BioPharma Credit (BPCR) has published interim results to 30 June 2020. The company says it is London’s only specialist debt investor to the life sciences industry. It seeks to achieve returns primarily through investments in debt assets secured by royalties or other cash flows derived from the sales of approved life sciences products. NAV per share decreased by (1.8%) over the period and the share price was down by (4.3%). We note that the shares have performed well since June and are now up very slightly over the year-to-date.
Interim and post-period investment highlights
The manager’s engagement during the period with potential counterparties resulted in the execution of new investments totalling $165m which, together with $71m from the funding of existing commitments entered into prior to the start of the period, resulted in BPCR funding a total of $236m in the period. This included the $165 million senior secured loan investment with Collegium Pharmaceutical, announced on 7 February 2020. Post-period end, on 7 August 2020 Global Blood Therapeutics confirmed its intention to draw the second tranche of the Term Loan which would increase the company’s investment from $41.3m to $82.5m.
Repayments of $425m post-period end
Repayments following the period-end were as follows:
- $150m to Amicus on 30 July 2020, generating a 13.4% IRR
- $150m to Novocure on 18 August 2020, generating a 10.2% IRR
- $124.5m to Lexicon on 8 September 2020 generating a 12.1% IRR
Dividend target of 7 cents for 2020 – distribution was ahead of the target over FY19
During the half-year period, the company paid two quarterly dividends totalling 1.75 cents per share against the targeted total distribution of 7 cents for the full year. In March 2020, BPCR also paid a special dividend of 1.28 cents per share corresponding to the 2019 year. As a result, 2019 dividend distributions were 8.28 cents per share, ahead of the 7 cent target
M&A opportunities starting to increase within the life sciences industry
The following outlook is provided by Pedro Gonzalez de Cosio, co-founder and CEO of Pharmakon, BPCR’s manager: “The life sciences industry is expected to continue to have substantial capital needs during the coming years as the number of products undergoing clinical trials continues to grow. All else being equal, companies seeking to raise capital are generally more receptive to straight debt financing alternatives at times when equity markets are soft, increasing the number and size of fixed-income investment opportunities for the Company, and will be more inclined to issue equity or convertible bonds at times when equity markets are strong. A good indicator of the life sciences equity market is the New York Stock Exchange Biotechnology Index (BTK Index). While there was substantial volatility during the period, the BTK index grew 13% during the period, a similar performance to the first six months of 2019. Global equity issuance by life sciences companies during the period was $63 billion, a 97% increase from the $32b issued during the first six months of 2019. We anticipate a slowdown in equity issuance coupled with greater appetite for fixed-income as a source of capital during the remainder of 2020.
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 the period was $18 billion, a 55%. decrease from the $39 billion witnessed during the first six months of 2019, driven mainly by a decrease in M&A activity globally as a result of the COVID-19 pandemic. We are encouraged by the number of M&A opportunities that are starting to build up and should lead to a more active market in the near term.
In conclusion, there continues to be a robust pipeline of investment opportunities, but as usual, the precise timing of their execution is not completely within our control. Pharmakon will continue to evaluate potential capital sources to fund additional investments in addition to the $248m in commitments expected to be funded during 2020. These commitments can be fully funded with the proceeds from the recent loan prepayments.”
BPCR: BioPharma Credit interim period investments total $236m