million, $308 million of which comprised the funding
of commitments entered into prior to the start of the year, $165
million for the new Collegium loan and $75 million as part of the
amendment and upsizing of the Epizyme loan. The Company, including
assets and liabilities from its financing subsidiary, BPCR Limited
Partnership, ended the year with total net assets of $1,379
million, comprising $1,142 million of investments, $250 million of
cash and $13 million of other net liabilities.
The Company and its subsidiaries saw increased liquidity from
three early repayments of its Amicus, Novocure and Lexicon
investments in the third quarter of 2020 totalling $425 million.
These repayments were accompanied by prepayment and other fees
totalling $14 million, thereby enhancing attractive overall rates
of return on these investments.
SHAREHOLDER RETURNS
The Company reported total income for 2020 of $89 million, which
includes $20.5 million relating to the change in fair value of its
subsidiary, BPCR Limited Partnership, down from the $122 million
reported during 2019 which included $46 million in fees linked to
the prepayment of the Tesaro loan.
On 31 December 2020, the Company's Ordinary Shares closed at
$0.9960, below the closing price on 31 December 2019 of $1.0200.
Net Asset Value ("NAV") per Ordinary Share decreased over the same
timeframe by $0.018 from $1.0217 to $1.0037. The Company made four
dividend payments over the year totalling $0.0829 per share,
referencing net income for the four quarters ending 30 September
2020. The Company was therefore able to maintain its record of
paying a dividend of at least 1.75 cents per share in every quarter
since that ending 30 June 2018.
Following the end of the year, the Company declared a further
dividend in respect of the last quarter of 2020 of 2.04 cents per
share made up of an ordinary dividend of 1.75 cents per share
together with a special dividend of 0.2901 cents per share. Total
dividends from 2020 results reached 7.3 cents per share.
During the year, the COVID-19 pandemic led to restrictions to
the movement of people and disruption to business operations. So
far the portfolio has proved resilient. Pharmakon Advisors, our
investment manager, believes that the COVID-19 virus has not had a
material impact on the credit quality of the loans. The Investment
Manager continues to monitor the situation and will inform
shareholders of any material changes to this assessment.
BOARD CHANGES
A number of Board changes have taken place during the year.
Jeremy Sillem retired as a Director and Chairman of the Company on
16 September 2020. On behalf of the Board, I would like to thank
Jeremy for his leadership of the Company since IPO. The Board also
welcomed Rolf Soderstrom as an additional Director of the Company,
with effect from 16 September 2020. Rolf brings over 30 years of
experience in finance and extensive strategic, operational and
international experience including M&A, fundraisings and
disposals to the Board. Finally, following my appointment as
Chairman, Duncan Budge has been appointed as Senior Independent
Director of the Company.
OUTLOOK
The Investment Manager continues to develop a pipeline of
additional potential investments and, as a consequence, we expect
to be evaluating a number of potential alternatives to fund future
growth and further diversify our portfolio.
On behalf of the Board, I should like to express our thanks to
Pharmakon for their continued achievements on behalf of the Company
in 2020 and to our shareholders for their continued support.
Harry Hyman
Chairman
15 March 2021
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 $4.6 billion in over 40
transactions on behalf of its clients. As at 31 December 2020,
Pharmakon clients included four previous BioPharma Funds (I, II,
III and IV), BioPharma V, a private fund also investing in life
sciences debt managed by Pharmakon Advisors launched in June 2019,
and seven managed co-investor accounts. The four previous BioPharma
Funds have now reached the end of their investment period and have
returned all capital to investors generating an average 10.4 per
cent. IRR. BioPharma V has raised $742 million in commitments and
had invested $521 million to date.
The Pharmakon team has extensive expertise investing in debt and
other cash flows backed by life sciences products. Pharmakon prides
itself on its ability to identify and structure investments that
meet its target returns while minimising risk through its rigorous
diligence process and industry expertise. As a result, Pharmakon
has been able to generate consistent returns throughout its
history.
Through a shared services agreement with RP Management LLC,
Pharmakon has access to the complementary expertise of the team
behind the market-leading investor in pharmaceutical royalties. RP
Management LLC, an affiliate of Pharmakon, was established in 1996
and acquires revenue-producing intellectual property as the
investment manager of Royalty Pharma PLC which had its IPO on 16
June 2020 (Nasdaq: RPRX) and had a market capitalisation of $25,820
million as of 5 March 2021.
INVESTMENTS
Pharmakon is pleased to present an update on the Company and its
subsidiaries' portfolio and investment outlook. We are delighted
with the results over the past year and look forward to a
productive 2021 as we continue to solidify our position as the
leading investor in life sciences debt. Since its IPO in March 2017
the Company and its subsidiaries have invested $2,263 million using
proceeds from capital raises and have reinvested $1,227 million in
amortisations, loan repayments and prepayments received by the
Company and its subsidiaries.
2020 started with the Company and its subsidiaries' $165 million
investment of the $200 million loan to Collegium. Over the
following months, the Company and its subsidiaries funded an
additional $308 million in previous commitments to GBT, BDSI, BMS
and Akebia plus an additional $75 million as part of an upsizing of
the Epizyme loans. In total, the Company and its subsidiaries'
funded $548 million during 2020 including $322 million from its
financing subsidiary, BPCR Limited Partnership. Three investments
in the Company and its subsidiaries portfolio were prepaid early
during the third quarter of 2020 (Novocure, Amicus and Lexicon)
generating $444 million in cash ($425 million in principal, $5
million in accrued interest and $14 million in fees). Also during
2020, the Company and its subsidiaries negotiated a $200 million
credit line with JPMorgan which the Company has not drawn upon.
During the year the COVID-19 pandemic has impacted the global
economy and has led to significant volatility in both the equity
and debt capital markets. Pharmakon Advisors believes that the
COVID-19 virus has not had a material impact on the credit quality
of the loans. Pharmakon Advisors continues to monitor the situation
and will inform shareholders of any material changes to this
assessment. Below is an update on the Company and its subsidiaries
portfolio.
Collegium
On 7 February 2020, the Company and BioPharma-V, a private fund
also investing in life sciences debt managed by Pharmakon Advisors,
entered into a definitive senior secured term loan agreement for
$200 million with Collegium Pharmaceutical, Inc. (Nasdaq: COLL), a
biopharmaceutical company focused on developing and commercialising
new medicines for responsible pain management ("Collegium").
The Company and its subsidiaries funded $165 million of the $200
million loan in February 2020. The loan will mature in February
2024 and will bear interest at three-month LIBOR plus 7.50 per
cent. per annum subject to a 2.00 per cent. LIBOR floor with a
one-time additional consideration of 2.50 per cent. of the loan
amount payable upon funding. The loan amortises quarterly and had a
remaining balance of $134 million as of 31 December 2020.
Collegium currently markets Xtampza (R) ER, an abuse-deterrent,
extended-release, oral formulation of oxycodone and Nucyanta (R)
(tapentadol), a centrally acting synthetic analgesic. Sales of the
two drugs totalled $310 million during 2020, up 4 per cent. from
$297 million during 2019. Collegium had a market capitalisation of
approximately $779 million as at 5 March 2021.
Investment type Date invested
Secured loan 7 February 2020
Total loan amount Company commitment
$200m $165m
Maturity
February 2024
GBT
On 18 December 2019, the Company and BioPharma-V entered into a
definitive senior secured term loan agreement for up to $150
million with Global Blood Therapeutics (Nasdaq: GBT), a
biopharmaceutical company focused on innovative treatments that
provide hope to underserved patient communities ("GBT"). GBT drew
down $75 million at closing and an additional $75 million on 20
November 2020.
The Company and its subsidiaries funded $41 million of each
tranche for a total investment of $83 million. The loan will mature
in December 2025 and will bear interest at three month LIBOR plus
7.00 per cent. per annum subject to a 2.00 per cent. floor along
with a one-time additional consideration of 1.50 per cent. of the
total loan amount payable upon funding and an additional 2.00 per
cent. payable upon the repayment of the loan.
GBT manufactures and sells Oxbryta TM (voxelotor) for the
treatment of sickle cell disease in adults and pediatric patients
12 years of age and older. Oxbryta was launched in early 2020 and
generated total sales of $124 million during its first year. GBT
had a market capitalisation of approximately $2,495 million as of 5
March 2021.
Investment type Date invested
Secured loan 18 December 2019
Total loan amount Company commitment
$150m $83m
Maturity
December 2025
Sarepta Therapeutics
On 13 December 2019, the Company and BioPharma-V entered into a
definitive senior secured term loan agreement for up to $500
million with Sarepta Therapeutics (Nasdaq: SRPT), a fully
integrated biopharmaceutical company focused on precision genetic
medicine ("Sarepta"). On 24 September 2020 the Sarepta loan
agreement was amended and the loan amount was increased to $550
million. Sarepta drew down the first $250 million tranche at
closing and an additional $300 million on 2 November 2020.
The Company and its subsidiaries funded $175 million of each
tranche for a total investment of $350 million. The first tranche
will mature in December 2023 and the second tranche in December
2024. The loan will bear interest at 8.5 per cent. per annum along
with a one-time additional consideration of 1.75 per cent. of the
first tranche and 2.95 per cent. of the second tranche payable upon
funding and an additional 2 per cent. payable upon the repayment of
the loan.
Sarepta currently markets Exondys 51 (eteplirsen) and Vyondys 53
(golodirsen) in the US for the treatment of Duchenne muscular
dystrophy (DMD). Sales of the two drugs totalled $456 million
during 2020, up 20 per cent. from $381 million during 2019. Sarepta
had a market capitalisation of approximately $6,726 million as at 5
March 2021.
Investment type Date invested
Secured loan 13 December 2019
Total loan amount Company commitment
$500m $350m
Maturity
1(st) Tranche December 2023
2(nd) Tranche December 2024
Akebia
On 11 November 2019, the Company and BioPharma-V entered into a
definitive senior secured term loan agreement for up to $100
million with Akebia (Nasdaq: AKBA), a fully integrated
biopharmaceutical company focused on the development and
commercialisation of therapeutics for people living with kidney
disease ("Akebia"). Akebia drew down $80 million at closing and an
additional $20 million on 10 December 2020.
The Company and its subsidiaries funded $40 million of the $80
million first tranche and $10 million of the second tranche. The
loan will mature in November 2024 and will bear interest at LIBOR
plus 7.5 per cent. per annum along with a one-time additional
consideration of 2 per cent. of the total loan amount. Akebia
currently markets Auryxia(R) (ferric citrate) which is approved in
the US for hyperphosphatemia (elevated phosphorus levels in blood
serum) in adult patients with chronic kidney disease (CKD) on
dialysis and iron deficiency anaemia in adult patients with CKD not
on dialysis. Sales of Auryxia totalled $129 million during 2020, up
16 per cent. from $111 million during 2019. Akebia had a market
capitalisation of approximately $516 million as at 5 March
2021.
Investment type Date invested
Secured loan 11 November 2019
Total loan amount Company commitment
$100m $50m
Maturity
November 2024
Epizyme
On 4 November 2019, the Company and BioPharma-V entered into a
definitive senior secured term loan agreement for up to $70 million
with Epizyme (Nasdaq: EPZM), a late-stage biopharmaceutical company
developing novel epigenetic therapies ("Epizyme"). On 3 November
2020 the Epizyme loan agreement was amended and the loan amount was
increased to $220 million. Epizyme drew down $25 million at closing
and an additional $195 million during 2020.
The Company and its subsidiaries funded a total of $110 million
of the Epizyme loan. The loan will mature in November 2024 and will
bear interest at LIBOR plus 7.75 per cent. per annum along with a
one-time additional consideration of 2 per cent. of the total loan
amount. Epizyme's lead product, TAZVERIK (tazemetostat), is a
first-in-class, oral EZH2 inhibitor that received FDA approval for
epithelioid sarcoma on 23 January 2020 and follicular lymphoma on
18 June 2020. TAZVERIK was launched in early 2020 and generated
total sales of $16 million during its first year. Epizyme had a
market capitalisation of approximately $959 million as at 5 March
2021.
Investment type Date invested
Secured loan 4 November 2019
Total loan amount Company commitment
$220m $110m
Maturity
November 2024
Optinose
On 12 September 2019, the Company and BioPharma-V entered into a
definitive senior secured note purchase agreement for the issuance
and sale of senior secured notes in an aggregate original principal
amount of up to US$150 million by OptiNose US, a wholly-owned
subsidiary of OptiNose (Nasdaq: OPTN), a commercial-stage specialty
pharmaceutical company ("OptiNose"). Optinose drew a total of
US$130 million on 12 September 2019, $30 million on 13 February
2020 and $20 million on 1 December 2020. There are no additional
funding commitments.
On 2 March 2021, the sales covenants in the notes were reduced
by 16 per cent. for 2021 and 3 per cent. thereafter to allow for
slower growth due to the temporary impact of Covid 19 from reduced
patient visits. The revised covenant for 2021 of $80 million still
represents growth of 65 per cent. from 2020.
The Company and its subsidiaries funded a total $72 million
across all tranches and was allocated 445,696 warrants. The notes
mature in September 2024 and bear interest at 10.75 per cent. per
annum along with a one-time additional consideration of 0.75 per
cent. of the aggregate original principal amount of senior secured
notes which the Company and BioPharma-V are committed to purchase
under the facility and 810,357 warrants exercisable into common
stock of OptiNose.
OptiNose's leading product, XHANCE(R) (fluticasone propionate),
is a nasal spray approved by the U.S. Food and Drug Administration
(FDA) in September 2017 for the treatment of nasal polyps in
patients 18 years or older. XHANCE(R) utilises a novel and
proprietary exhalation delivery system to deliver the drug high and
deep into the sinuses, targeting areas traditional intranasal spray
are not able to reach. Sales of XHANCE totalled $48 million during
2020, up 60 per cent. from $30 million during 2019. Optinose had a
market capitalisation of approximately $186 million as at 5 March
2021.
Investment type Date invested
Secured loan 12 September 2019
Total loan amount Company commitment
$150m $82.5m
Maturity
September 2024
Biodelivery Sciences International
On 23 May 2019, the Company entered into a senior secured loan
agreement for up to $80 million with BioDelivery Sciences
International (Nasdaq: BDSI), a commercial-stage specialty
pharmaceutical company ("BDSI"). BDSI utilises its novel and
proprietary BioErodible MucoAdhesive (BEMA(R)) technology, to
develop and commercialize new applications of proven therapies
aimed at addressing important unmet medical needs. 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.
The first tranche of the loan for $60 million was funded on 28
May 2019 and the second $20 million tranche was funded on 22 May
2020. The loan will mature in May 2025 and bears interest at LIBOR
plus 7.5 per cent., along with 2 per cent. additional
consideration. The Company sold 46% of its BDSI shares during 2019
at an average price of $6.5. BDSI shares closed at $4.08 on 10
March 2021.
BDSI leading products include BELBUCA (R) (buprenorphine buccal
film) and Symproic (R) (naldemedine). Sales of the two drugs
totalled $151 million during 2020, up 42 per cent. from $106
million during 2019. BDSI had a market capitalisation of
approximately $407 million as at 5 March 2021.
Investment type Date invested
Secured loan 28 May 2019
Total loan amount Equity
$80m $25m
Company commitment Maturity
$105m May 2025
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 LIBOR (un-capped) plus a single-digit spread and
includes additional consideration.
Sebela is a private specialty pharmaceutical company focused on
gastrointestinal medicines, dermatology, and women's health. As at
31 December 2020, the principal amount outstanding of the Company's
investment was $92 million.
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 was expected to fund $140 million to $165
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 31
December 2020, the Company funded seven of the Purchased Payments
based on sales from 1 January 2018 to 30 September 2019 for a total
of $162 million.
Repaid investments
Since its IPO in March 2017, the Company and its subsidiaries
have received $1,200 million in proceeds from repayments and
pre-payments of various investments. These investments generated
attractive returns, particularly those that were prepaid early and
earned prepayment and make-whole fees:
Investment Investment Investment Maturity/Prepayment Prepayment Gross IRR
Date Amount Date and Makewhole
fees
BioPharma
III 27 March 2017 $154 million 31 January 2019 - 13.6%
--------------- ------------- -------------------- --------------- ----------
RPS Note 27 March 2017 $185 million 15 October 2018 - 12.9%
--------------- ------------- -------------------- --------------- ----------
21 November
Tesaro 2017 $322 million 23 January 2019 $46 million 28.8%
--------------- ------------- -------------------- --------------- ----------
18 December
Lexicon 2017 $125 million 8 September 2020 $6 million 12.1%
--------------- ------------- -------------------- --------------- ----------
7 February
Novocure 2018 $150 million 18 August 2020 $3 million 10.2%
--------------- ------------- -------------------- --------------- ----------
28 September
Amicus 2018 $150 million 30 July 2020 $5 million 13.4%
--------------- ------------- -------------------- --------------- ----------
Amicus Therapeutics
On 20 September 2018, the Company entered into a senior secured
loan agreement for $150 million with Amicus Therapeutics, Inc, a
commercial stage, rare metabolic disease-focused biopharmaceutical
company ("Amicus").
The $150 million loan had a five-year maturity with only
interest to be repaid for the first four years. The loan bore
interest at LIBOR plus 7.50 per cent. (subject to certain caps) and
included a 2.00 per cent. additional consideration. Following the
restructuring of this loan with another third party, Amicus repaid
the $150 million loan on 30 July 2020. The Company and its
subsidiaries received a payment of $156 million, including the
make-whole and prepayment premium totalling $5 million. The Company
and its subsidiaries earned a 13.4 per cent. internal rate of
return on its Amicus investment.
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 ("Lexicon"), a fully integrated biopharmaceutical
company.
The $200 million loan was available in two tranches, each
maturing in December 2022. The Company funded $125 million of the
$200 million first tranche and Lexicon did not draw the second
tranche. The loan had a fixed 9.0% coupon. Lexicon repaid the $125
million loan on 8 September 2020. The Company and its subsidiaries
received a payment of $132 million including the make-whole and
prepayment premium totalling $6 million. The Company and its
subsidiaries earned a 12.1 per cent. internal rate of return on its
Lexicon investment.
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 ("Novocure").
The $150 million loan was originally scheduled to mature in
February 2023 and bear interest at 9.0 per cent. per annum.
Novocure repaid the $150 million loan on 18 August 2020. The
Company and its subsidiaries received a payment of $155 million,
including a prepayment premium totalling $3 million. The Company
earned a 10.2 per cent. internal rate of return on its Novocure
investment.
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 (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 million on its $322
million share of the loan, including the make-whole and prepayment
premium totalling $46 million, or 14.2 per cent., of the $322
million investment, which is the equivalent of what the Company
would have received had the loan remained outstanding for another
approximately fifteen months. The Company earned a 29.0 per cent.
internal rate of return on its Tesaro investment.
Seed assets
The Company acquired $339 million in seed assets at the time of
the IPO in March 2017, consisting of a $185 million investment in
the RPS Note and a 46 per cent. limited partnership interest in
BioPharma III, valued at $154 million at the time of the IPO. On 15
October 2018, the Company received its final payment on the RPS
Note of $20 million, realising a 12.9 per cent. internal rate of
return. On 29 January 2019, the Company received $8 million as its
final payment from BioPharma III, realising a 13.6 per cent.
internal rate of return.
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"). 2020 was a volatile year, with the BTK index
declining 12 per cent. during the first three months of the year
followed by a quick recovery, rising 28 per cent. from March to
December, ending 2020 with a 13 per cent. increase for the year.
Companies in the industry took advantage of the increased
volatility and sudden recovery in share prices to issue $15.3
billion in convertible notes, a 129 per cent. increase from the
previous year as well as $130 billion in equity, a 110% increase
from 2019. The strong equity market also allowed for a 50 per cent.
increase in IPO proceeds compared to 2019.
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. Global life sciences M&A volume
during 2020 was negatively affected by the Covid pandemic,
declining 40% from 2019 levels to $118.8 billion.
We continue to see a robust pipeline of investment opportunities
and expect it to continue to grow as new products are approved. We
remain focused on our mission of creating the premier dedicated
provider of debt capital to the life sciences industry while
generating attractive returns and sustainable income to investors.
Further, Pharmakon remains 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
15 March 2021
STRATEGIC OVERVIEW
Investment objective
The Company aims to generate long-term Shareholder returns,
predominantly in the form of sustainable income distributions from
exposure to the life sciences industry.
Investment policy
The Company will seek to achieve its investment objective
predominantly through direct or indirect exposure to Debt
Assets.
The Company may acquire Debt Assets:
-- directly from the entity issuing the debt asset (a
"Borrower"), which may be: (i) a company operating in the life
sciences industry (a "LifeSci Company"); or (ii) an entity other
than a LifeSci Company which directly or indirectly holds an
interest in royalty rights to certain products, including any
investment vehicle or special purpose vehicle ("Royalty Owner");
or
-- in the secondary market.
The Company may also invest in equity issued by a LifeSci
Company, acquired directly from the LifeSci Company or in the
secondary market.
"Debt Assets" will typically comprise:
-- Royalty debt instruments
Debt issued by a Royalty Owner where the Royalty Owner's
obligations in relation to the Debt are secured as to repayment of
principal and payment of interest by Royalty Collateral.
-- Priority royalty tranches
Contract with a Borrower that provides the Company with the
right to receive payment of all or a fixed percentage of the future
royalty payments receivable in respect of a Product (or Products)
that would otherwise belong to the Borrower up to a fixed monetary
amount or a pre-set rate of return, with such royalty payment being
secured by Royalty Collateral in respect of that Product (or
Products).
-- Senior secured debt
Debt issued by a LifeSci Company, and which is secured as to
repayment of principal and payment of interest by a first priority
charge over some or all of such LifeSci Company's assets, which may
include: (i) Royalty Collateral; or (ii) other intellectual
property and marketing rights to the Products of that LifeSci
Company.
-- Unsecured debt
Debt issued by a LifeSci Company which is not secured or is
secured by a second lien on assets of the Borrower.
-- Credit linked notes
Derivative instruments referencing Debt Assets, being a
synthetic obligation between the Company and another party where
the repayment of principal and/or the payment of interest is based
on the performance of the obligations under the underlying Debt
Assets.
"Royalty Collateral" means, with respect to a Debt Asset, (i)
future payments receivable by the Borrower on a Product (or
Products) in the form of royalty payments or other revenue sharing
arrangements; or (ii) future distributions receivable by the
Borrower based on royalty payments generated from a Product (or
Products); or (iii) both limb (i) and limb (ii).
"Debt" includes loans, notes, bonds and other debt instruments
and securities, including convertible debt, and Priority Royalty
Tranches.
Borrowers will predominantly be domiciled in the US, Europe and
Japan, though the Company may also acquire Debt Assets issued by
Borrowers in other jurisdictions.
Investment restrictions and portfolio diversification
The Company will seek to create a diversified portfolio of
investments by investing across a range of different forms of Debt
Assets issued by a variety of Borrowers. In particular, the Company
will observe the following restrictions when making investments in
accordance with its investment policy:
-- no more than 30 per cent. of the Company's gross assets will
be exposed to any single Borrower;
-- no more than 35 per cent. of the Company's gross assets will
be invested in Unsecured Debt; and
-- no more than 15 per cent. of the Company's gross assets will
be invested in equity securities issued by LifeSci Companies.
Each of these investment restrictions will be calculated at the
time of each proposed investment. In the event that any of the
above limits are breached at any point after the relevant
investment has been made (for instance, as a result of any
movements in the value of the Company's total assets), there will
be no requirement to sell any investment (in whole or in part).
Cash management
The Company's uninvested capital may be invested in cash
instruments or bank deposits for cash management purposes.
Hedging
The Company does not propose to enter into any hedging or other
derivative arrangements other than as may from time to time be
considered appropriate for the purposes of efficient portfolio
management. The Company will not enter into such arrangements for
investment purposes.
Business and status of the Company
The Company is registered in England as a public limited company
and is an investment company in accordance with the provisions of
Section 833 of the Companies Act 2006.
The principal activity of the Company is to carry on business as
an investment trust. The Company intends at all times to conduct
its affairs so as to enable it to qualify as an investment trust
for the purposes of Sections 1158/1159 of the Corporation Tax Act
2010 ("S1158/1159"). The Directors do not envisage any change in
this activity in the foreseeable future.
The Company has been granted approval from HM Revenue &
Customs ("HMRC") as an investment trust under S1158/1159 and will
continue to be treated as an investment trust company, subject to
there being no serious breaches of the conditions for approval. The
Directors are of the opinion that the Company has conducted its
affairs for the year ended 31 December 2019 so as to be able to
continue to qualify as an investment trust.
The Company has three wholly-owned subsidiaries, BPCR Ongdapa
Limited, BPCR Limited Partnership and BPCR GP Limited., details of
which can be found in Note 14 to the financial statements.
STAKEHOLDER ENGAGEMENT - SECTION 172(1) STATEMENT
Overview
The Directors' overarching duty is to promote the success of the
Company for the benefit of its shareholders, having regard to the
interests of its stakeholders, as set out in section 172(1) of the
Companies Act 2006. The Directors have considered each aspect of
this section of the Act and consider that the information set out
below is particularly relevant in the context of the Company's
business as an externally managed investment company which does not
have any employees or suppliers.
The importance of stakeholders is taken into account at every
Board meeting. All discussions involve careful consideration of the
longer-term consequences of any decisions and their implications
for stakeholders.
Stakeholders
The Board seeks to understand the needs and priorities of the
Company's stakeholders and these are taken into account during all
its discussions and as part of its decision-making. The Board
believes that the Company's key stakeholders comprise its
shareholders, clients and service providers. The section below
discusses why these stakeholders are considered of importance to
the Company and the actions taken to ensure that their interests
are taken into account. The Company recognises the importance of
maintaining high standards of business conduct and seeks to ensure
that these are applied in all of its business dealings and in its
engagement with stakeholders. Further information on the impact of
the Company's operations on the community and the environment is
set out below.
The Company's mechanisms for engaging with its stakeholders are
set out below. These are kept under review by the Directors and are
discussed on a regular basis at Board meetings to ensure that they
remain effective.
For more information on the purpose, culture and values of the
Company, and the processes which the Board has put in place to
ensure these, see the Corporate Governance Statement in the full
annual report.
Shareholders
Importance
Continued shareholder support and engagement are critical to the
existence of the Company and the delivery of its long-term strategy
and engagement with shareholders is given a high priority by both
the Board and the Investment Manager.
How the Company engages
The Chairman ensures that the Board as a whole has a clear
understanding of the views of shareholders by receiving regular
updates from the Brokers and Investment Manager. The Investment
Manager and the Company's Brokers are in regular contact with major
shareholders and report the results of all meetings and the views
of those shareholders to the Board on a regular basis. The Chairman
and the other Directors are available to attend these meetings with
shareholders if required. Relations with shareholders are also
considered as part of the annual Board evaluation process. For
further details regarding this process see the full annual
report.
All shareholders are encouraged to attend and vote at annual
general meetings, during which the Board and the Investment Manager
will be available to discuss issues affecting the Company and
answer any questions. Further information regarding the AGM is
detailed in the full annual report. Shareholders wishing to raise
questions or concerns directly with the Chairman, Senior
Independent Director or Company Secretary, outside of the AGM,
should do so using the contact details provided below.
While the ongoing Covid-19 pandemic and resulting prohibition on
public gatherings meant that shareholders were not be permitted to
attend the AGM in June 2020, Shareholders were able to provide
questions to the Company Secretary in advance of the AGM and a
separate shareholder call was scheduled for any such questions to
be answered by the Board and Investment Manager.
Although the Company has been established with an indefinite
life, the Articles provide that a continuation vote be put to
shareholders at the first AGM of the Company to be held following
the fifth anniversary of Initial Admission i.e. in 2022 and, if
passed, at the annual general meeting of the Company held every
third year thereafter; and within two months of the expiration of
any 12-month rolling period where the Shares have, on average,
traded at a discount in excess of 10 per cent. to the Net Asset
Value per Share (calculated by comparing the middle market
quotation of the Shares at the end of each month in the relevant
period to the prevailing published NAV per Ordinary Share
(exclusive of any dividend declared) as at such month end and
averaging this comparative figure over the relevant period).
Clients
Importance
The investments made by the Company support the large capital
needs of its portfolio companies, supporting their research and
development budgets for life sciences products and enable it to
achieve its investment objective.
How the Company engages
The Company's clients are pharmaceutical and biotechnology
companies within the life sciences industry to which it provides
debt capital. The Investment Manager is highly experienced in this
area with a strong track record of meeting the capital needs of its
clients. The Investment Manager meets regularly with the management
teams of current and prospective investee companies to enhance
relationships and to understand their views and capital
requirements.
The Directors receive updates from the Investment Manager on the
companies within its investment portfolio at all Board meetings,
and outside of meetings as appropriate.
Further information on the Company's engagement with investee
companies during the year, including case studies regarding their
products, is set out above.
Service Providers
Importance
In order to function as an investment trust on the Specialist
Fund Segment of the London Stock Exchange, the Company relies on a
number of reputable advisers for support in complying with all
relevant legal and regulatory obligations.
How the Company engages
The Company's day-to-day operational functions are delegated to
a number of third-party service providers, each engaged under
separate contracts. The Company's principal service providers
include the Investment Manager, Company Secretary, Joint Brokers,
Administrator, Legal Adviser, Auditor and the Registrar.
The Board keeps the ongoing performance of the Investment
Manager under continual review and conducts an annual appraisal of
the Investment Manager, along with the performance of all other
third-party service providers. The Investment Manager has executed
the investment strategy according to the Board's expectations and
it is the opinion of the Directors that the continuing appointment
of Pharmakon is in the interests of shareholders as a whole.
The Audit and Risk Committee reviews and evaluates the control
environments in place at each service provider. Further details
regarding the role of the Audit and Risk Committee are set out in
the full annual report. Further information about the review of
service providers and the culture of the Investment Manager is set
out in the Corporate Governance Statement in the full annual
report.
Key performance indicators
The Company assesses its performance in meeting its investment
objectives using the following Key Performance Indicators
("KPIs"):
NAV performance
The NAV at 31 December 2020 was $1.0037 per Share, compared to
$1.0217 per Share at 31 December 2019.
A full description of the Company's performance for the year
ended 31 December 2020 is included in the Investment Manager's
Report above.
Share price return
The Company's Share price at 31 December 2020 was $0.996, giving
a return since 31 December 2019 of (2.4) per cent.
Share price discount / premium to NAV per Share
The Company's Share price was at a discount to the NAV per Share
at 31 December 2020 of 0.77 per cent. The daily closing price of
the Company's Shares ranged from $0.86 - $1.03 throughout the
year.
In accordance with the Company's Articles of Association, if the
Share price declines to a point where the Shares trade on average
at a discount to NAV per Share in excess of 5 per cent. in any
three-month rolling period, the Company has certain discount
control mechanisms in place, one of which requires the Company to
repurchase Shares until such time as the Share price discount to
NAV per Share moves below 1 per cent.
On 22 June 2020, the Company announced that it was required to
purchase shares in the market as a result of the shares trading in
excess of a 5% discount to its NAV per Ordinary Share over a 3
month rolling period. At 16 July 2020, the Company's shares traded
at an average discount of 1% or less to the NAV per Ordinary Share
over the most recent two week rolling period, the Company therefore
ceased to repurchase its shares in the market. During the period
from 22 June 2020 to 16 July 2020, the Company repurchased a total
of 59,694 shares.
As of 31 December 2020, the Investment Manager invested $5.2
million from the performance fee paid related to the year ended 31
December 2019 acquiring 5.6 million shares. Refer to section 4 (B)
in the Notes to the Financial Statements.
Ongoing charges
The Company's ongoing charges ratio is shown in the table
below.
Year ended Year ended
31 December 2020 31 December 2019
% %
--------------------------------------- ----------------- -----------------
Ongoing charges excluding performance
fee* 1.2 1.0
Performance fee 0.4 1.0
Ongoing charges including performance
fee 1.6 2.0
--------------------------------------- ----------------- -----------------
* Ongoing charges are the Company's expenses (excluding
performance fees) expressed as a percentage of its average monthly
net assets and follow the AIC recommended methodology.
Dividends
Dividends totalling 8.29 cents per Ordinary Share, including two
special dividends of 1.28 cents and 0.01 cents, have been paid
during the year ended 31 December 2020.
RISK MANAGEMENT AND THE INTERNAL CONTROL ENVIRONMENT
The role of the Board
A formal risk identification and assessment process has been
adopted by the Company resulting in a risk framework document which
summarises the key risks and their mitigation.
The Board undertakes a formal risk review with the assistance of
the Audit and Risk Committee at least twice a year in order to
robustly assess the effectiveness of the Company's risk management
and internal control systems. During the course of its review in
respect of the year ended 31 December 2020, the Board has not
identified, nor been advised of any failings or weaknesses which it
has determined to be of a material nature. The principal risks and
uncertainties which the Company faces are set out below.
Principal risks and uncertainties
The Board of Directors has overall responsibility for risk
management and internal control of the Company. The Board
recognises that risk is inherent in the operation of the Company
and that effective risk management is key to the success of the
organisation. The Board has delegated responsibility for the
assurance of the risk management process and the review of
mitigating controls to the Audit and Risk Committee.
The principal risks and the Company's policies for managing
these risks are set out below and the policy and practice with
regard to financial instruments are summarised in Note 16 to the
financial statements.
There were no changes to these risks in the current year or at
the date of this report.
Risk Description and mitigation
---------------------- ------------------------------------------------------------
Failure to The target returns are targets only and are based
achieve target on financial projections that are themselves based
returns on assumptions regarding market conditions, economic
environment, availability of investment opportunities
and investment-specific assumptions that may not
be consistent with conditions in the future.
The Company seeks to achieve its investment objective
predominantly through direct or indirect exposure
to debt assets. Debt assets typically comprise
royalty debt instruments, priority royalty tranches,
senior secured debt, unsecured debt and credit-linked
notes. A variety of factors, including lack of
attractive investment opportunities, defaults
and prepayments under debt assets, inability of
the Company to obtain debt at an appropriate rate,
changes in the life sciences industry, exchange
rates, government regulations, the non-performance
(or underperformance) of any life sciences product
(or any life sciences company) could adversely
impact the Company's ability to achieve its investment
objective and deliver the target returns. A failure
by the Company to achieve its target returns could
adversely impact the value of the Shares and lead
to a loss of investment.
The Company has an investment policy to achieve
a balanced investment with a diversified asset
base and has investment restrictions in place
to limit exposure to potential risk factors. These
factors enable the Company to build a diversified
portfolio that should deliver returns that are
in line with its stated target return.
---------------------- ------------------------------------------------------------
The success In accordance with the Investment Management Agreement,
of the Company the Investment Manager is responsible for the
depends on investment management of the Company's assets.
the ability The Company does not have its own employees and
and expertise all of its Directors are appointed on a non-executive
of the Investment basis. All investment and asset management decisions
Manager are made by the Investment Manager (or any delegates
thereof) and not by the Company or the Directors
and, accordingly, the Company is completely reliant
upon, and its success depends on, the Investment
Manager and its personnel, services and resources.
The Investment Manager is required, under the
terms of the Investment Management Agreement,
to perform in accordance with the Service Standard.
The Investment Manager does not submit individual
investment decisions to the Board for approval
and the Board does not supervise the due diligence
performed by the Investment Manager. As part of
its asset management decisions, the Investment
Manager may from time to time make commitments
for future investments for which the Company may
need to raise funds in the future by issuing equity
and/or debt or by selling all or part of other
investments to raise liquidity.
The Company is entitled to terminate the Investment
Management Agreement if the Investment Manager
has (i) committed fraud, gross negligence or wilful
misconduct in the performance of its obligations
under the Investment Management Agreement, or
(ii) breached its obligations under the Investment
Management Agreement, and the Company is reasonably
likely to suffer a loss arising directly or indirectly
out of or in connection with such breach of an
amount equal to or greater than 10 per cent. of
the NAV as at the date of the breach. The Investment
Management Agreement may also be terminated at
the Company's discretion on not less than six
months' notice to the Investment Manager.
Under the terms of the Investment Management Agreement,
the Investment Manager is only liable to the Company
(and will only lose its indemnity) if it has committed
fraud, gross negligence or wilful misconduct or
acted in bad faith, or knowingly violated applicable
securities' laws. The performance of the Company
is dependent on the diligence, skill and judgement
of certain key individuals at the Investment Manager,
including Pedro Gonzalez de Cosio and other senior
investment professionals and the information and
investments' pipeline generated through their
business development efforts. On the occurrence
of a Key Person Event (as defined in the Investment
Management Agreement), the Company may be entitled
to terminate the Investment Management Agreement
with immediate effect (subject to the Investment
Manager's right to find an appropriate replacement
to be approved by the Board (such approval not
to be unreasonably withheld or delayed) within
180 days)). However, if the Company elects to
exercise this right, it would be required to pay
the Investment Manager a termination fee equal
to either 1 per cent. or 2 per cent. of the invested
NAV (depending on the reason for the Key Person
Event), as at the date of such termination. If
the Company elects not to exercise this right,
the precise impact of a Key Person Event on the
ability of the Company to achieve its investment
objective and target returns cannot be determined
and would depend inter alia on the ability of
the Investment Manager to recruit individuals
of similar experience, expertise and calibre.
There can be no guarantee that the Investment
Manager would be able to do so and this could
adversely affect the ability of the Company to
meet its investment objective and target returns
and may adversely affect the NAV and Shareholder
returns and result in a substantial loss of a
Shareholder's investment.
Pharmakon Advisors, the Investment Manager, has
extensive expertise and a track record of successfully
investing in debt and other cash flows backed
by life sciences products. The Investment Management
Agreement provides attractive incentives for the
Investment Manager to perform prudently and in
the best interests of the Company. In addition,
the Investment Manager and its affiliates own
approximately 6 per cent. of the Company as at
31 December 2020, creating a strong alignment
of interests between the Investment Manager and
its affiliates and Shareholders of the Company.
---------------------- ------------------------------------------------------------
The Company From time to time, the Company may commit to make
may from time future investments for which the Company will
to time commit need to raise funds by issuing equity and/or debt,
to make future or by selling all or part of other investments.
investments Investment opportunities may require the Company
that exceed to fund transactions in two or more tranches,
its current with the later tranches to be funded six or more
liquidity months in the future. Refusing to offer such later
tranches would decrease the attractiveness of
the Company's investment proposals and harm the
Company's ability to successfully deploy its capital.
Requiring the Company to maintain low-yielding
cash balances sufficient to fund all such later
tranches at the time of the initial commitment
would decrease the average yield on the Company's
assets, adversely impacting the returns to investors,
and may also result in missed investment opportunities.
However, in order to fund all such later tranches,
the Company could be forced to issue debt, sell
assets or renegotiate with the party to which
it has committed the funding on unattractive terms.
Furthermore, there can be no assurance that the
Company will always be able to raise sufficient
liquidity (by issuing equity and/or debt, or by
selling investments) to meet its funding commitments.
If the Company were to fail to meet its funding
commitments, the Company could be in breach of
its contractual obligations, which could adversely
affect the Company's reputation, could result
in the Company facing legal action from its counterparty,
and could adversely affect the Company's financial
results.
Pharmakon Advisors, the Investment Manager, together
with its affiliate RP Management LLC, believes
that the risks associated with such unfunded commitment
is manageable without undue risk. Pharmakon Advisors
has extensive expertise in raising debt secured
by cash flows from life sciences products and
has extensive relationships with banks and other
financial institutions who can be called on to
provide debt financing to the Company in order
to raise liquidity. In addition, Pharmakon Advisors
has expertise purchasing and selling life sciences
debt assets in the secondary market and has extensive
relationships with the major participants in the
life-sciences debt market who would be the likely
purchasers of any assets offered for sale by the
Company in order to raise liquidity.
---------------------- ------------------------------------------------------------
The Investment Returns on the shareholders' investments will
Manager's depend upon the Investment Manager's ability to
ability to source and make successful investments on behalf
source and of the Company. There can be no assurance that
advise appropriately the Investment Manager will be able to do so on
on investments an ongoing basis. Many investment decisions of
the Investment Manager will depend upon the ability
of its employees and agents to obtain relevant
information. There can be no guarantee that such
information will be available or, if available,
can be obtained by the Investment Manager and
its employees and agents. Furthermore, the Investment
Manager will often be required to make investment
decisions without complete information or in reliance
upon information provided by third parties that
is impossible or impracticable to verify. For
example, the Investment Manager may not have access
to records regarding the complaints received regarding
a given life science product or the results of
research and development related to products.
Furthermore, the Company may have to compete for
attractive investments with other public or private
entities, or persons, some or all of which may
have more capital and resources than the Company.
These entities may invest in potential investments
before the Company is able to do so or their offers
may drive up the prices of potential investments,
thereby potentially lowering returns and, in some
cases, rendering them unsuitable for the Company.
An inability to source investments would have
a material adverse effect on the Company's profitability,
its ability to achieve its target returns and
the value of the Shares.
The Investment Manager believes that sourcing
investments is one of its competitive advantages.
The Investment Manager's professionals, together
with those at its affiliate RP Management LLC,
accessible through the Shared Services Agreement,
have complementary scientific, medical, licensing,
operating, structuring and financial backgrounds
which the Investment Manager believes provide
a competitive advantage in sourcing, evaluating,
executing and managing credit investments in the
life sciences industry.
---------------------- ------------------------------------------------------------
There can Under the terms of the Investment Management Agreement,
be no assurance the Investment Management Agreement may be terminated
that the Board by: (A) the Investment Manager on not less than
will be able six months' notice to the Company, such notice
to find a not to expire earlier than 18 months following
replacement Admission; or (B) the Company on not less than
investment six months' notice to the Investment Manager,
manager if such notice not to expire earlier than: (i) 36
the Investment months following Admission, unless approved by
Manager resigns Shareholders by ordinary resolution; and (ii)
18 months following Admission, in any event. The
Board would, in these circumstances, have to find
a replacement investment manager for the Company
and there can be no assurance that a replacement
with the necessary skills and experience would
be available and/or could be appointed on terms
acceptable to the Company. In this event, the
Board may have to formulate and put forward to
Shareholders proposals for the future of the Company
which may include its merger with another investment
company, reconstruction or winding up. It is possible
that, following the termination of the Investment
Manager's appointment, the Investment Manager
will continue to have a role in the investment
management of certain assets, where a debt asset
is shared with one or more other entity managed
by the Investment Manager that continue to retain
the Investment Manager's services.
In the event the Investment Manager resigns, the
Board will put forward to Shareholders proposals
for the future of the Company which may include
its merger with another investment company, reconstruction
or winding up. Entities affiliated with the Investment
Manager own approximately 6 per cent. of the Company
as at 31 December 2020. This affiliate ownership
level, coupled with the fact that the Investment
Manager is fairly compensated, provide further
incentive for them to remain as Investment Manager
to the Company.
---------------------- ------------------------------------------------------------
Concentration The Company's published investment policy allows
in the Company's the Company to invest up to 30 per cent. of the
portfolio Company's assets in a single debt asset or in
may affect debt assets issued to a single borrower. While
the Company's the investment limits in the investment policy
ability to have been set keeping in mind the debt capital
achieve its requirements of the life sciences industry and
investment the investment opportunities available to the
objective Investment Manager, it is possible that the Company's
portfolio may be significantly concentrated at
any given point in time.
Concentration in the Company's portfolio may increase
certain risks to which the Company is subject,
some or all of which may be related to events
outside the Company's control. These would include
risks around the creditworthiness of the relevant
borrower, the nature of the debt asset and of
any life sciences product(s) in question. The
occurrence of these situations may result in greater
volatility in the Company's investments and, consequently,
its NAV, and may materially and adversely affect
the performance of the Company and the Company's
returns to shareholders. Such increased concentration
of the Company's assets could also result in greater
losses to the Company in adverse market conditions
than would have been the case with a less concentrated
portfolio, and have a material adverse effect
on the Company's financial condition, business,
prospects and results of operations and, consequently,
the Company's NAV and/or the market price of the
Shares.
---------------------- ------------------------------------------------------------
Life sciences The biopharmaceutical and pharmaceutical industries
products are are highly competitive and rapidly evolving. The
subject to length of any life sciences product's commercial
intense competition life cannot be predicted. There can be no assurance
and various that the life sciences products will not be rendered
other risks obsolete or non-competitive by new products or
improvements made to existing products, either
by the current marketer of the life sciences products
or by another marketer. Adverse competition, obsolescence
or governmental and regulatory life sciences policy
changes could significantly impact royalty revenues
of life sciences products which serve as the collateral
or other security for the repayment of obligations
outstanding under the Company's investments. If
a life sciences product is rendered obsolete or
non-competitive by new products or improvements
on existing products or governmental or regulatory
action, such developments could have a material
adverse effect on the ability of the borrower
under the relevant debt asset to make payment
of interest on, and repayments of the principal
of, that debt asset, and consequently could adversely
affect the Company's performance. If additional
side effects or complications are discovered with
respect to a life sciences product, and such life
sciences product's market acceptance is impacted
or it is withdrawn from the market, continuing
payments of interest on, and repayment of the
principal of, that debt asset may not be made
on time or at all. It is possible that over time
side effects or complications from one or more
of the life sciences products could be discovered,
and, if such a side effect or complication posed
a serious safety concern, a life sciences product
could be withdrawn from the market, which could
adversely affect the ability of the borrower under
the relevant debt asset to make continuing payments
of interest on, and repayment of the principal
of, that debt asset, in which case the Company's
ability to make distributions to investors may
be materially and adversely affected.
Furthermore, if an additional side effect or complication
is discovered that does not pose a serious safety
concern, it could nevertheless negatively impact
market acceptance and therefore result in decreased
net sales of one or more of the life sciences
products, which could adversely affect the ability
of borrowers under the relevant debt asset(s)
to make continuing payments of interest on, and
repayment of the principal of, that debt asset(s),
in which case the Company's ability to make distributions
to investors may be materially and adversely affected.
The Investment Manager engages in a thorough diligence
process before entering into any debt instrument
with the counterparty and interacts with each
counterparty as needed to evaluate the status
of its investment on an ongoing basis.
---------------------- ------------------------------------------------------------
Investments Debt instruments are subject to credit and interest
in debt obligations rate risks. Credit risk refers to the likelihood
are subject that the borrower will default in the payment
to credit of principal and/or interest on an instrument.
and interest Financial strength and solvency of a borrower
rate risks are the primary factors influencing credit risk.
In addition, lack or inadequacy of collateral
or credit enhancement for a debt asset may affect
its credit risk. Credit risk may change over the
life of an instrument. Interest rate risk refers
to the risks associated with market changes in
interest rates. Interest rate changes may affect
the value of a debt asset indirectly (especially
in the case of fixed rate debt assets) and directly
(especially in the case of debt assets whose rates
are adjustable). In general, rising interest rates
will negatively impact the price of a fixed rate
debt asset and falling interest rates will have
a positive effect on price. Adjustable rate instruments
also react to interest rate changes in a similar
manner although generally to a lesser degree (depending,
however, on the characteristics of the reset terms,
including the index chosen, frequency of reset
and reset caps or floors, among other factors).
Interest rate sensitivity is generally more pronounced
and less predictable in instruments with uncertain
payment or prepayment schedules. In addition,
interest rate increases generally will increase
the interest carrying costs to the Company (or
any entity through which the Company invests)
of leveraged investments.
The Company will often seek to be a secured lender
for each Debt Asset. However, there is no guarantee
that the relevant borrower will repay the loan
or that the collateral will be sufficient to satisfy
the amount owed under the relevant Debt Asset.
Credit risk will be assessed on an ongoing basis
along with interest rate risk, and is further
mitigated by the Company's investment policy permitting
up to 30 per cent. of the Company's assets to
be invested in a single Debt Asset or in Debt
Assets issued to a single borrower. Interest rate
risk can be managed in a variety of ways, including
with the use of derivatives.
---------------------- ------------------------------------------------------------
Counterparty The Company intends to hold debt assets that will
risk generate an interest payment. There is no guarantee
that any borrower will honour their obligations.
The default or insolvency of such borrowers may
substantially affect the Company's business, financial
condition, results of operations, the NAV and
Shareholder returns.
The Company will often seek to be a secured lender
for each Debt Asset. However, there is no guarantee
that the relevant borrower will repay the loan
or that the collateral will be sufficient to satisfy
the amount owed under the relevant Debt Asset.
---------------------- ------------------------------------------------------------
Sales of life There can be no assurance that any regulatory
sciences products approvals for indications granted to one or more
are subject life sciences products will not be subsequently
to regulatory revoked or restricted. Such revocation or restriction
actions that may have a material adverse effect on the sales
could harm of such products and on the ability of borrowers
the Company's under the relevant Debt Asset to make continuing
ability to payments of interest on, and repayment of the
make distributions principal of, that Debt Asset, in which case the
to investors Company's ability to make distributions to investors
may be materially and adversely affected. Changes
in legislation are monitored with the use of third-party
legal advisers and the Investment Manager will
maintain awareness of new approvals or revoked
approvals.
---------------------- ------------------------------------------------------------
Net asset Generally, there will be no readily available
values published market for a significant number of the Company's
will be estimates investments and hence, the majority of the Company's
only and may investments are not valued based on market-observable
differ materially inputs.
from actual
results The valuations used to calculate the NAV on a
monthly basis will be based on the Investment
Manager's unaudited estimated fair market values
of the Company's investments. It should be noted
any such estimates may vary (in some cases materially)
from the results published in the Company's financial
statements (as the figures are published at different
times) and that they, and any NAV figure published,
may vary (in some cases materially) from realised
or realisable values.
The Investment Manager sends valuations on a monthly
basis to the administrator for calculation of
the NAV. The NAV is prepared by the administrator
on the basis of information received from the
Investment Manager and, once finalised, is reviewed
and approved by a representative of the Investment
Manager. Once approved, the Investment Manager
notifies the Board and the NAV is released to
the market.
---------------------- ------------------------------------------------------------
Changes in Any change in the Company's tax status, or in
taxation legislation taxation legislation or practice in the UK, US
or practice or elsewhere, could affect the value of the Company's
may adversely investments and the Company's ability to achieve
affect the its investment objective, or alter the post-tax
Company and returns to Shareholders. It is the intention of
the tax treatment the Directors to conduct the affairs of the Company
for Shareholders so as to satisfy the conditions for approval of
investing the Company by HMRC as an investment trust under
in the Company section 1158 of the Corporation Tax Act 2010 (as
amended) and pursuant to regulations made under
Section 1159 of the Corporation Tax Act 2010.
However, although the approval has been obtained,
neither the Investment Manager nor the Directors
can guarantee that this approval will be maintained
at all times. The Company has been granted approval
from HMRC as an investment trust and will continue
to have investment trust status in each subsequent
accounting period, unless the Company fails to
meet the requirements to maintain investment trust
status, pursuant to the regulations. For example,
it is not possible to guarantee that the Company
will remain a non-close company, which is a requirement
to maintain investment trust status, as the Shares
are freely transferable. Failure to maintain investment
trust status could, as a result, (inter alia)
lead to the Company being subject to UK tax on
its chargeable gains. Existing and potential investors
should consult their tax advisers with respect
to their particular tax situations and the tax
effects of an investment in the Company.
---------------------- ------------------------------------------------------------
COVID-19 may The global economic disruption caused by COVID-19
affect the may affect the Company's ability to continue in
Company's operation due to the impact on the market valuations
ability to of its senior secured loans or the ability of
continue operations key service providers (including the Custodian,
the Fund Accountant and the Brokers) to maintain
business continuity and continue to provide appropriate
service levels. The Investment Manager has reviewed
the impact of recent market volatility related
to the COVID-19 pandemic on the Company's portfolio
and have received regular updates on portfolio
performance from the underlying counterparties
and considers that the Company's business model
remains viable and that the Company has sufficient
resources to continue in operation and to meet
all liabilities as they fall due. The Investment
Manager has received updates from key service
providers in respect of their business continuity
plans to address the issues posed by COVID-19
and are confident that they will be able to continue
to provide a good level of service for the foreseeable
future.
GOING CONCERN
The Directors consider that it is appropriate to adopt the going
concern basis in preparing the financial
statements. After making enquiries, and bearing in mind the
nature of the Company's business and assets, the Directors consider
that the Company has adequate resources to continue in operational
existence for the foreseeable future. In arriving at this
conclusion, the Directors have considered the liquidity of the
portfolio and the Company's ability to meet obligations as they
fall due for a period of at least 12 months from the date that
these financial statements were approved.
VIABILITY STATEMENT
The Board has assessed the principal risks facing the Company
over a five-year period, including those that would threaten its
business model, future performance, solvency or liquidity. The
five-year period was selected to align with the average duration of
the Company's existing investments. The Board has developed a
matrix of risks facing the Company and has put in place certain
investment restrictions which are in line with the Company's
investment objective and policy in order to mitigate these risks as
far as practicable. The principal risks which have been identified,
and the steps taken by the Board to mitigate these risks, are
presented above.
The Company believes its borrowing capabilities provide further
flexibility and help ensure it is in a position to finance its
funding obligations in the event that internally generated cash
flow in the period is insufficient to finance the unfunded portion
of a lending commitment. The Board reviews the Company's financing
arrangements quarterly to ensure that the Company is in a strong
position to fund all outstanding commitments on existing
investments as well as being able to finance new investments. In
addition, the Board regularly reviews he prospects for the
Company's portfolio and the pipeline of potential investment
opportunities which provide comfort that the Company is able to
continue to finance its activities for the medium-term future.
Based on this assessment, the Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the next five-year
period.
ENVIRONMENTAL, HUMAN RIGHTS, EMPLOYEE, SOCIAL AND COMMUNITY
ISSUES
The Board recognises the requirement under the Companies Act
2006 to detail information about employees, human rights,
environmental and community issues, including information about any
policies it has in relation to these matters and the effectiveness
of these policies. These requirements do not apply directly to the
Company as it has no employees, all the Directors are non-executive
and it has outsourced all its functions to third-party service
providers. The Company has therefore not reported further in
respect of these provisions.
While the Company is not within the scope of the Modern Slavery
Act 2015 and it is not, therefore, obliged to make a slavery and
human trafficking statement, the Company considers its supply
chains to be of low risk as its principal service providers are the
professional advisers set out in the Corporate Information section
below. Further information on the Company's anti-bribery and
corruption policy is set out in the full Annual Report.
There are five Directors, four male and one female. Further
information on the composition and operation of the Board is
detailed in the Corporate Governance Statement in the full Annual
Report.
The Strategic Report has been approved by the Board and signed
on its behalf.
Harry Hyman
Chairman
15 March 2021
EXTRACTS FROM THE DIRECTORS' REPORT
The Directors are pleased to present the Annual Report and
audited financial statements for the year ended 31 December
2020.
Directors
The Directors of the Company who were in office during the year
and up to the date of signing the financial statements are listed
below:
Harry Hyman - Chairman (appointed as Chairman on 16 September
2020)
Duncan Budge - Senior Independent Director
Colin Bond - Chairman of the Audit and Risk Committee
Stephanie Léouzon - Director
Jeremy Sillem - Director and Chairman (retired on 16 September
2020)
Rolf Soderstrom - Director (appointed on 16 September 2020)
Share capital
At the general meeting held on 28 February 2017, the Company was
granted authority to allot Ordinary Shares or C Shares up to an
aggregate nominal amount of $20 million on a non-pre-emptive basis
for a period of five years from the date of the resolution. No
Ordinary Shares or C Shares have been allotted under this authority
during the year. As at the date of this report, the Company may
allot further Ordinary Shares or C Shares up to an aggregate
nominal amount of $6,244,038.87 under its existing authority.
Further information on the Company's share capital is set out in
Note 13 to the financial statements.
As a result of volatile equity market conditions and in
accordance with Section 9 of its prospectus published on 14 March
2018, the Company was required to purchase shares in the market
during the year as a result of the shares trading in excess of a 5%
discount to its NAV per ordinary share over a 3 month rolling
period using the methodology described in the prospectus. At the
annual general meeting held on 25 June 2020, the Company was
granted authority to purchase up to 14.99 per cent. of the
Company's Ordinary Share capital in issue at that date, amounting
to 205,952,416 Ordinary Shares. As set out in the Chairman's
Statement above, 59,694 Ordinary Shares of $0.01 were bought back
under this authority during the year, at a total cost of $60,009,
and are held in treasury. This represented 0.004% of the issued
share capital at 31 December 2020. No shares were purchased during
the year for cancellation. At 31 December 2020, and as at the date
of this report, the Company has the authority to buy back
205,892,722 Ordinary Shares under this authority. This authority
will expire at the conclusion of, and renewal will be sought at,
the annual general meeting to be held in June 2021.
At 31 December 2020, and as at the date of this report, there
are 1,373,932,067 Ordinary Shares in issue, of which 59,694
Ordinary Shares are held in treasury. At general meetings of the
Company, shareholders are entitled to one vote on a show of hands
and on a poll, to one vote for every Share held. Shares held in
treasury do not carry voting rights. The total voting rights of the
Company at 31 December 2020, and as at the date of this report,
were 1,373,872,373.
Dividends
Dividends paid in respect of the year ended 31 December 2020 are
set out in Note 6 to the financial statements.
Dividend policy
The Company pays dividends in US dollars or GBP Sterling, if
requested by a specific shareholder, on a quarterly basis. The
Company may, where the Directors consider it appropriate, use the
special distributable reserve created by the cancellation of its
Share premium account to pay dividends.
The Company targets an annual dividend yield of 7 per cent. on
the Ordinary Shares (calculated by reference to the issue price at
IPO), together with a net total return on NAV of 8-9 per cent. per
annum on the Ordinary Shares in the medium term.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
In respect of the financial statements
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the financial statements in accordance with
International Financial Reporting Standards (IFRSs) as issued by
the International Accounting Standards Board (IASB).
Under company law, directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the company and of the profit or
loss of the company for that period. In preparing the financial
statements, the directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable IFRSs as issued by the International
Accounting Standards Board (IASB) have been followed, subject to
any material departures disclosed and explained in the financial
statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business.
The directors are also responsible for safeguarding the assets
of the company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the company's
transactions and disclose with reasonable accuracy at any time the
financial position of the company and enable them to ensure that
the financial statements and the Directors' Remuneration Report
comply with the Companies Act 2006.
The directors are responsible for the maintenance and integrity
of the company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors' confirmations
Each of the directors, whose names and functions are listed in
the Board of Directors section in the full Annual Report confirm
that, to the best of their knowledge:
-- the company financial statements, which have been prepared in
accordance with IFRSs as issued by the International Accounting
Standards Board (IASB), give a true and fair view of the assets,
liabilities, financial position and profit of the company; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
company, together with a description of the principal risks and
uncertainties that it faces.
On behalf of the Board
Harry Hyman
Chairman
15 March 2021
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's statutory accounts for the years ended 31 December 2019
and 31 December 2020 but is derived from those accounts. Statutory
accounts for the year ended 31 December 2019 have been delivered to
the Registrar of Companies, and those for the year ended 31
December 2020 will be delivered in due course. The Auditor has
reviewed those accounts; their report was (i) unqualified, (ii) did
not include a reference to any matters to which the Auditor drew
attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under Section 498 (2) or (3) of
the Companies Act 2006. The text of the Auditor's report can be
found in the Company's full Annual Report and Financial
Statements.
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2020
(In $000s except per share amounts)
Year ended 31 December 2020 Year ended 31 December 2019
-------------------------------- --------------------------------
Note Revenue Capital Total Revenue Capital Total
------------------------------- ----- ---------- --------- --------- ---------- --------- ---------
Income
Investment income 3 99,473 - 99,473 128,935 - 128,935
Other income 3 1,072 - 1,072 13,403 - 13,403
Net gains on investments
at fair value 7 - 9,474 9,474 - 8,567 8,567
Net currency exchange
losses - (12) (12) - (12) (12)
------------------------------- -----
Total income 100,545 9,462 110,007 142,338 8,555 150,893
------------------------------- ----- ---------- --------- --------- ---------- --------- ---------
Expenses
Management fee 4 (13,745) - (13,745) (14,023) - (14,023)
Performance fee 4 (4,909) - (4,909) (13,570) - (13,570)
Directors' fees 4 (395) - (395) (395) - (395)
Other expenses 4 (1,822) - (1,822) (529) (48) (577)
------------------------------- -----
Total expenses (20,871) - (20,871) (28,517) (48) (28,565)
------------------------------- ----- ---------- --------- --------- ---------- --------- ---------
Return on ordinary activities
after finance costs and
before taxation 79,674 9,462 89,136 113,821 8,507 122,328
Taxation on ordinary
activities 5 - - - - - -
Return on ordinary activities
after finance costs and
taxation 79,674 9,462 89,136 113,821 8,507 122,328
Net revenue and capital
return per ordinary share
(basic and diluted) 11 $0.0580 $0.0069 $0.0649 $0.0828 $0.0062 $0.0890
------------------------------- ----- ---------- --------- --------- ---------- --------- ---------
The total column of this statement is the Company's Statement of
Comprehensive Income prepared in accordance with IFRS. The
supplementary revenue and capital columns are presented for
information purposes as recommended by the Statement of Recommended
Practice ("SORP") issued by the Association of Investment Companies
("AIC").
All items in the above Statement derive from continuing
operations.
There is no other comprehensive income, and therefore the return
on ordinary activities after finance costs and taxation is also the
total comprehensive income.
The notes below form part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2020
(In $000s)
Total equity
attributable
For the year ended 31 Share Special to
December Share premium distributable Capital Revenue Shareholders
2020 Note capital account reserve* reserve** reserve* of the Company
Net assets attributable
to shareholders at 1
January
2020 13,739 607,125 730,631 10,552 41,689 1,403,736
Return on ordinary
activities
after finance costs and
taxation - - - 9,462 79,674 89,136
Dividends paid to Ordinary
Shareholders 6 - - (79) - (113,818) (113,897)
----------------------------- -----
Cost of shares bought back
for treasury - - (60) - - (60)
----------------------------- -----
Net assets attributable
to shareholders at 31
December
2020 13,739 607,125 730,492 20,014 7,545 1,378,915
----------------------------- ----- --------- --------- --------------- ----------- ---------- ----------------
Total equity
attributable
For the year ended 31 Share Special to
December Share premium distributable Capital Revenue Shareholders
2019 Note capital account reserve* reserve* reserve* of the 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 - - - 8,507 113,821 122,328
Dividends paid to Ordinary
Shareholders 6 - - (3,678) - (94,936) (98,614)
------------------------------ -----
Net assets attributable
to shareholders at 31
December
2019 13,739 607,125 730,631 10,552 41,689 1,403,736
------------------------------ ----- --------- --------- --------------- ---------- ---------- ----------------
* The special distributable and revenue reserves can be
distributed in the form of a dividend.
** The capital reserve can be used to repurchase treasury
shares. It cannot be used for distributions.
The notes below form part of these financial statements.
STATEMENT OF FINANCIAL POSITION
As at 31 December 2020
(In $000s except per share amounts)
31 December 31 December
Note 2020 2019
--------------------------------------- ----- ------------ ------------
Non-current assets
Investments at fair value through
profit or loss 7 1,194,831 1,116,127
1,194,831 1,116,127
--------------------------------------- ----- ------------ ------------
Current assets
Trade and other receivables 8 208 16,206
Cash and cash equivalents 9 193,269 296,638
--------------------------------------- -----
193,477 312,844
--------------------------------------- -----
Total assets 1,388,308 1,428,971
--------------------------------------- -----
Current liabilities
Trade and other payables 10 9,393 24,504
--------------------------------------- -----
Total current liabilities 9,393 24,504
--------------------------------------- ----- ------------ ------------
Total assets less current liabilities 1,378,915 1,404,467
--------------------------------------- ----- ------------ ------------
Non-current liabilities
Deferred performance fee 10 - 731
--------------------------------------- ----- ------------ ------------
-
--------------------------------------- ----- ------------ ------------
Net assets 1,378,915 1,403,736
--------------------------------------- ----- ------------ ------------
Represented by:
Share capital 13 13,739 13,739
Share premium account 607,125 607,125
Special distributable reserve 730,492 730,631
Capital reserve 20,014 10,552
Revenue reserve 7,545 41,689
--------------------------------------- -----
Total equity attributable to
shareholders of the Company 1,378,915 1,403,736
--------------------------------------- ----- ------------ ------------
Net asset value per ordinary
share (basic and diluted) 12 $1.0037 $1.0217
--------------------------------------- ----- ------------ ------------
The financial statements of BioPharma Credit PLC registered
number 10443190 were approved and authorised for issue by the Board
of Directors on 15 March 2021 and signed on its behalf by:
Harry Hyman
Chairman
15 March 2021
The notes below form part of these financial statements.
CASH FLOW STATEMENT
For the year ended 31 December 2020
(In $000s)
Year ended Year ended
31 December 31 December
Note 2020 2019
----------------------------------------- ----- ------------- -------------
Cash flows from operating activities
Investment income received 94,514 134,424
Other income received 1,498 13,668
Investment management fee paid (34,610) (13,721)
Finance costs paid - (3)
Amounts paid on behalf of BPCR
Limited Partnership (1,357) -
Other expenses paid (1,973) (2,848)
----------------------------------------- ----- ------------- -------------
Cash generated from operations 15 58,072 131,520
Net cash flow generated from
operating activities 58,072 131,520
----------------------------------------- ----- ------------- -------------
Cash flow from investing activities
Purchase of investments* (225,736) (508,506)
Redemptions of investments* 162,500 387,169
Sales of investments* 15,764 21,042
----------------------------------------- ----- ------------- -------------
Net cash flow used in investing
activities (47,472) (100,295)
----------------------------------------- ----- ------------- -------------
Cash flow from financing activities
Dividends paid to Ordinary shareholders 6 (113,897) (98,614)
Share buybacks (60) -
Gross proceeds of C Share issue - 467
Net cash flow used in financing
activities (113,957) (98,147)
----------------------------------------- ----- ------------- -------------
Decrease in cash and cash equivalents
for the year (103,357) (66,922)
----------------------------------------- ----- ------------- -------------
Cash and cash equivalents at
start of year 9 296,638 363,572
Revaluation of foreign currency
balances (12) (12)
----------------------------------------- ----- ------------- -------------
Cash and cash equivalents at
end of year 9 193,269 296,638
----------------------------------------- ----- ------------- -------------
*Purchases of investments includes Collegium, Optinose Tranche
B, Q4 2019 BMS purchased payment, Epizyme Tranche B and BDSI
Tranche B fundings before assets were transferred in kind to the
financing subsidiary BPCR LP, on 22 May 2020. These payment do not
include investments made by BPCR LP.
The notes below form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
1. GENERAL INFORMATION
BioPharma Credit PLC is a closed-ended investment company
incorporated and domiciled in the United Kingdom on 24 October 2016
with registered number 10443190. The registered office of the
Company is Beaufort House, 51 New North Road, Exeter, EX4 4EP. On 6
February 2017 the Company changed its name from PRECIS (2772)
PLC.
The Company carries on business as an investment trust company
within the meaning of Sections 1158/1159 of the Corporation Tax Act
2010.
The Company's Investment Manager is Pharmakon Advisors L.P.
("Pharmakon"). Pharmakon is a limited partnership established under
the laws of the State of Delaware. It is registered as an
investment adviser with the SEC under the United States Investment
Advisers Act of 1940, as amended.
Pharmakon is authorised as an Alternative Investment Fund
Manager ("AIFM") under the Alternative Investment Fund Managers
Directive ("AIFMD"). Pharmakon has, with the consent of the
Directors, delegated certain administrative functions to Link
Alternative Fund Administrators Limited ("Link").
2. ACCOUNTING POLICIES
a) Basis of preparation
The Company's annual financial statements covers the year from 1
January 2020 to 31 December 2020 and have been prepared in
conformity with International Financial Reporting Standards
("IFRS") and interpretations issued by the IFRS Interpretations
Committee ("IFRS IC"), 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 October 2019) 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 been prepared
in accordance with the Companies Act 2006, as applicable to
companies using 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 2019, with the
exception of the change explained in note 2 (F).
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.
Assessment as an investment entity
Entities that meet the definition of an investment entity within
IFRS 10 'Consolidated Financial Statements' are required to measure
their subsidiaries at fair value through profit or loss rather than
consolidate the entities. The criteria which define an investment
entity are as follows:
-- an entity that obtains funds from one or more investors for
the purpose of providing those investors with investment
services;
-- an entity that commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income or both; and
-- an entity that measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Directors have concluded that the Company meets the
characteristics of an investment entity, in that it has more than
one investor and its investors are not related parties; holds a
portfolio of investments, predominantly in the form of loans which
generates returns through interest income. All investments,
including its subsidiaries BPCR Ongdapa Limited and BPCR Limited
Partnership, are reported at fair value to the extent allowed by
IFRS.
b) Presentation of Statement of Comprehensive Income
In order to better reflect the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature
has been prepared alongside the Income Statement.
c) Segmental reporting
The Directors are of the opinion that the Company has one
operating and reportable segment being the investment in debt
assets secured by royalties or other cash flows derived from the
sales of approved life sciences products.
d) Investments at fair value through profit or loss
The principal activity of the Company is to invest in
interest-bearing debt assets with a contractual right to future
cash flows derived from royalties or sales of approved life
sciences products. In accordance with IFRS, the financial assets
are measured at fair value through profit or loss. They are
accounted for on their trade date at fair value, which is
equivalent to the cost of the investment. The fair value of the
asset reflects any contractual amortising balance and accrued
interest.
The fair value hierarchy consists of the following three
levels:
-- Level 1 - Quoted market price for identical instruments in
active markets
-- Level 2 - Valuation techniques using observable Inputs
-- Level 3 - Valuation techniques using significant unobservable
inputs
Listed level 1 investments where a financial instrument is
active are priced by quoted market prices.
Level 2 investments may be valued using market data obtained
from external, independent sources. The data used could include
quoted prices for similar assets and liabilities in active markets,
prices for identical or similar assets and liabilities in inactive
markets, or models with observable inputs.
For unlisted level 3 investments where the market for a
financial instrument is not active, fair value is established using
valuation techniques in accordance with the International Private
Equity and Venture Capital Valuation ("IPEV") Guidelines (issued in
December 2018), 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.
Unlisted investments often require the manager to make estimates
and judgements and apply assumptions or subjective judgement to
future events and other matters that may affect fair value. For
unlisted investments valued using a discounted cash flow analysis,
the key judgements are the size of the market, pricing, projected
sales of the product at trade date and future growth and other
factors that will support the repayment of a senior secured or
royalty debt instrument.
Changes in the fair value of investments held at fair value
through profit or loss, and gains or losses on disposal, are
recognised in the Statement of Comprehensive Income as gains or
losses from investments held at fair value through profit or loss.
Transaction costs incurred on the purchase and disposal of
investments are included within the cost or deducted from the
proceeds of the investments. All purchases and sales are accounted
for on trade date.
e) Foreign currency
Transactions denominated in currencies other than US dollars are
recorded at the rates of exchange prevailing on the date of the
transaction. Items which are denominated in foreign currencies are
translated at the rates prevailing on the balance sheet date. Any
gain or loss arising from a change in exchange rate subsequent to
the date of the transaction is included as an exchange gain or loss
in the Statement of Comprehensive Income.
f) Income
There are five main sources of revenue for the Company: interest
income, income from subsidiaries, royalty revenue, make- whole and
prepayment income, dividends and paydown fees.
Interest income is recognised when it is probable that the
economic benefits will flow to the Company. Interest is accrued on
a time basis, by reference to the principal outstanding and the
effective interest rate that is applicable. Accrued interest is
included within trade and other receivables on the Statement of
Financial Position.
The Company recognises accrued income for investments that it
holds directly. The Company also holds an investment in BPCR
Limited Partnership, its wholly owned subsidiary which it measures
at fair value through profit or loss rather than consolidate. BPCR
Limited Partnership also recognises accrued income for investments
it holds directly. When the accrued income is recorded at the
Partnership, the Company recognises the income in capital within
the Statement of Comprehensive Income. When the Company's right to
receive the income is established, funds are transferred from the
Partnership to the Company and income is transferred to revenue
within the Statement of Comprehensive Income.
Royalty revenue is recognised on an accrual basis in accordance
with the substance of the relevant agreement (provided that it is
probable that the economic benefits will flow to the Company and
the amount of revenue can be measured reliably). Royalty
arrangements that are based on production, sales and other measures
are recognised by reference to the underlying arrangement.
Make-whole and prepayment income is recognised when payments are
received by the Company and is recorded to revenue within the
Statement of Comprehensive Income.
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 fees, which are paid on completion of the transaction.
As the investments are classified as level 3 in the fair value
hierarchy, there is no observable evidence of the fair value of the
investments excluding the fees, therefore the fees should be
included in the day one fair value of the investments. From 1
January 2020, such fees are included in the fair value of the
investment and released to the Statement of Comprehensive Income
over the life of the investment. Prior to this date they were
recognised as a gain in the Statement of Comprehensive Income at
the funding date. We consider incorporating the fees in the fair
value gains and losses over the life of the loans to be more
reflective of the period over which the benefit is received. The
impact of this change is immaterial to both the current and prior
period. These fees are allocated to revenue within the Statement of
Comprehensive Income.
Bank interest and other interest receivable are accounted for on
an accruals basis.
g) Dividends paid to shareholders
The Company intends to pay dividends in US Dollars on a
quarterly basis, however, shareholders can elect to have dividends
paid in sterling. The Company may, where the Directors consider it
appropriate, use the reserve created by the cancellation of its
share premium account to pay dividends.
The Company intends to comply with the requirements for
maintaining investment trust status for the purposes of section
1158 of the Corporation Tax Act 2010 (as amended) regarding
distributable income. As such, the Company will distribute amounts
such that it does not retain in respect of an accounting period an
amount greater than 15 per cent. of its income (as calculated for
UK tax purposes) for that period.
h) Expenses
All expenses are accounted for on an accruals basis. Expenses,
including investment management fees, performance fees and finance
costs, are charged through the revenue account except as
follows:
-- expenses which are incidental to the acquisition or disposal
of an investment are treated as capital costs and separately
identified and disclosed in Note 4; and
-- expenses of a capital nature are accounted for through the
capital account.
The performance fee is considered to be an annual fee and is
only recognised at the end of each performance period. It is
calculated in accordance with the details in Note 4(b) below. Any
performance fee triggered, whether payable or deferred, is
recognised in the Statement of Comprehensive Income. Where a
performance fee is payable within the next twelve months, it is
treated as a current liability in the Statement of Financial
Position. Where a performance fee is deferred by more than twelve
months, 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.
i) Trade and other receivables
Trade and other receivables are recognised and carried at
amortised cost as the Company collects contractual interest
payments from its borrowers. An allowance for estimated
unrecoverable amounts are measured and recognised where necessary.
The Company assesses, on a forward-looking basis, the expected
losses associated with its trade and other receivables.
j) Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand
deposits, and short-term, highly liquid investments readily
convertible to known amounts of cash and subject to insignificant
risk of changes in value.
Cash and cash equivalents includes interest and income from
money market funds.
k) Trade and other payables
Trade and other payables are recognised and carried at amortised
cost, do not carry any interest and are short-term in nature.
l) Taxation
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.
Tax on the profit or loss for the year comprises current and
deferred tax. Corporation tax is recognised in the Statement of
Comprehensive Income.
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted at
the balance sheet date and any adjustment to tax payable in respect
of previous periods. The tax effect of different items of
expenditure is allocated between revenue and capital on the same
basis as the particular item to which it relates, using the
Company's marginal method of tax, as applied to those items
allocated to revenue, for the accounting period.
Deferred tax is provided, using the liability method, on all
temporary differences at the balance sheet date between the tax
basis of assets and liabilities and their carrying amount for
financial reporting purposes. Deferred tax liabilities are measured
at the tax rates that are expected to apply to the period when the
liability is settled, based on tax rates (and tax laws) that have
been enacted or substantively enacted at the balance sheet
date.
m) Share capital and reserves
The share capital represents the nominal value of the Company's
ordinary shares.
The share premium account represents the excess over nominal
value of the fair value of consideration received for the Company's
ordinary shares, net of expenses of the share issue. This reserve
cannot be distributed.
The special distributable reserve was created on 29 June 2017 to
enable the Company to buy back its own shares and pay dividends out
of such distributable reserve, in each case when the Directors
consider it appropriate to do so, and for other corporate
purposes.
The capital reserve represents realised and unrealised capital
and exchange gains and losses on the disposal and revaluation of
investments and of foreign currency items. The realised capital
reserve can be used for the repurchase of shares. This reserve
cannot be distributed.
The revenue reserve represents retained profits from the income
derived from holding investment assets less the costs and interest
on cash balances associated with running the Company. This reserve
can be distributed.
n) Critical accounting estimates and assumptions
The preparation of these financial statements in conformity with
IFRS requires the Directors to make 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 estimates are made in 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. Determining fair value of investments with
unobservable market inputs is an area involving management
estimates, requiring assessment as to whether the value of assets
can be supported by the net present value of future cash flows
derived from such assets using cash flow projections which have
been discounted at an appropriate rate. In calculating the net
present value of the future cash flows, certain critical
assumptions are required to be made including management's
expectations of short and long term growth rates in product sales
and the selection of discount rates to reflect the risks involved.
These are valued in accordance with Note 2(d) above and using the
valuation techniques described in Note 7 below.
Also, estimates including cash flow projections, discount rates
and growth rates in product sales 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(h) above.
These estimates are reviewed on an ongoing basis. Revisions to
these estimates are also reviewed on an ongoing basis. Revisions
are recognised prospectively.
o) New accounting standards effective since 1 January 2020
Amendment to IFRS 3 'Business Combinations'
The Directors have considered the implications of the amendments
to IFRS 3 and are of the opinion that the Company's subsidiaries
are already measured at fair value. Therefore, there has been no
impact on the current and comparative financial statements for this
accounting standard.
Definition of Material (Amendments to IAS 1 and IAS 8)
The Directors have considered the implications of the amendments
to IAS 1 and IAS 8 and are of the opinion that there is no impact
to the Company. Therefore, there has been no impact on the current
and comparative financial statements for this accounting
standard.
p) Accounting standards not yet effective
The IASB and International Financial Reporting Interpretations
Committee ("IFRIC") have issued and endorsed the following
standards and interpretations, applicable to the Company, which are
not yet effective for the year ended 31 December 2020 and have
therefore not been applied in preparing these financial
statements.
COVID-19-Related Rent Concessions (Amendment to IFRS 16) -
amending the standard to provide lessees with an exemption from
assessing whether a COVID-19- related rent concession is a lease
modification, effective for annual reporting periods beginning on
or after 1 June 2020.
The Directors do not expect that the adoption of the standards
and interpretations will have a material impact on the financial
statements.
Other future development includes the IASB undertaking a
comprehensive review of existing IFRSs. The Company will consider
the financial impact of these new standards as they are
finalised.
3. INCOME
Year ended Year ended
31 December 31 December
2020 2019
$000 $000
------------------------------------------- ------------ ------------
Income from investments
US unfranked investment income from 40,844 -
BPCR LP
US unfranked investment income from
BioPharma III - 844
US unfranked investment income from
BPCR Ongdapa 3,440 7,429
US fixed interest investment income 21,856 27,148
US floating interest investment income 26,682 38,696
US make-whole interest investment income* 3,082 36,102
Paydown fee 427 -
Prepayment premium** 2,675 9,660
Additional consideration received*** 467 9,056
------------------------------------------- ------------ ------------
99,473 128,935
Other income
Interest income from liquidity/money
market funds 1,072 10,525
Interest income from US treasury bonds - 2,856
Other interest - 22
------------------------------------------- ------------ ------------
1,072 13,403
------------------------------------------- ------------ ------------
Total income 100,545 142,338
------------------------------------------- ------------ ------------
* In 2020 the Company's senior secured term loan to Lexicon
included make whole interest investment income of $3,082,000, which
was paid upon the loan repayment and recognised as income in the
year. In 2019 the Company's senior secured term loan to Tesaro
included make whole interest investment income of $36,102,000,
which was paid upon the loan repayment and recognised as income in
the year.
** In 2020 the Company's senior secured term loans to Lexicon
and Sebela included a prepayment premium of $2,675,000, which was
paid upon the loan repayment and recognised as income in the year.
In 2019 the Company's senior secured term loan to Tesaro included a
prepayment premium of $9,660,000, which was paid upon the loan
repayment and recognised as income in the year.
***In 2020 the Company's senior secured term loan to Collegium
included additional consideration in the form of structuring fees
of $4,125,000 which was paid upon the completion of the transaction
and $467,000 of this amount recognised as income in the year. In
2019 the Company's senior secured term loan to Biodelivery
Services, and the tranche A notes to OptiNose US, Epizyme, Akebia,
Global Blood Therapeutics and Serepta Therapeutics included
additional consideration in the form of structuring fees of
$1,200,000, $1,856,000, $700,000, $1,000,000, $1,237,500 and
$3,062,500 respectively, which was paid upon the completion of the
transaction and recognised as income in the year.
4. FEES AND EXPENSES
EXPENSES
Year ended 31 December 2020 Period ended 31 December 2019
-------------------------------- ----------------------------------
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
------------------------------------ ---------- ---------- -------- ----------- ---------- ---------
Management fee (Note 4a) 13,745 - 13,745 14,023 - 14,023
------------------------------------ ---------- ---------- -------- ----------- ---------- ---------
Performance fee (Note 4b) 4,909 - 4,909 13,570 - 13,570
------------------------------------ ---------- ---------- -------- ----------- ---------- ---------
Directors' fees (Note 4c) 395 - 395 395 - 395
------------------------------------ ---------- ---------- -------- ----------- ---------- ---------
Other operating expenses
Company Secretarial fee 85 - 85 88 - 88
Administration fee 118 - 118 126 - 126
Legal & professional fees 368 - 368 (867) 48 (819)
Public relations fees 202 - 202 204 - 204
Director's and Officer's liability
insurance 114 - 114 84 - 84
Auditor's remuneration - Statutory
audit 441 - 441 339 - 339
Auditor's remuneration - Other
audit related services and Half
year review 81 - 81 50 - 50
Auditor's remuneration - reporting
accounting work - - - 129 - 129
VAT 102 - 102 3 - 3
Other expenses 311 - 311 373 - 373
------------------------------------ ---------- ---------- -------- ----------- ---------- ---------
1,822 - 1,822 529 48 577
------------------------------------ ---------- ---------- -------- ----------- ---------- ---------
Total expenses 20,871 - 20,871 28,517 48 28,565
------------------------------------ ---------- ---------- -------- ----------- ---------- ---------
For the year ended 31 December 2019, the Auditor was also paid
$129,000 for services performed in connection with reporting
accounting work. There were no similar costs incurred in 2020.
For the year ended 31 December 2019, the negative balance of
legal fees in the prior year 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 attributable to the Ordinary Shares as
at the end of a performance period representing a minimum of 6 per
cent. annualised rate of return on the Company's IPO gross proceeds
(adjusted for dividends, share issues and buybacks as appropriate),
(ii) the total return on the NAV attributable to the Ordinary
Shares (adjusted for dividends, share issues and buybacks as
appropriate) exceeding 6 per cent. over such performance period,
and (iii) a high watermark, the Investment Manager will be entitled
to receive a performance fee equal to the lesser of: (a) 50 per
cent. of the total return above 6 per cent.; and (b) 10 per cent.
of the total return over such performance period provided always
that the amount of any performance fee payable to the Investment
Manager will be reduced to the extent necessary to ensure that
after account is taken of such fee, condition (iii) above remains
satisfied.
Where the Investment Manager is not entitled to a performance
fee solely because condition (i) has not been satisfied, such fee
will be deferred and paid in a subsequent performance period in
which such condition is satisfied. Where condition (i) is satisfied
in a performance period but the payment of a performance fee (or
any deferred performance fee from previous performance periods) in
full would result in that condition failing, the Investment Manager
shall be entitled to such a portion of such fee that does not
result in the failure of the condition (i) above and the balance
would be deferred to a future performance period.
Any performance fee (whether deferred or otherwise) shall be
paid as soon as practicable after the end of the relevant
performance period and, in any event, within 15 business days of
the publication of the Company's audited annual financial
statements relating to such period.
Where the payment of performance fee (or any deferred
performance fee from previous performance periods) in full would
result in the failure of condition (i) above, the Investment
Manager shall only be entitled to 50 per cent. of such fee that
does not result in the failure of condition (i) with the balance
being deferred to a future performance period.
If, during the last month of a performance period, the Shares
have, on average, traded at a discount of 1 per cent. or more to
the NAV per Share (calculated by comparing the middle market
quotation of the Shares at the end of each business day in the
month to the prevailing published NAV per Share (exclusive of any
dividend declared) as at the end of such business day and averaging
this comparative figure over the month), the Investment Manager
shall (or shall procure that its Associate does) apply 50 per cent.
of any Performance Fee paid by the Company to the Investment
Manager (or its Associate) in respect of that performance period
(net of all taxes and charges applicable to such portion of the
Performance Fee) to make market acquisitions of Shares (the
"Performance Shares") as soon as practicable following the payment
of the Performance Fee by the Company to the Investment Manager (or
its Associate) and at least until such time as the Shares have, on
average, traded at a discount of less than 1 per cent. to the NAV
per Share over a period of five business days (calculated by
comparing the middle market quotation of the Shares at the end of
each such business day to the prevailing published NAV per Share
(exclusive of any dividend declared) and averaging this comparative
figure over the period of five business days). The Investment
Manager's obligation:
1) shall not apply to the extent that the acquisition of the
Performance Shares would require the Investment Manager to make a
mandatory bid under Rule 9 of the Takeover Code; and
2) shall expire at the end of the performance period which
immediately follows the performance period to which the obligation
relates.
The below table shows the accrued and payable performance
fee.
As at 31 December 2020 As at 31 December 2019
$000 $000
Accrued performance fee 4,909 13,570
Performance fee payable 5,473 21,364
Performance fee deferred - 731
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.
c) Directors
Each of the Directors is entitled to receive a fee from the
Company at such rate as may be determined in accordance with the
Articles. The Directors' remuneration is $70,000 per annum for each
Director other than:
-- the Chairman, who will receive an additional $30,000 per
annum; and
-- the chairman of the Audit and Risk Committee, who will
receive an additional $15,000 per annum.
5. TAXATION ON ORDINARY ACTIVITIES
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 year is different from the
standard rate of corporation tax in the UK of 19.00 per cent., the
effective tax rate was 0.00 per cent. The differences are explained
below.
Year ended 31 December 2020 Year ended 31 December 2019
-------------------------------- --------------------------------
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
--------------------------------------- ---------- --------- --------- ---------- --------- ---------
Total return on ordinary activities
before taxation 79,674 9,462 89,136 113,821 8,507 122,328
--------------------------------------- ---------- --------- --------- ---------- --------- ---------
Theoretical tax at UK Corporation
tax rate of 19.00% (2019:19.00%)* 15,138 1,798 16,936 21,626 1,616 23,242
Effects of:
Capital items that are not taxable - (1,798) (1,798) - (1,616) (1,616)
Tax deductible interest distributions (15,138) - (15,138) (21,626) - (21,626)
Total tax charge - - - - - -
--------------------------------------- ---------- --------- --------- ---------- --------- ---------
* The theoretical tax rate is calculated using a blended tax
rate over the year.
At 31 December 2020, the Company had no deferred tax
liabilities.
At that date, based on current estimates and including the
accumulation of net allowable losses, the Company had no unrelieved
losses.
Deferred tax is not provided on capital gains and losses arising
on the revaluation or disposal of investments because the Company
meets (and intends to continue for the foreseeable future to meet)
the conditions for approval as an Investment Trust company.
6. DIVIDS
Year ended 31 December Year ended 31 December
2020 2019
---------------------------- ---------------------------
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
--------------------------------------------- -------- -------- -------- -------- -------- -------
In respect of the current year:
First interim dividend $0.0175 per Ordinary
Share (2019: $0.0175 per Ordinary Share) 24,044 - 24,044 24,044 - 24,044
Second interim dividend of $0.0175 per
Ordinary Share (2019: $0.0175 per Ordinary
Share) 24,043 - 24,043 24,044 - 24,044
Third interim dividend of $0.0175 per
Ordinary Share (2019: $0.0175 per Ordinary
Share) 24,042 - 24,042 24,044 - 24,044
In respect of the previous year ended
31 December 2019:
Special dividend of $0.0128 per Ordinary
share (2019: $nil per Ordinary share) 17,586 - 17,586 - - -
Fourth interim dividend of $0.0175 per
Ordinary Share (2019: $0.0175 per Ordinary
Share) 24,044 - 24,044 - - -
Special dividend of $0.0001 per Ordinary
Share (2019: $nil per Ordinary share) 59 79 138 - - -
In respect of the previous period ended
31 December 2018:
Fourth interim dividend of $0.0175 per
Ordinary Share (2019: $0.0175 per Ordinary
share) - - - 22,804 1,240 24,044
Second special dividend of $0.0018 per
Ordinary share - - - - 2,438 2,438
--------------------------------------------- -------- -------- -------- -------- -------- -------
113,818 79 113,897 94,936 3,678 98,614
--------------------------------------------- -------- -------- -------- -------- -------- -------
Set out below are the interim dividends paid or proposed on
Ordinary Shares in respect of the financial year, which is the
basis on which the requirements of Section 1159 of the Corporation
Tax Act 2010 are considered.
Year ended 31 December Year ended 31 December
2020 2019
--------------------------- ----------------------------
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
--------------------------------------------- -------- -------- ------- -------- -------- --------
First interim dividend of $0.0175 per
Ordinary share (2019: $0.0175 per Ordinary
Share) 24,044 - 24,044 24,044 - 24,044
Second interim dividend of $0.0175 per
Ordinary share (2019: $0.0175 per Ordinary
Share) 24,043 - 24,043 24,044 - 24,044
Third interim dividend of $0.0175 per
Ordinary share (2019: $0.0175 per Ordinary
Share) 24,042 - 24,042 24,044 - 24,044
Special dividend of $0.0128 per Ordinary
share (2019: $nil per Ordinary share) - - - 17,586 - 17,586
Fourth interim dividend of $0.0175 per
Ordinary share (2019: $0.0175 per Ordinary
Share) - - - 24,044 - 24,044
Special dividend of $0.0001 per Ordinary
share (2019: $nil per Ordinary Share) - - - 59 79 138
--------------------------------------------- -------- -------- ------- -------- -------- --------
72,129 - 72,129 113,821 79 113,900
--------------------------------------------- -------- -------- ------- -------- -------- --------
On 11 March 2021, the Board approved a fourth interim dividend,
for the year ended 31 December 2020, of $0.0175 per Ordinary Share
and a special dividend of $0.00290119 per Ordinary Share, both
payable on 16 April 2021. In accordance with IFRS, these dividends
have not been included as a liability in these financial
statements.
7. INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS
As at As at
31 December 2020 31 December 2019
$000 $000
----------------------------------------------- ----------------- -----------------
Investment portfolio summary
Listed investments at fair value through
profit and loss 11,320 16,980
Listed fixed interest investments at fair
value through profit and loss - 19,656
Unlisted investments in subsidiaries measured 1,090,887 -
at fair value through profit and loss
Unlisted fixed interest investment at fair
value through profit and loss 303 495,525
Unlisted floating interest investments
at fair value through profit and loss 92,321 583,966
----------------------------------------------- ----------------- -----------------
Closing fair value at the end of the year 1,194,831 1,116,127
----------------------------------------------- ----------------- -----------------
Year ended 31 December 2020
------------ ------------
Listed Unlisted Unlisted
fixed Unlisted fixed floating
Listed interest Investments interest Interest
in
investments investment subsidiaries investments investments Total
$000 $000 $000 $000 $000 $000
----------------------------- ------------ ------------ ------------- ------------ ------------ ------------
Investment portfolio summary
Opening cost at beginning
of year 13,544 19,950 - 494,738 584,366 1,112,598
Opening unrealised
appreciation/(depreciation)
at beginning of year 3,436 (294) - 787 (400) 3,529
Opening fair value at
beginning
of year 16,980 19,656 - 495,525 583,966 1,116,127
Movements in the year:
Purchases at cost - - - 16,500 209,636 226,136
Redemption and sales
proceeds - (15,764) - (124,500) (38,000) (178,264)
Transfer of assets to
subsidiary* - - 1,070,139 (385,500) (663,281) 21,358
Realised loss on sale of
investments - (4,186) - - (400) (4,586)
Change in unrealised
(depreciation)/appreciation (5,660) 294 20,748 (1,722) 400 14,060
------------- ------------ ------------ ------------
Closing fair value at the
end of the year 11,320 - 1,090,887 303 92,321 1,194,831
----------------------------- ------------ ------------ ------------- ------------ ------------ ------------
Closing cost at end of year 13,544 - 1,070,139 1,238 92,321 1,177,242
Closing unrealised
(depreciation)/
appreciation at end of year (2,224) - 20,748 (935) - 17,589
----------------------------- ------------ ------------ ------------- ------------ ------------ ------------
Closing fair value at the
end of the year 11,320 - 1,090,887 303 92,321 1,194,831
*On May 2020, the Company transferred the full carrying amount of several investments
to its newly incorporated, wholly-owned subsidiary BPCR LP in return for an investment
in BPCR LP of the same amount $1,048 million. The balance on the transfer line of $21.358
million relates to accrued income which is subsequently reflected in the fair value of
BPCR LP, previously disclosed as part of trade and other receivables in the Company and
expenses paid on the behalf of BPCR LP.
Year ended 31 December 2019
Listed Listed Unlisted Unlisted Unlisted
fixed fixed floating
Interest interest interest
Investments Investments investments investments investments Total
$000 $000 $000 $000 $000 $000
Investment portfolio summary
Opening cost at beginning
of year - - 6,805 274,500 725,320 1,006,625
Opening unrealised
appreciation/(depreciation)
at beginning of year - - 840 - (200) 640
----------------------------- ------------ ------------ ------------- ------------ ------------ ----------
Opening fair value at
beginning
of year - - 7,645 274,500 725,120 1,007,265
Movements in the year:
Purchases at cost 25,490 43,292 - 220,238 239,436 528,456
Redemption and sales
proceeds (15,696) (25,270) (6,805) - (380,390) (428,161)
Realised gain on sale of
investments 3,750 1,928 - - - 5,678
Change in unrealised
(depreciation)/appreciation 3,436 (294) (840) 787 (200) 2,889
Closing fair value at the
end of the year 16,980 19,656 - 495,525 583,966 1,116,127
----------------------------- ------------ ------------ ------------- ------------ ------------ ----------
Closing cost at end of year 13,544 19,950 - 494,738 584,366 1,112,598
Closing unrealised
(depreciation)/
appreciation at end of year 3,436 (294) - 787 (400) 3,529
----------------------------- ------------ ------------ ------------- ------------ ------------ ----------
Closing fair value at the
end of the year 16,980 19,656 - 495,525 583,966 1,116,127
----------------------------- ------------ ------------ ------------- ------------ ------------ ----------
Year ended Year ended
31 December 2020 31 December
2019
$000 $000
--------------------------------- ----------------- ------------
Realised (losses)/gains on sale
of investments (4,586) 5,678
Unrealised appreciation 14,060 2,889
9,474 8,567
--------------------------------- ----------------- ------------
Transaction costs, (incurred at the point of the transaction)
incidental to the acquisition of investments totalled $nil (2019:
$nil) for the year. In addition, legal fees incidental to the
acquisition of investments totalled $nil (2019: $48,000) as
disclosed in Note 4, have been taken to the capital column in the
Statement of Comprehensive Income since they are capital in
nature.
The Company is required to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy
consists of the following three levels:
-- Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2 - Inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from
prices).
-- Level 3 - Inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
The level of the fair value hierarchy, within which the fair
value measurement is categorised, is determined on the basis of the
lowest level input that is significant to the fair value of the
investment.
Year ended 31 December 2020
----------------------------------------
Level 1 Level Level Total
2 3
Financial assets $000 $000 $000 $000
-------------------------------------- -------- ------ ---------- ----------
Investment portfolio summary
Listed investments at fair
value through profit and loss 11,320 - - 11,320
Listed fixed interest at fair
value through profit and loss - - - -
Unlisted investments in subsidiaries
at fair value through profit
or loss - - 1,090,887 1,090,887
Unlisted fixed interest investments
at fair value through profit
or loss - 303 - 303
Unlisted floating interest
investments at fair value
through profit or loss - - 92,321 92,321
-------------------------------------- -------- ------ ---------- ----------
11,320 303 1,183,208 1,194,831
Liquidity/money market funds 181,532 - - 181,532
-------------------------------------- -------- ------ ---------- ----------
Total 192,852 303 1,183,208 1,376,363
-------------------------------------- -------- ------ ---------- ----------
Year ended 31 December 2019
----------------------------------------
Level 1 Level Level Total
2 3
$000 $000 $000 $000
------------------------------------- -------- ------ ---------- ----------
Investment portfolio summary
Listed investments at fair
value through profit and loss 16,980 - - 16,980
Listed fixed interest at fair
value through profit and loss 19,656 - - 19,656
Unlisted investments at fair
value through profit and loss - - - -
Unlisted fixed interest investments
at fair value through profit
and loss - 2,025 493,500 495,525
Unlisted floating interest
investments at fair value
through profit and loss - - 583,966 583,966
------------------------------------- -------- ------ ---------- ----------
36,636 2,025 1,077,466 1,116,127
Liquidity/money market funds 291,025 - - 291,025
------------------------------------- -------- ------ ---------- ----------
Total 327,661 2,025 1,077,466 1,407,152
------------------------------------- -------- ------ ---------- ----------
A reconciliation of fair value measurements in Level 3 is set
out below.
Level 3 financial assets at fair value through profit or
loss
Year ended 31 December 2020
Unlisted Unlisted floating
fixed
Unlisted interest interest
investments investments investments Total
$000 $000 $000 $000
----------------------- ------------ ------------ ------------------ ----------
Opening balance - 493,500 583,966 1,077,466
Purchases - 16,500 209,636 226,136
Redemptions* - (124,500) (38,000) (162,500)
Transfer of assets** 1,070,139 (385,500) (663,281) 21,358
Realised loss on sale
of investments - - (400) (400)
Change in unrealised
appreciation 20,748 - 400 21,148
Closing balance at 31
December 2020 1,090,887 - 92,321 1,183,208
----------------------- ------------ ------------ ------------------ ----------
Year ended 31 December 2019
Unlisted Unlisted floating
fixed
Unlisted interest interest
investments investments investments Total
$000 $000 $000 $000
---------------------- ------------ ------------ ------------------ ----------
Opening balance 7,645 274,500 725,120 1,007,265
Purchases - 219,000 239,436 458,436
Redemptions* (6,805) - (380,390) (387,195)
Change in unrealised
appreciation (840) - (200) (1,040)
Closing balance at
31 December 2019 - 493,500 583,966 1,077,466
---------------------- ------------ ------------ ------------------ ----------
* Redemptions are the proceeds received from the repayment of
investments.
** On 22 May 2020, the Company transferred the full carrying
amount of several investments to its newly incorporated,
wholly-owned subsidiary BPCR LP in return for an investment in BPCR
LP of the same amount $1,048 million. The balance on the transfer
line of $21.358 million relates to accrued income which is
subsequently reflected in the fair value of BPCR LP, previously
disclosed as part of trade and other receivables in the Company and
expenses paid on the behalf of BPCR LP.
There were no transfers between levels during the year.
Valuation techniques
Unrealised gains and losses recorded on Level 1 financial
instruments are reported in net gains on investments at fair value
on the Statement of Comprehensive Income. The fund administrator
utilises quoted prices in active markets that they have access to
and the Investment Manager verifies the quoted prices on
Bloomberg.
Unrealised gains and losses recorded on Level 2 and 3 financial
instruments are reported in net gains on investments at fair value
on the Statement of Comprehensive Income. Level 2 and Level 3
financial instruments are fair valued using inputs that 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.
Level 3 financial instruments are fair valued using a discounted
cash flow methodology. For capped royalty investments, discount
rates are applied to the consensus forecasts or the manager's
forecast for sales of the underlying products to determine fair
value. The significant unobservable input used in the fair value
measurement of the Company's Level 3 investments is the discount
rate used to discount future cash flows from borrowers.
Significant increases (decreases) in the discount rate would
result in a significantly lower (higher) fair value measurement.
The Investment Manager believes 10 per cent. is an appropriate
threshold for determining a reasonably possible change in fair
value.
Investments held in subsidiaries, namely BPCR LP, are based on
the fair value of the investments held in those entities.
The Company's unlisted investments, including those of its
wholly owned subsidiary BPCR LP, are all classified as Level 3
investments. The fair values of the unlisted investments have been
determined principally by reference to discounted cash flows. The
significant unobservable input used is detailed below:
As at 31 December 2020
---------------- ------------------------------------------------------------------ --------------- ---------------
Fair value at Fair value
Level 3 Fair value sensitivity
financial sensitivity to a 100bps
assets at fair to a 100bps decrease
value through decrease in in the
profit Valuation Unobservable the discount discount
Assets or loss technique input Discount rate rate rate
$000 $000 $000
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Discounted
cash
Sebela 92,321 flow Discount rate 12.4% 92,860 91,789
Assets held
by BPCR LP**
Discounted
cash
Akebia 50,000 flow Discount rate 11.1% 51,035 48,999
Discounted
cash
BDSI 80,000 flow Discount rate 11.1% 81,717 78,341
Discounted
cash
BMS 160,180 flow Discount rate 9.4% 163,586 150,906
Other Net
Assets
of BPCR LP 52,644 Amortised cost - - - -
Discounted
cash
Collegium 134,063 flow Discount rate 12.0% 135,668 132,500
Discounted
cash
Epizyme 110,000 flow Discount rate 11.0% 113,546 106,615
Discounted
Global Blood cash
Therapeutics 82,500 flow Discount rate 13.9% 84,158 80,894
Discounted
cash
OptiNose US 71,500 flow Discount rate 12.8% 72,932 70,112
Discounted
Sarepta cash
Therapeutics 350,000 flow Discount rate 10.4% 358,804 341,514
1,183,208 1,154,713 1,101,277
** The Company holds an investment in BPCR Limited Partnership,
its wholly owned subsidiary, which it measures at fair value
through profit or loss rather than consolidate.
As at 31 December 2019
------------------ ---------------------------------------------------------------- ----------------- -------------
Fair value at Fair value
Level Fair value sensitivity
3 financial sensitivity to a 100bps
assets at to a 100bps increase
fair value decrease in the
through profit Valuation Unobservable Discount in the discount discount
Assets or loss technique input rate rate rate
$000 $000 $000
------------------ ---------------- ----------------- -------------- ----------- ----------------- -------------
Discounted cash
Akebia 40,000 flow Discount rate 10.9% 41,103 38,941
Discounted cash
Amicus 150,000 flow Discount rate 11.3% 153,937 146,211
Discounted cash
BDSI 60,000 flow Discount rate 11.5% 61,670 58,398
Discounted cash
BMS 149,896 flow Discount rate 10.4% 154,172 145,803
BPCR LP - - - - - -
Collegium - - - - - -
Discounted cash
Epizyme 12,500 flow Discount rate 10.7% 12,888 12,129
Global Blood Discounted cash
Therapeutics 41,250 flow Discount rate 9.9% 42,705 39,865
Lexicon Discounted cash
Pharmaceuticals 124,500 flow Discount rate 10.4% 127,451 121,649
Discounted cash
Novocure 150,000 flow Discount rate 10.4% 153,433 146,681
Discounted cash
OptiNose US 44,000 flow Discount rate 12.4% 45,174 42,871
Sarepta Discounted cash
Therapeutics 175,000 flow Discount rate 10.1% 180,112 170,094
Discounted cash
Sebela 130,320 flow Discount rate 12.6% 131,630 128,728
1,077,446 1,104,275 1,051,370
8. TRADE AND OTHER RECEIVABLES(1)
As at As at
31 December 2020 31 December
2019
$000 $000
---------------------------------------- ----------------- ------------
Listed fixed interest income
receivable - 26
Unlisted fixed interest income
receivable - 3,061
Unlisted floating interest income
receivable - 3,938
Interest accrued on liquidity/money
market funds 3 429
US floating interest income receivable
from BPCR Ongdapa - 8,417
Other debtors 205 335
---------------------------------------- ----------------- ------------
208 16,206
---------------------------------------- ----------------- ------------
1. A portion of trade and other receivables relating to accrued
interest were transferred to BPCR LP on 22 May 2020 and is now
reflected in the fair value of BPCR LP. Refer to note 7,
investments at fair value through profit and loss, for further
information.
9. CASH AND CASH EQUIVALENTS
As at As at
31 December 2020 31 December
2019
$000 $000
------------------------------ ----------------- ------------
Cash at bank 11,737 5,613
Liquidity/money market funds 181,532 291,025
------------------------------ ----------------- ------------
193,269 296,638
------------------------------ ----------------- ------------
10. TRADE AND OTHER PAYABLES
As at As at
31 December 2020 31 December
2019
$000 $000
-------------------------- ----------------- ------------
Current liabilities
-------------------------- ----------------- ------------
Performance fee payable 5,473 20,633
Management fees accrual 3,431 3,496
Accruals 489 375
9,393 24,504
-------------------------- ----------------- ------------
Non-current liabilities
Deferred performance fee - 731
-------------------------- ----------------- ------------
Total 9,393 25,235
-------------------------- ----------------- ------------
11. RETURN PER ORDINARY SHARE
Revenue return per ordinary share is based on the net revenue
after taxation of $79,674,000 (2019: $113,821,000) and
1,373,904,204 (2019: 1,373,932,067) ordinary shares, being the
weighted average number of ordinary shares for the year, excluding
treasury shares.
Capital return per ordinary share is based on net capital gain
for the year of $9,462,000 (2019: gain $8,507,000) and on
1,373,904,204 (2019:1,373,932,067) ordinary shares, being the
weighted average number of ordinary shares for the year.
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 31 December 2020
of $1,378,915,000 (31 December 2019: $1,403,736,000) and the number
of ordinary shares in issue at 31 December 2020 of 1,373,872,373
(2019: 1,373,932,067).
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. SHARE CAPITAL
Year ended 31 December Period ended 31 December
2020 2019
--------------------------- -------------------------- ---------------------------
Number of
Number of shares $000 shares $000
--------------------------- ----------------- ------- ----------------- --------
Issued and fully paid:
Ordinary Shares of $0.01:
Balance at beginning of
the year 1,373,932,067 13,739 1,373,932,067 13,739
Balance at end of the
year 1,373,932,067 13,739 1,373,932,067 13,739
--------------------------- ----------------- ------- ----------------- --------
Total voting rights at 31 December 2020 were 1,373,872,373 (31
December 2019: 1,373,932,067). During the year 59,694 shares were
bought back for treasury. The balance of treasury shares on 31
December 2020 was 59,694 (31 December 2019: nil).
14. SUBSIDIARY
The Company formed a wholly-owned subsidiary, BPCR Ongdapa
Limited ("BPCR Ongdapa"), incorporated in Ireland on 5 October 2017
for the purpose of entering into a purchase, sale and assignment
agreement with a wholly-owned subsidiary of Royalty Pharma for the
purchase of a 50 per cent. interest in a stream of payments
acquired by Royalty Pharma from Bristol-Myers Squibb ("BMS"). In
accordance with IFRS 10, the Company is exempt from consolidating a
controlled investee as an investment entity. Therefore, the
Company's investment in BPCR Ongdapa is recognised at fair value
through profit or loss. The registered address for BPCR Ongdapa is
BPCR Ongdapa Limited, 2 Grand Canal Square, Grand Canal Harbour,
Dublin, Ireland. The aggregate amount of its capital reserves as at
31 December 2020 is $1 (2019: $1) and a return for the year ended
31 December 2020 is $445,582 (2019: $nil).
The Company formed a wholly-owned subsidiary, BPCR Limited
Partnership, incorporated in England and Wales on 27 March 2020 for
the purpose of entering into a three year $200 million revolving
credit facility with JPMorgan Chase Bank. BPCR Limited Partnership
has its registered office at 51 New North Road, Exeter, United
Kingdom, EX4 4EP and received an initial contribution of GBP1.00 at
formation from the Company, its sole Limited Partner. In accordance
with IFRS 10, the Company is exempted from consolidating a
controlled investee as it is an investment entity. Therefore, the
Company's investment in BPCR Limited Partnership will be recognised
at fair value through profit or loss.
The General Partner for BPCR LP is BPCR GP Limited, incorporated
in England and Wales on 11 March 2020 and is wholly owned by the
Company. The Company is not exempt from consolidating the the
financial statements of BPCR GP under IFRS 10, however the highly
immaterial (nil) balance of BPCR GP would produce accounts with
almost identical balances to the Company. Furthermore with
reference to the CA, section 405 (2) "A subsidiary undertaking may
be excluded from consolidation if its inclusion is not material for
the purpose of giving a true and fair view". The registered address
for BPCR GP Limited is BPCR GP Limited, 51 New North Road, Exeter,
United Kingdom, EX4 4EP. The aggregate amount of its capital
reserves as at 31 December 2020 is $nil (2019: $nil) and a return
for the year to 31 December 2020 is $nil (2019: $nil).
The Company formed two wholly-owned structured subsidiaries,
BPCR Ongdapa Ltd. and BPCR Limited Partnership to assist in meeting
its investment objectives and enter into a revolving credit
facility. The Company generates returns and retains the ownership
risks in the investments retained in the subsidiaries. These
entities meet the definition of an investment entity within IFRS 10
and the Company is required to measure these subsidiaries at fair
value through profit and loss rather than consolidate. The maximum
exposure to loss for the unconsolidated structured subsidiaries is
the fair value and any accrued unpaid fees.
15. RECONCILIATION OF TOTAL RETURN FOR THE YEAR BEFORE TAXATION
TO CASH GENERATED FROM OPERATIONS
Year ended Year ended
31 December 31 December
2020 2019
----------------------------------
$000 $000
---------------------------------- ------------ ------------
Total return for the year before
taxation 89,136 122,328
Capital gains (9,462) (8,555)
Decrease in trade receivables* 15,998 5,764
(Decrease)/increase in trade
payables (15,842) 11,983
Non-cash movement for additional (400) -
consideration**
Other assets transferred to BPCR (21,358) -
LP*
Cash generated from operations 58,072 131,520
---------------------------------- ------------ ------------
* On 22 May 2020, the Company transferred the full carrying
amount of several investments to its newly incorporated,
wholly-owned subsidiary BPCR LP in return for an investment in BPCP
LP of the same amount $1,048 million. The balance on the transfer
line of $21.358 million relates to accrued income which is
subsequently reflected in the fair value of BPCR LP, previously
disclosed as part of trade and other receivables in the Company and
expenses paid on the behalf of BPCR LP. **In 2020 the Company's
senior secured term loan of $20,000,000 to BDSI included additional
consideration of $400,000. This reduced the value of the payment
made.
Analysis of net cash and net debt
At At
1 January Exchange 31 December
2020 Cash flow movement 2018
Net cash $000 $000 $000 $000
--------------------------- ---------- ---------- --------- ------------
Cash and cash equivalents 296,638 (103,357) (12) 193,269
--------------------------- ---------- ---------- --------- ------------
At At
1 January Exchange 31 December
2019 Cash flow movement 2017
Net cash $000 $000 $000 $000
--------------------------- ---------- ---------- --------- ------------
Cash and cash equivalents 363,572 (66,922) (12) 296,638
--------------------------- ---------- ---------- --------- ------------
16. FINANCIAL INSTRUMENTS
The Company's financial instruments include its investment
portfolio, cash balances, trade receivables and trade payables that
arise directly from its operations. Adherence to the Company's
investment policy is key in managing risk. Refer to the Strategic
Overview for a full description of the Company's investment
objective and policy.
The Investment Manager monitors the financial risks affecting
the Company on an ongoing basis and the Directors regularly receive
financial information which is used to identify and monitor risk.
All risks are actively reviewed and monitored by the Board. Details
of the Company's principal risks can be found in the Strategic
Report above.
The main risks arising from the Company's financial instruments
are:
i) market risk, including price risk, currency risk and interest
rate risk;
ii) liquidity risk; and
iii) credit risk.
(i) Market risk
Market risk is the risk of loss arising from movements in
observable market variables. The fair value of future cash flows of
a financial instrument held by the Company may fluctuate because of
changes in market prices. The Investment Manager assesses the
exposure to market risk when making each investment decision and
these risks are monitored by the Investment Manager on a regular
basis and the Board at quarterly meetings with the Investment
Manager.
Market price risk
The Company is exposed to price risk arising from its
investments whose future prices are uncertain. The Company's
exposure to price risk comprises movements in the value of the
Company's investments. See note 7 above for investments that fall
into Level 3 of the fair value hierarchy and refer to the
description of valuation policies in Note 2(d). The nature of the
Company's investments, with a high proportion of the portfolio
invested in unlisted debt instruments, means that the investments
are valued by the Company after consideration of the most recent
available information from the underlying investments. The
Company's portfolio is diversified among counterparties and by the
sectors in which the underlying companies operate, minimising the
impact of any negative industry-specific trends.
The table below analyses the effect of a 10 per cent. change in
the fair value of investments. The Investment Manager believes 10
per cent. is the appropriate threshold for determining whether a
material change in market value has occurred.
As at As at
31 December 2020 31 December 2019
-------------------------- -----------------------
10 per
10 per cent. cent.
Increase/ Increase/
decrease decrease
in in
market
Fair value market value Fair value value
$000 $000 $000 $000
--------------------------- ----------- ------------- ----------- ----------
Biodelivery Sciences
International Equity 11,320 1,132 16,979 1,698
Convertible bonds - - 19,656 1,966
Lexicon Senior Secured
Loan - - 124,500 12,450
OptiNose US warrants 303 30 2,026 203
Sebela Senior Secured
Loan 92,321 9,232 130,320 13,032
Assets held by BPCR
LP
--------------------------- ----------- -------------
Akebia 50,000 5,000 40,000 4,000
--------------------------- ----------- -------------
Amicus Senior Secured
Loan - - 150,000 15,000
--------------------------- ----------- -------------
Biodelivery Sciences
International Loan 80,000 8,000 60,000 6,000
--------------------------- ----------- -------------
BMS Purchases Payments
(BPCR Ongdapa) 160,180 16,018 149,896 14,990
--------------------------- ----------- -------------
Collegium 134,063 13,407 - -
--------------------------- ----------- ------------- ----------- ----------
Epizyme 110,000 11,000 12,500 1,250
----------- ----------
Global Blood Therapeutics 82,500 8,250 41,250 4,125
----------- ----------
OptiNose US Note 71,500 7,150 44,000 4,400
OptiNose US Equity 101 10 - -
Other Assets of BPCR
LP 52,543 5,254 - -
Novocure Senior Secured
Loan - - 150,000 15,000
Sarepta Therapeutics 350,000 35,000 175,000 17,500
1,194,831 119,453 1,116,127 111,614
--------------------------- ----------- ------------- ----------- ----------
The Board manages the risks inherent in the investment portfolio
by ensuring full and timely reporting of relevant information from
the Investment Manager. Investment performance and exposure are
reviewed at each Board meeting.
Currency Risk
Currency risk is the risk that fair values of future cash flows
of a financial instrument fluctuate because of changes in foreign
exchange rates.
At 31 December 2020, the Company held cash balances in GBP
Sterling of GBP72,000 ($99,000) (2019:
GBPNil ($nil)) and in Euro of EUR10,000 ($12,000) (2019:
EUR3,000 ($4,000)).
The currency exposures (including non-financial assets) of the
Company as at 31 December 2020:
Other net
assets/
Cash Investments (liabilities) Total
$000 $000 $000 $000
----------- -------- ------------ -------------- ----------
Sterling 99 - (209) (110)
Euro 12 - - 12
US Dollar 193,158 1,194,831 (8,976) 1,379,013
----------- -------- ------------ -------------- ----------
193,269 1,194,831 (9,185) 1,378,915
----------- -------- ------------ -------------- ----------
The currency exposures (including non-financial assets) of the
Company as at 31 December 2019:
Other net
assets/
Cash Investments (liabilities) Total
$000 $000 $000 $000
----------- -------- ------------ -------------- ----------
Sterling - - - -
Euro 4 - - 4
US Dollar 296,634 1,116,127 (9,230) 1,403,531
----------- -------- ------------ -------------- ----------
296,638 1,116,127 (9,230) 1,403,535
----------- -------- ------------ -------------- ----------
A 10 per cent. increase in the Sterling exchange rate would have
increased net assets by $20,000 (2019: $nil increase).
A 10 per cent. increase in the Euro exchange rate would have
increased net assets by $1,000 (2019: $nil).
A 10 per cent. decrease would have decreased net assets by the
same amount (2019: 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 floating rate securities, unquoted loans and
purchased payments; and
-- the level of income receivable on cash deposits and liquidity
funds.
The Lexicon, Novocure, OptiNose US, Sarepta Therapeutics and the
convertible bond have a fixed interest rate and therefore are not
subject to interest rate risk. The below table shows the percentage
of the Company's net assets they represent.
As at 31 December As at 31 December
2020 2019
% of Company Net Assets % of Company Net Assets
Sarepta Therapeutics 25.38 12.47
Novocure Senior Secured
Loan - 10.69
Lexicon Senior Secured
Loan - 8.87
OptiNose US 5.19 3.13
Convertible bonds - 1.40
The BMS Purchased Payments, Collegium, Amicus, Sebela, BDSI,
Global Blood Therapeutics, Akebia, and Epizyme loans and cash and
cash equivalents, including investments in liquidity funds, have a
floating rate of interest. The below table shows the percentage of
the Company's net assets they represent.
As at 31 December As at 31 December
2020 2019
% of Company Net Assets % of Company Net Assets
BMS Purchased Payments
(BPCR Ongdapa) 11.62 10.68
Collegium 9.72 -
Amicus Senior Secured
Loan - 10.69
Sebela Senior Secured
Loan 6.70 9.28
Biodelivery Sciences
International Loan 5.80 4.27
Global Blood Therapeutics 5.98 2.94
Akebia 3.63 2.85
Epizyme 7.98 0.89
Cash and cash equivalents* 14.02 21.13
* Cash and cash equivalents represents the Company only and does
not include cash held by BPCR LP.
A 100 basis point increase in LIBOR would have increased net
assets by $198,000 (2019: $11,711,000).
A 100 basis point decrease in LIBOR would have decreased net
assets by $nil (2019: $7,427,000).
A 300 basis point increase in LIBOR would have increased net
assets by $16,122,000 (2019: $38,600,000).
(ii) Liquidity risk
This is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities. At 31
December 2020, the Company had cash and cash equivalents, including
investments in liquidity/money market funds with balances of
$193,269,000 (2019: $296,638,000) and maximum unfunded commitments
of $nil (2019: $319,386,000).
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. On 22 May 2020, the Company
entered into a $200 million revolving credit facility with JPMorgan
Chase Bank. This facility will increase the Company's flexibility
in relation to funding new lending opportunities and provide
liquidity for funding outstanding obligations. As of 31 December
2020, the outstanding balance on the credit facility was $nil.
(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 Investment Manager's
Report above.
The Investment Manager performs a robust credit risk analysis
during the investment process for all new investments and
constantly monitors the collateral on its outstanding senior
secured loans as to minimise the credit risk to the Company of
default. The credit risk of the senior secured loans will increase
significantly after initial recognition when borrowers are not
making principal and interest payments as agreed. The fair value of
the senior secured loan will be adjusted, either partially or in
full, when there is no realistic prospect of recovery and the
amount of the change in fair value has been determined by the
Investment Manager. Subsequent recoveries of amounts previously
adjusted will decrease the amount of the fair value loss recorded.
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. At 31 December 2020,
the Company's maximum exposure to credit risk was $1,194,831,000
(2019: $1,116,127,000). The Company's concentration of credit risk
by counterparty can be found in the Investment Manager's Report
above.
Capital management
The Company's primary objectives in relation to the management
of capital are:
-- to ensure its ability to continue as a going concern;
-- to ensure that the Company conducts its affairs to enable it
to continue to meet the criteria to qualify as an investment trust;
and
-- to maximise the long-term shareholder returns in the form of
sustainable income distributions through an appropriate balance of
equity capital and debt.
The Company is subject to externally imposed capital
requirements:
-- as a public company, the Company has a minimum share capital of GBP50,000;
The Company has complied with all the above requirements during
this financial year.
17. RELATED PARTY TRANSACTIONS
The amount incurred in respect of management fees during the
year to 31 December 2020 was $13,745,000 (2019: $14,023,000), of
which $3,431,000 (2019: $3,496,000) was outstanding at 31 December
2020. The amount due to the Investment Manager for performance fees
at 31 December 2020 was $5,473,000 (2019: $21,364,000).
The amount incurred in respect of Directors' fees during the
year to 31 December 2020 was $395,000 (2019: $395,000) of which
$nil was outstanding at 31 December 2020 (2019: $nil).
The Shared Services Agreement was entered into by and between RP
Management, LLC, 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.
BPCR Limited Partnership and its General Partner, BPCR GP
Limited, are related entities of the Company, as they are
wholly-owned subsidiaries and formed for the purpose of entering
into a new credit facility. On 22 May 2020, several investments
totaling $1,070,139,000 were transferred to BPCR LP from the
Company, in the year to 31 December 2020, the Company recorded
income of $61,952,000 (2019: $nil) and the outstanding balance on
31 December 2020 was $20,748,000 (2019: $nil). BPCR GP Limited had
an outstanding balance as at 31 December 2020 of $nil (2019:
$nil).
On 7 February 2020, the Company and BioPharma Credit Investments
V (Master) LP ("BioPharma V"), a fund managed by the Investment
Manager, entered into a definitive senior secured term loan
agreement for $200,000,000 with Collegium Pharmaceutical, Inc.
(Nasdaq: COLL). The Company's share of the transaction was
$165,000,000 and the Company funded the term loan on 13 February
2020. The loan will mature in January 2024 and will bear interest
at 3-month LIBOR plus 7.50 per cent. per annum subject to a 2.00
per cent. floor along with a one-time additional consideration of
2.50 per cent. of the loan amount which was paid at funding. In
2020, the Company recorded interest income of $4,354,000 (2019:
$nil) and a further $8,959,000 was recorded within BPCR LP (2019:
$nil). The outstanding balance as at 31 December 2020 was
$134,063,000 (2019: $nil).
On 18 December 2019, the Company and BioPharma V entered into a
definitive senior secured term loan agreement with Global Blood
Therapeutics (Nasdaq: GBT). GBT drew down $75,000,000 at closing on
20 December 2019 and $75,000,000 of the second tranche on 20
November 2020. The Company funded $41,250,000 of each tranche for a
total investment of $82,500,000 and BioPharma V invested the
remaining $67,500,000. The loan will mature in December 2025 and
will bear interest at three-month LIBOR plus 7.00 per cent. per
annum subject to a 2.00 per cent. floor along with a one-time
additional consideration of 1.50 per cent. of the total loan amount
payable upon funding and an additional 2.00 per cent. payable upon
the repayment of the loan. In 2020, the Company recorded interest
income of $1,475,000 (2019: $113,000) and a further $2,743,000 was
recorded within BPCR LP (2019: $nil). The outstanding balance as at
31 December 2020 was $82,500,000 (2019: $41,250,000).
On 13 December 2019, the Company and BioPharma V entered into a
definitive senior secured term loan agreement for up to
$500,000,000 with Sarepta Therapeutics (Nasdaq: SRPT). On 24
September 2020 the Sarepta loan agreement was amended and the loan
amount was increased to $550,000,000. Sarepta drew down the first
$250,000,000 tranche on 20 December 2019 and the second
$300,000,000 tranche on 2 November 2020. The Company funded
$175,000,000 of each tranche for a total investment of $350,000,000
and BioPharma V invested the remaining $200,000,000. The first
tranche will mature in December 2023 and the second tranche in
December 2024. The loan will bear interest at 8.50 per cent. per
annum along with a one-time additional consideration of 1.75 per
cent. of the first tranche and 2.95 per cent. of the second tranche
payable upon funding and an additional 2.00 per cent. payable upon
the repayment of the loan. In 2020, the Company recorded interest
income of $5,909,000 (2019: $495,833) and a further $11,693,000 was
recorded within BPCR LP (2019: $nil). The outstanding balance as at
31 December 2020 was $350,000,000 (2019: $175,000,000).
On 11 November 2019, the Company and BioPharma V entered into a
definitive senior secured term loan agreement for up to
$100,000,000 with Akebia (Nasdaq: AKBA). Akebia drew down the first
$80,000,000 on 25 November 2019 and the second $20,000,000 tranche
on 10 December 2020. The Company invested $40,000,000 and
$10,000,000 of the first and second tranche, respectively. The loan
will mature in November 2024 and will bear interest at LIBOR plus
7.50 per cent. per annum along with a one-time additional
consideration of 2.00 per cent. of the total loan amount. In 2020,
the Company recorded interest income of $1,509,000 (2019: $390,556)
and a further $2,412,000 was recorded within BPCR LP (2019: $nil).
The outstanding balance as at 31 December 2020 was $60,000,000
(2019: $40,000,000).
On 4 November 2019, the Company and BioPharma V entered into a
definitive senior secured term loan agreement for up to $70,000,000
with Epizyme (Nasdaq: EPZM). On 3 November 2020, the Epizyme loan
agreement was amended and the loan amount was increased to
$220,000,000. Epizyme drew down the $25,000,000 on 18 November 2019
and an additional $195,000,000 during 2020. The Company funded a
total of $110,000,000 of the Epizyme loan. The first three tranches
of the loan will mature in November 2024 and the fourth tranche
will mature in November 2026. The loan will bear interest at LIBOR
plus 7.75 per cent. per annum along with a one-time additional
consideration of 2.00 per cent. of the total loan amount. On 4
November 2019, Royalty Pharma, an affiliate of Pharmakon Advisors,
announced an agreement to purchase future royalties on tazemetostat
net sales outside of Japan owned by Eisai Co. for $330,000,000 and
a separate $100,000,000 equity investment directly in Epizyme.
Pablo Legorreta, a principal of Pharmakon and RP management was
named to the Epizyme board of directors. In 2020, the Company
recorded interest income of $677,000 (2019: $148,958) and a further
$2,905,000 was recorded within BPCR LP (2019: $nil). The
outstanding balance as at 31 December 2020 was $110,000,000 (2019:
$12,500,000).
On 12 September 2019, the Company and BioPharma V, entered into
a definitive senior secured note purchase agreement for the
issuance and sale of senior secured notes in an aggregate original
principal amount of up to $150,000,000 by OptiNose US. OptiNose US
is a wholly-owned subsidiary of OptiNose (Nasdaq: OPTN), a
commercial-stage specialty pharmaceutical company. Optinose drew a
total of $130,000,000 in three tranches: $80,000,000 on 12
September 2019, $30,000,000 on 13 February 2020 and $20,000,000 on
1 December 2020. There are no further funding commitments. The
notes mature in September 2024 and bear interest at 10.75% per
annum along with a one-time additional consideration of 0.75% of
the aggregate original principal amount of senior secured notes
which the Company and BioPharma-V are committed to purchase under
the facility and 810,357 warrants exercisable into common stock of
OptiNose. The Company funded a total 71,500,000 across all tranches
and was allocated 445,696 warrants. In 2020, the Company recorded
interest income of $2,372,000 (2019: $nil) and a further $4,131,000
was recorded within BPCR LP (2019: $nil). The outstanding balance
as at 31 December 2020 was $71,500,000 (2019: $44,000,000).
On 7 February 2018, the Company entered into a senior secured
term loan agreement for $150,000,000
with Novocure Limited (NASDAQ: NVCR) ("Novocure"). The
$150,000,000 loan was originally scheduled to mature in February
2023 and bore 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 was 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 2020,
the Company recorded interest of $5,363,000 (2019: $13,688,000) and
a further $3,300,000 was recorded within BPCR LP (2019: $nil). On
18 August 2020, NovoCure Limited repaid their loan and the Company
received a payment of $154,838,000 million comprised of
$150,000,000 million in principal, $1,838,000 million in accrued
interest, and $3,000,000 million in prepayment fees. The
outstanding balance as at 31 December 2020 was $nil (2019:
$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 was expected to fund
$140,000,000 to $165,000,000 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 $12,136,000 to RPI Acquisitions in the year to
31 December 2020 (2019: $85,687,000) for the Purchased Payments. In
the year to 31 December 2020 the Company recorded interest of
$3,440,000 (2019: $8,417,000) and a further $10,843,000 was
recorded within BPCR LP (2019: $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 (NASDAQ: LXRX), a fully
integrated biopharmaceutical company ("Lexicon"). The loan was
secured by substantially all of Lexicon's assets, including its
rights to Xermelo(R) and sotagliflozin. The $200,000,000 loan was
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 not drawn down. The Company funded $124,500,000 of the first
tranche on 18 December 2017 and Lexicon has not drawn the second
tranche. In the year to 31 December 2020, the Company recorded
interest of $7,844,000 (2019: $11,361,000). On 8 September 2020,
Lexicon repaid the $150,000,000 loan. The Company received a
payment of $132,300,000 million on its $124,500,000 share of the
loan, including the make-whole and prepayment premium totaling
$5,600,000. The outstanding balance as at 31 December 2020 was $nil
(2019: $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
(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 had a
term of seven years and was secured by Tesaro's US rights to
ZEJULA(R) and VARUBI(R). The first $300,000,000 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 periods, amortised over the
remaining term, and can be prepaid at Tesaro's discretion, at any
time, subject to prepayment fees. In the year to 31 December 2020,
the Company recorded interest of $nil (2019: $2,191,000). 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 31 December 2020 was $nil (2019:
$nil).
BioPharma IV, BioPharma V, and RPI Acquisitions are related
entities of the Company due to a principal of the Investment
Manager having significant influence over each of these
entities.
18. CONTINGENCIES, GUARANTEES AND FINANCIAL COMMITMENTS
At 31 December 2020, there were no outstanding commitments (31
December 2019: $319,386,000) in respect of investments (see Note 17
for further details).
19. SUBSEQUENT EVENTS
No additional subsequent events requiring recognition or
disclosure in the financial statements have been determined.
GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES (APM)
Net Income per Ordinary Share
Net income per share is the net revenue for the year divided by
the number of ordinary shares outstanding.
NAV per Ordinary Share
Net Asset Value (NAV) is the value of total assets less
liabilities. The NAV per share is calculated by dividing this
amount by the number of ordinary shares outstanding.
Premium (discount) to NAV per Ordinary Share
As stock markets and share prices vary, an investment trust's
share price is rarely the same as its NAV. When the share price is
lower than the NAV per share it is said to be trading at a
discount. The size of the discount is calculated by subtracting the
share price from the NAV per share and it is usually expressed as a
percentage of the NAV per share. If the share price is higher than
the NAV per share, it is said to be trading at a premium.
Return per Ordinary Share
Revenue return per Ordinary share is based on the net revenue
after taxation divided by the weighted average number of Ordinary
Shares for the year. Capital return per Ordinary Share is based on
net capital gains divided by weighted average number of Ordinary
Shares for the year.
Ongoing charges
Ongoing charges are the Company's expenses expressed (excluding
and including performance fee) as a percentage of its average
monthly net assets and follows the AIC recommended methodology.
Ongoing charges are different to total expenses as not all expenses
are considered to be operational and recurring.
CORPORATE INFORMATION
Directors
Harry Hyman (Chairman)
Colin Bond
Duncan Budge
Stephanie Léouzon
Rolf Soderstrom
Investment Manager and AIFM
Pharmakon Advisors L.P.
110 East 59th Street #3300
New York, NY 10022
USA
Administrator
Link Alternative Fund Administrators Limited
Beaufort House
51 New North Road
Exeter
EX4 4EP
Company Secretary and Registered Office
Link Company Matters Limited
Beaufort House
51 New North Road
Exeter
EX4 4EP
Tel: 01392 477500
Company Website
www.bpcruk.com
Custodian
Bank of New York Mellon
One Canada Square
London
E14 5AL
Financial and Strategic Communications
Buchanan Communications Limited
107 Cheapside
London
EC2V 6DN
Independent Auditor
PricewaterhouseCoopers LLP
7 More London Riverside
London
SE1 2RT
Joint Brokers
J.P. Morgan Cazenove
25 Bank Street
London
E14 5JP
Goldman Sachs International
Peterborough Court
133 Fleet Street
London
EC4A 2BB
Legal Adviser
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London
EC2A 2EG
Registrar
Link Group
10(th) Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
TISE Sponsor
Carey Commercial Limited
1st and 2nd Floors
Elizabeth House
Les Ruettes Brayes
St Peter Port
Guernsey
GY1 1EW
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
Contacting the Company
Shareholder queries are welcomed by the Company. While any
queries regarding your shareholding should be directed to the
Registrar, shareholders who wish to raise any other matters with
the Company may do so using the following contact details:
Company Secretary - biopharmacreditplc@linkgroup.co.uk
Chairman - chairman@bpcruk.com
Senior Independent Director - sid@bpcruk.com
National Storage Mechanism
A copy of the full Annual Report and Financial Statements will
shortly be submitted to the National Storage Mechanism ("NSM") and
will be available for inspection at the NSM, which is situated
at
https://data.fca.org.uk/a/nsm/nationalstoragemechanism .
END
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on this announcement (or
any other website) is incorporated into, or forms part of, this
announcement.
LEI: 213800AV55PYXAS7SY24
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END
FR FFFFIVTIELIL
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