BioPharma Credit (BPCR) has published annual results to 31 December 2019. The company says it is London’s only specialist debt investor to the life sciences industry. The company seeks to achieve returns for its shareholders primarily through investments in debt assets secured by royalties or other cash flows derived from the sales of approved life sciences products.
Over FY19, BPCR’s share price returned (4.2%) while the NAV increased by +1.7%. The company provided the following investment highlights:
Portfolio highlights over FY19
- $500m senior secured loan commitment to Sarepta Therapeutics Inc. (Nasdaq: SRPT) alongside BioPharma Credit Investments V (Master) LP (BioPharma-V) of which the company initially invested $175m on 13 December 2019
- $150m senior secured loan commitment to OptiNose (Nasdaq: OPTN) alongside BioPharma-V of which the company initially invested $44m on 13 September 2019
- $150m senior secured loan commitment to Global Blood Therapeutics (Nasdaq: GBT) alongside BioPharma-V of which the company initially invested $41.25m on 18 December 2019
- $100m senior secured loan commitment to Akebia (Nasdaq: AKBA) alongside BioPharma-V of which the company initially invested $40m on 13 November 2019
- $80m senior secured loan commitment to BioDelivery Sciences International (Nasdaq: BDSI) (BDSI) of which the company initially invested $60m on 23 May 2019
- $70m senior secured loan commitment to Epizyme (Nasdaq: EPZM) alongside BioPharma-V of which the company initially invested $12.5m on 13 November 2019
- $25m equity investment in BDSI acquired at a cost of $5.00 per share through participation in a public offering that took place on 11 April 2019
- Post period end on 7 February 2020, the Company entered into a $200m senior secured loan agreement with Collegium Pharmaceutical Inc. (Nasdaq: COLL) alongside BioPharma-V of which the company has invested its full commitment of $165m
- Post period end on 11 February 2020, the company alongside BioPharma-V invested in the second tranche of $30m to Optinose with the company funding $16.5m
Pedro Gonzalez de Cosio, CEO and co-founder of Pharmakon Advisors, the manager of BPCR, said: “The significant cash resources available to the company at the outset of 2019 provided a unique opportunity to increase the scale of the portfolio. We are delighted that this process has been completed on schedule with the cash resources fully invested or otherwise allocated towards a leading portfolio of life sciences credit investments.
We continue to see a number of significant opportunities in our pipeline and will update the market in due course as these progress through our rigorous due diligence process. We believe the company is ideally poised from its 2019 investment activity to deliver further growth and add additional diversification to our income base.
The manager also launched BioPharma-V in 2019, a private vehicle investing in similar assets to the company and has through the year co-invested alongside the company in many transactions. This has had a noticeable effect in materially diversifying the BioPharma Credit portfolio and has also enhanced the transactional resources available to the manager, ensuring that the most attractive deals can be secured for the benefit of the company’s shareholders.
At a time of uncertainty in the global equity markets, we are focused on continuing to deliver a robust income stream delivered on a quarterly basis and derived from contracted revenues that are uncorrelated to broader equity market movements.
The global sales of approved life sciences products continue to increase in value year on year driven by four fundamental growth drivers of a global growing population, an ageing population, growth in emerging markets and continued innovation. BioPharma Credit remains ideally placed to offer investors defensive exposure to this important asset class through life sciences companies that provide critical solutions to unmet needs to deliver regular returns to shareholders and transformative outcomes for patients.”
Life sciences market overview from BPCR
The following extracts are taken from BPCR’s results announcement.
Size and growth dynamics of the industry
The life sciences industry consists of pharmaceutical and biotechnology firms and is a large and vital industry with a track record of strong, consistent growth. Worldwide prescription drugs sales were $827 billion in 2018 and are expected to reach $1.2 trillion by 2024, reflecting a compounded annual growth rate of 6 per cent. While medical and scientific advances contribute to a portion of that increase, other growth drivers include more basic demographic and macroeconomic factors, such as a growing population, ageing populations and increasing prosperity in developing countries which is improving access to healthcare for millions of patients. The increase in spending is expected to be largely driven by brands and increased usage in emerging markets, offset by expiring patents.
Product life cycle
Pharmaceutical and biotechnology products have long life cycles, which can provide considerable downside protection for the Company. Worldwide patents can lead to more than 20 years of protection, which frequently translates into as long as 15 years of exclusivity from the time the products are first approved by regulatory agencies such as the U.S. Food and Drug Administration (“FDA”). Some governments also provide for regulatory exclusivity, which provides for six to ten years of commercial exclusivity independent of an approved patent, if an innovator performs clinical trials. On average, sales growth is very robust for the first 12 years of a product’s life cycle, after which some of these products begin to lose exclusivity, and their sales growth slows and starts to decline shortly thereafter. A key driver of initial sales growth is increasing prescriptions from physicians in the early-launch markets, but subsequent commercialisation rates in additional geographic markets, as well as expanding indications, frequently drive attractive growth for more than a decade.
Market dynamics create fragmentation of the industry and more lending opportunities
Despite growth in the pharmaceutical market, large pharmaceutical companies continue to face mounting pressure on top-line sales from patent expiry on blockbuster products and failures in their research and development pipelines. The internal research and development departments of larger pharmaceutical companies have struggled to replace lost revenue with new products. Dramatically escalating research and development costs have also put pressure on industry participants to adapt their business model and seek partners to reduce risk. The amount of research and development investment per FDA-approved product is now approximately $1.4 billion. As a result of these factors, large pharmaceutical companies are increasingly relying on in-licensing and corporate acquisitions for new products.
Over the last 30 to 40 years, the landscape of the pharmaceuticals industry has been transformed from one dominated by fully integrated pharmaceutical companies to a more dynamic and entrepreneurial research and development ecosystem comprised of thousands of participants. As a result of this research and development evolution, smaller companies, investor groups, universities and non-profit research institutes increasingly have rights to royalty streams on products that have been out-licensed to larger pharmaceutical companies. This broader shift in research and development approach provides an expanding landscape of lending opportunities for the Company, as smaller companies are increasingly partnering with large pharmaceutical companies.
The pharmaceutical and biotechnology ecosystem has evolved to one where innovation and commercialisation, which was once centralised in fewer than 100 big pharmaceuticals, has now spread among more than 5,000 academic labs, government-funded entities and more than 5,000 biotech companies. The pool of creditworthy borrowers has increased exponentially.
BPCR: BioPharma Credit significantly increased its scale over 2019