TIDMBPCR
RNS Number : 7782T
BioPharma Credit PLC
22 March 2023
22 March 2023
BIOPHARMA CREDIT PLC
(THE "COMPANY")
ANNUAL REPORT FOR THE YEARED 31 DECEMBER 2022
RECORD NET INCOME AND DIVID PERFORMANCE; FLOATING RATE
INVESTMENTS EXCLUDING CASH AT 73% OF PORTFOLIO; ON TRACK TO MEET
2023 DIVID TARGET
BioPharma Credit PLC (LSE: BPCR), the specialist life sciences
debt investor, today announces publication of the Annual Report of
the Company for the year ended 31 December 2022.
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 033330 01950 or via email at
biopharmacreditplc@linkgroup.co.uk.
SHAREHOLDER RETURNS - A LANDMARK YEAR
-- 13.4 cents net income per share, the Company's strongest
earnings period in its history due to a combination of solid,
predominantly variable interest portfolio and five loan
repayments
-- 13.08 cents per share in total dividends from 2022 results
including a Q4 2022 interim dividend of 3.33 cents comprised of an
ordinary dividend of 1.75 cents and a special dividend of 1.58
cents.
o 13.8% dividend yield based on the Company's share price at 31
December 2022
-- 2023 dividend target expected to be covered from existing portfolio
-- Company NAV remained stable during the period increasing to
$1.0139 per share (Dec 2021: $0.9926)
-- The Company reported total net income for 2022 of $182m, up from $85m reported in 2021
-- 54.7 million shares repurchased during 2022 at an average price of 94.47 cents
INVESTMENT HIGHLIGHTS - PREPAYMENT AND OTHER FEES TOTAL $80M
-- In a highly active twelve month-period, the Company made five
investments totalling funded amounts of $665m:
o $325m for Collegium
o $140m for Insmed
o $125m for Coherus
o $50m for Urogen
o $25m for Immunocore
o These investments have additional unfunded commitments of $50m
that may be funded over the next 18 months
-- The Company also received cash from five repayments,
amortisation payments and the BMS purchased payments that resulted
in an $830m increase in cash flow
o The repayments were accompanied by prepayment and other fees
totalling $80m which had a material impact on the overall rates of
return of these investments
-- The percentage of floating rate senior secured loans within
the portfolio increased from 46% to 81% from the previous year,
having a positive impact on the Company's earnings as well as
offering protection in a rising rate environment
-- 85% of fixed rate investments mature March 2024
-- Investment portfolio generating 11.7%(1) gross yield for Q1 2023, up from 9.0%(1) in Q1 2022
1. Weighted average of quarterly interest rates on the
portfolio's senior secured loans
-- The Company's investment manager, Pharmakon Advisors, LP
continues to progress an active pipeline of additional potential
investments to further grow and diversify the portfolio
SUMMARY
as at 31 December 2022
Share price Net assets
$0.9500 $1,337.5m
(31 December 2021: $0.9680) (31 December 2021: $1,363.7m)
NAV per Share Shares in issue
$1.0139 1,373.9m
(31 December 2021: $0.9926) (31 December 2021: 1,373.9m)
Discount to NAV per Share Leverage
6.3% 0%
(31 December 2021: 2.5%) (31 December 2021: 0%)
Net income per share* Dividend declared
$0.1336 13.1 cents per share
(31 December 2021: $0.0618) (31 December 2021: 7 cents per share)
PORTFOLIO COMPOSITION
As at 31 As at 31 As at 31 As at 31 December
December December December 2021 (%)
2022 ($m) 2021 ($m) 2022 (%)
Collegium senior
secured loan 287.5 92.8 21.5% 6.8%
LumiraDx senior secured
loan and warrants 150.1 152.1 11.2% 11.2%
Insmed senior secured
loan 140.0 - 10.5% -
Coherus senior secured
loan 125.0 - 9.4% -
BMS purchased payments 103.5 137.3 7.7% 10.1%
Optinose senior secured
note, shares and
warrants 72.5 72.4 5.4% 5.3%
Urogen senior secured
loan 50.0 - 3.7% -
Evolus senior secured
loan 37.5 37.5 2.8% 2.7%
Akebia senior secured
loan 33.5 50.0 2.5% 3.7%
Immunocore senior
secured loan 25.0 - 1.9% -
Sarepta senior secured
loan - 350.0 - 25.7%
GBT senior secured
loan - 132.5 - 9.7%
Epizyme senior secured
loan - 110.0 - 8.1%
BioDelivery senior
secured loan and
equity - 68.3 - 5.0%
Cash and cash equivalents* 333.0 174.0 24.9% 12.8%
Other net liabilities (20.1) (12.9) -1.5% -1.1%
---------------------------- ----------- ----------- ---------- -----------------
Total net assets 1,337.5 1,364.0 100% 100%
---------------------------- ----------- ----------- ---------- -----------------
* Cash and cash equivalents include balances at the Company and
BPCR Limited Partnership.
"We are extremely proud of the record earnings announced today
for 2022, our most successful year since inception," said Pedro
Gonzalez de Cosio, CEO and co-founder of Pharmakon Advisors L. P.,
the Investment Manager of BioPharma Credit PLC. "The Company
delivered net income of 13.4 cents per share, an increase of 116%
on the prior year and fuelling a record distribution to
shareholders of 13.1 cents per share in dividends as a result of
earnings during 2022. Despite the considerable repayment activity
that helped to generate such stellar returns, strong investment
activity has also helped to swiftly redeploy much of the capital
into new attractive investments.
The fact that these earnings have been generated while
maintaining a stable NAV and during a year of pronounced equity
market turmoil, in particular, speaks to the highly uncorrelated
nature of the Company's income streams and its proven credentials
as a defensive source of diversified high income.
We look forward to 2023 with confidence as we continue to assess
a highly attractive pipeline of potential new investment
opportunities to put our remaining cash to work."
RESULTS PRESENTATION
As announced on 1 March 2023, a management presentation for
analysts will be held at the offices of Buchanan and via conference
call facility at 9:30am GMT on the day of results. To request
details or to register to attend please RSVP
biopharmacredit@buchanan.uk.com. A recording will also be made
available on the Company's website.
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 a 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.
At a glance
Our primary objective is to continue to generate predictable
income for shareholders
We will seek to achieve this by continuing to build a
high-quality portfolio of investments secured by rights and cash
flows derived from sales of approved life sciences products.
The Company holds a majority of its investments through its
financing subsidiary, BPCR Partnership.
2022 Investments
Investment Funded
Date in 2022
$m
----------------- ------------ ---------
Coherus 05/01/22 125.0
Collegium 2022* 14/02/22 325.0
UroGen 07/03/22 50.0
Insmed 19/10/222 140.0
Immunocore 08/11/22 25.0
Total 665.0
2022 Repayments
Investment amount Prepayment Gross
$m Date IRR**
----------------- ------------------ ----------- -------
Collegium 2020* 165.0 22/03/22 11.8%
----------------- ------------------ ----------- -------
BDSI 80.0 22/03/22 11.9%
----------------- ------------------ ----------- -------
Epizyme 110.0 12/08/22 15.2%
----------------- ------------------ ----------- -------
Sarepta 350.0 16/09/22 12.0%
----------------- ------------------ ----------- -------
GBT 132.5 05/10/22 27.6%
----------------- ------------------ ----------- -------
* The Company entered into a loan agreement for $165,000,000 on
13 February 2020. On 14 February 2022, the Company provided
Collegium Pharmaceutical a commitment to enter into a new loan
agreement for $325,000,000. The new loan was funded and the
proceeds were used to repay the outstanding 2020 loan balance on 22
March 2022.
** Gross IRR means an aggregate, annual, compounded, as
applicable, internal rate of return, calculated on the basis of
historical and projected capital inflows and outflows related to
the particular investment, without taking into account the impact
of management fees, incentive compensation, taxes, or transaction
and organizational costs and expenses.
As at As at
31 Dec Percentage 31 Dec Percentage
2022 as at 2021 as at
31 Dec 31 Dec
INVESTMENT $m 2021 $m 2021
---------------------------- -------- ------------ -------- ------------
Cash and cash equivalents* 333.0 24.9% 174.0 12.8%
.3
BMS purchased payments 103.5 7.7% 137.3 10.1%
BioDelivery senior secured
loan and equity - - 68.3 5.0%
Optinose senior secured
note, shares and warrants 72.5 5.4% 72.4 5.3%
Epizyme senior secured
loan - - 110.0 8.1%
Akebia senior secured loan 33.5 2.5% 50.0 3.7%
Sarepta senior secured
loan - - 350.0 25.7%
GBT senior secured loan - - 132.5 9.7%
Collegium senior secured
loan 287.5 21.5% 92.8 6.8%
LumiraDx senior secured
loan and warrants 150.1 11.2% 152.1 11.2%
Evolus senior secured loan 37.5 2.8% 37.5 2.7%
Coherus senior secured
loan 125.0 9.4% - -
UroGen senior secured loan 50.0 3.7% - -
Insmed senior secured loan 140.0 10.5% - -
Immunocore senior secured
loan 25.0 1.9% - -
Other net liabilities (20.1) -1.5% (12.9) -1.1%
---------------------------- -------- ------------ -------- ------------
Total net assets 1,337.5 100% 1,364.0 100.0%
* Cash and cash equivalents include balances at the Company and
BPCR Limited Partnership.
CHAIRMAN'S STATEMENT
INTRODUCTION
2022 marks the fifth full year since the Company's Initial
Public Offering ("IPO") on the London Stock Exchange in March 2017.
During 2022, the Company generated its highest net income per share
in its five year track record of $0.1336 due to a combination of
its solid, predominantly variable interest portfolio and five loan
repayments.
The percentage of floating rate senior secured loans within the
portfolio increased from 46 per cent. to 81 per cent. from the
previous year. The increase in floating rate loans had a
significant impact on the
Company's earnings as well as helping retain the value of the
portfolio in times of macro uncertainty and rising interest
rates.
INVESTMENTS
Over the course of 2022, the Company and its subsidiaries
invested $665 million, comprised of $325 million for Collegium,
$125 million for Coherus, $50 million for UroGen, $140 million for
Insmed and
$25 million for Immunocore. These investments have additional
unfunded commitments totaling $75 million that may be funded over
the next twelve months.
Including assets and liabilities from its financing subsidiary,
BPCR Limited Partnership, the Company ended the year with total net
assets of $1,338 million, comprising $1,025 million of investments,
$333 million of cash less $20 million of other net liabilities.
The Company and its subsidiaries saw an $830 million increase in
cash flow due to the early repayment of the BDSI, Collegium 2020,
Epizyme, Sarepta and GBT loans as well as the scheduled
amortisation payments from the Collegium 2022 and Akebia loans and
the BMS purchased payments. The repayments were accompanied by
prepayment and other fees totaling $80 million, which had a
material impact on the overall rates of return of these
investments.
DEBT FACILITY
On 10 September 2021, the Company renegotiated and amended the
JPMorgan Chase Bank revolving credit facility that was put in place
in May 2020. On 21 March 2022, the Company through its subsidiary,
BPCR Limited Partnership, drew $138 million on its $200 million
credit facility. The Company repaid the drawn amount in its
entirety by September 2022, extinguishing the $133 million term
loan portion. The Company currently has $67 million available to
draw under this credit facility.
DCM AND SHARE BUYBACKS
After consultation with our largest shareholders, the Company
amended its discount control mechanism ("DCM") during the second
half of 2022. While the percentage declines in the share price that
trigger the DCM remained unchanged, the Company will now be
required to repurchase shares once the discount to NAV over a two-
week period is greater than 5 per cent. (compared with greater than
1 per cent. previously). Additional information on the DCM can be
found in the Company's RNS dated 7 November 2022. The DCM was
initially triggered on 31 August 2022. During 2022, the Company
repurchased a total of 54,693,704 Ordinary $0.01 shares at an
average price of $0.94 per share and a total cost of
$51,669,309.
SHAREHOLDER RETURNS
The Company reported net income of return on ordinary activities
after finance costs and before taxation for 2022 of $182 million,
up from the $85 million reported during 2021. On 31 December 2022,
the Company's Ordinary Shares closed at 95.0 cents, below the
closing price on 31 December 2021 of 96.8 cents. Net Asset Value
("NAV") per Ordinary Share increased over the same timeframe by
2.13 cents from 99.26 cents to 101.39 cents. The Company made four
dividend payments over the year totaling 11.5 cents per share,
referencing net income for the four quarters ending 30 September
2022. 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 2022 of 3.33 cents per
share made up of an ordinary dividend of 1.75 cents per share
together with a special dividend of 1.58 cents per share. Total
dividends from 2022 results reached 13.08 cents per share.
Management expects the 2023 dividends to be covered from
profits.
ESG
The Board has supported the Environmental, Social and Governance
("ESG") programme of Pharmakon Advisors, LP ("Pharmakon" or the
"Investment Manager") during 2022, with progress made in embedding
ESG as an integral part of the investment process. The key areas
are described in more detail in the full report.
GEOPOLITICAL STATEMENT
The effects of major geopolitical and social risks, including
the invasion by Russia of Ukraine, may have economic consequences
that extend beyond the short term. However, the Company does not
have any
direct investments in Russia or Ukraine. The COVID-19 pandemic
is having less of an impact to the movement of people and
disruptions to business operations and has not impacted operations
of Pharmakon or the Company's third-party service providers.
Pharmakon believes that, while the COVID-19 pandemic has
temporarily affected the sales of some of the Company's borrowers,
it has not had a material impact on the credit quality of the
Company's loans. We will continue to monitor the situation and will
inform shareholders of any material changes to this assessment.
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 2022 and to our
shareholders for their continued support.
Harry Hyman
Chairman
21 March 2023
INVESTMENT MANAGER'S REPORT
A record year for investment returns
Pharmakon is pleased to present an update on the Company's
portfolio and investment
outlook. The Company's existing portfolio investments continue
to perform well.
New investments, together with an increase in prepayments and
risk-free interest rates helped increase investment returns(1) to
$182 million in 2022 compared to $85 million in 2021. Pharmakon's
engagement with potential counterparties during 2022 resulted in
$715 million of new investments(2) for the Company. Five
investments were prepaid during 2022: Collegium 2020, BDSI,
Epizyme, Sarepta and GBT. In total, these repayments returned $745
million in principal to the Company and generated $59 million in a
combination of make-whole and prepayment fees. The Gross IRRs(3)
for the five prepaid investments ranged from 11.8 per cent. to 27.6
per cent(4) .
(1) Investment returns reference the return on ordinary
activities after finance costs and taxation found in the Statement
of Comprehensive Income.
(2) New investments figure represents overall commitments
inclusive of any unfunded commitments.
(3) Gross IRR means an aggregate, annual, compounded, as
applicable, internal rate of return, calculated on the basis of
historical and projected capital inflows and outflows related to
the particular investment, without taking into account the impact
of management fees, incentive compensation, taxes, or transaction
and organizational costs and expenses.
(4) Past performance is not an indication of future
performance.
IMMUNOCORE
On 8 November 2022, the Company and a the Private Fund also
investing in life sciences debt
managed by Pharmakon (the "Private Fund"), entered into a
definitive senior secured loan
agreement for up to $100 million with Immunocore Limited
(Nasdaq: IMCR), a biopharmaceutical
company focused on developing a novel class of TCR bispecific
immunotherapies designed to treat a broad range of diseases,
including cancer, infectious and autoimmune diseases
("Immunocore").
The Company and its subsidiaries funded $25 million of the first
tranche of $50 million on 8 November 2022. The remaining $50
million may be drawn by 30 June 2024. The Company's share of the
final tranche is $25 million. Tranche A will mature in November
2028 and bears interest at 9.75 per cent. per annum along with an
additional consideration of 2.50 per cent. paid at funding.
Investment type Total loan amount
Secured loan $100m
Date invested Company commitment
8 November 2022 $50m
Maturity
November 2028
INSMED
On 19 October 2022, the Company and the Private Fund entered
into a definitive senior secured loan agreement for $350 million
with Insmed Incorporated (Nasdaq: INSM), a biopharmaceutical
company focused on treating patients with serious and rare
diseases ("Insmed").
The Company and its subsidiaries funded $140 million of the $350
million loan on 19 October 2022. Insmed has elected the option to
accrue 50 per cent. of their 4Q22 interest due as a payment-in-kind
as allowed in the loan agreement. The loan will mature in October
2027 and bears interest at a rate based upon the 3-month secured
overnight financing rate ("SOFR"), plus 7.75 per cent. per annum
subject to a SOFR floor of 2.50 per cent. with a one-time
additional consideration of 2.00 per cent. of the total loan amount
paid at funding.
Investment type Total loan amount
Secured loan $350m
Date invested Company commitment
19 October 2022 $140m
Maturity
October 2027
UROGEN
On 7 March 2022, the Company and the Private Fund entered into a
definitive senior secured loan agreement for up to $100 million
with UroGen Inc (Nasdaq: URGN), a biopharmaceutical company
dedicated to creating novel solutions that treat urothelial and
specialty cancers ("UroGen").
UroGen drew down $75 million at closing and the remaining $25
million on 16 December 2022. The Company and its subsidiaries
funded $50 million across the two tranches. The loan will mature in
March
2027 and bears interest at 3-month LIBOR plus 8.25 per cent. per
annum subject to a 1.25 per cent. floor along with a one-time
additional consideration of 1.75 per cent. Of the total loan amount
paid at funding of the first tranche.
UroGen markets JELMYTO (mitomycin), a prescription medicine used
to treat adults with a type of cancer of the lining of the upper
urinary tract including the kidney called low-grade Upper Tract
Urothelial Cancer (LG-UTUC).
Investment type Total loan amount
Secured loan $100m
Date invested Company commitment
16 March 2022 $50m
Maturity
March 2027
COLLEGIUM 2022
On 14 February 2022, the Company along with the Private Fund
provided Collegium Pharmaceutical, Inc. (Nasdaq: COLL), a
biopharmaceutical company focused on developing and commercialising
new medicines for responsible pain management ("Collegium"), with a
commitment to enter into a new senior secured term loan agreement
for $650 million.
On 22 March 2022, proceeds from the new loan were used to fund
Collegium's acquisition of BDSI as well as repay the outstanding
debt of Collegium and BDSI.
At closing, the Company and its subsidiaries invested $325
million in a single drawing. The four-year loan will have $100
million in amortisation payments during the first year and the
remaining $550 million balance will amortize in equal quarterly
installments. The loan will mature in March 2026 and bears interest
at 3-month LIBOR plus 7.50 per cent. per annum subject to a 1.20
per cent. floor along with a one-time additional consideration of
2.00 per cent. of the loan amount paid upon signing and a one-time
additional consideration of 1.00 per cent. Of the loan amount paid
at funding.
Collegium currently markets Xtampza ER, an abuse-deterrent,
extended-release, oral formulation of oxycodone and Nucynta
(tapentadol), a centrally acting synthetic analgesic.
Investment type Total loan amount
Secured loan $650m
Date invested Company commitment
22 March 2022 $325m
Maturity
March 2026
COHERUS
On 5 January 2022, the Company and the Private Fund entered into
a definitive senior secured loan agreement for up to $300 million
with Coherus BioSciences, Inc. (Nasdaq: CHRS), a biopharmaceutical
company building a leading immunooncology franchise funded with
cash generated by its commercial biosimilars business
("Coherus").
Coherus drew down $100 million at closing, another $100 million
on 31 March 2022, and an additional $50 million on 14 September
2022. The remaining $50 million commitment lapsed so there are no
additional funding commitments.
The Company and its subsidiaries funded $125 million across the
first three tranches. The loan will mature in January 2027 and
bears interest at 3-month LIBOR plus 8.25 per cent. per annum
subject to a 1.00 per cent. floor along with a one-time additional
consideration of 2.00 per cent. of the total loan amount paid at
funding of the first tranche.
On 6 February 2023, the Coherus loan was amended to allow for a
short term waiver to the sales covenant, as well switching the
LIBOR component of the loan coupon to SOFR.
Coherus markets UDENYCA(R)(pegfilgrastimcbqv), a biosimilar of
Neulasta in the United States, and expects to launch the
FDA-approved Humira biosimilar YUSIMRY (adalimumab-aqvh) in the
United States in 2023.
Investment type Total loan amount
Secured loan $250m
Date invested Company commitment
5 January 2022 $150m
Maturity
January 2027
EVOLUS
On 14 December 2021, the Company and the Private Fund entered
into a definitive senior secured loan agreement for up to $125
million with Evolus Inc (Nasdaq: EOLS), a biopharmaceutical company
that develops, produces, and markets clinical neurotoxins for
aesthetic treatments ("Evolus").
The Company and its subsidiaries funded $37.5 million of the
first tranche of $75 million on 29 December 2021. The remaining $50
million may be drawn by 31 December 2023. The Company's share of
the final tranche is $25 million. The loan will mature in December
2027 and bears interest at 3-month LIBOR plus 8.50 per cent. per
annum subject to a 1.00 per cent. floor along with a one-time
additional consideration of 2.25 per cent. of the total loan amount
paid at funding of the first tranche.
On 5 December 2022, the Evolus loan was amended to extend the
draw down date for Tranche B in exchange for a $500,000 amendment
fee, of which 50 per cent. was allocated to the Company.
Evolus currently markets Jeuveau (prabotulinumtoxinA-xvfs), the
first and only neurotoxin dedicated exclusively to aesthetics.
Investment type Total loan amount
Secured loan $125m
Date invested Company commitment
14 December 2021 $63m
Maturity
December 2027
LUMIRADX
On 23 March 2021, the Company and the Private Fund entered into
a definitive senior secured loan agreement for $300 million with
LumiraDx Investment Limited and LumiraDx Group Limited
(collectively "LumiraDx").
The Company and its subsidiaries funded $150 million of the $300
million loan on 29 March 2021.
The loan will mature in March 2024 and will bear interest at
8.00 per cent. per annum along with an additional consideration of
2.50 per cent. of the loan amount paid upon funding and an
additional 1.50 per cent. of the loan payable at maturity. On 28
September 2021, LumiraDx became public via a SPAC transaction with
CA Healthcare Acquisition Corp. and began trading on NASDAQ under
the ticker LMDX. The Company and BioPharma-V each received 742,924
warrants exercisable into common stock of LumiraDx under the terms
of the transaction.
On 17 June 2022, the LumiraDx loan was amended to provide
LumiraDx with certain waivers in exchange for increasing the fee
payable at maturity from 1.50 to 3.00 per cent. of the loan..
On 25 July 2022, LumiraDx raised $100 million in a follow-on
offering at a price of $1.75. As part of the financing, Pharmakon
re-tiered its sales covenants, received a facility fee, and was
issued new five-year warrants with the original warrants being
cancelled.
On 22 February 2023, the LumiraDx loan was amended to provide
LumiraDx with certain waivers in exchange for increasing the fee
payable at maturity from 3.00 to 9.00 per cent. of the loan.
LumiraDx is a UK based, next-generation Point of Care ("POC"),
diagnostic company addressing the current limitations of legacy POC
systems by bringing performance comparable to a central lab to the
POC in minutes, on a single instrument for a broad menu of tests
with a low cost of ownership. To date, LumiraDx has developed and
launched twelve diagnostic tests for use with its platform, three
of which have been approved in the United States under an Emergency
Use Authorization and in the EU under a CE mark: a SARS-CoV-2
("COVID-19") antigen test, a COVID-19 antibody test, and a
COVID-19
Surveillance test. The nine other tests are currently approved
only in the EU under a CE mark.
LumiraDx has also used its technology to develop two rapid
COVID-19 reagent testing kits for use on open molecular systems,
LumiraDx SARS-CoV-2 RNA STAR and SARS-CoV-2 RNA STAR Complete, both
of which obtained Emergency Use Authorization by the FDA.
Investment type Total loan amount
Secured loan $300m
Date invested Company commitment
23 March 2021 $150m
Maturity
March 2024
AKEBIA
On 11 November 2019, the Company and the Private Fund 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 $50 million across both
tranches.
The loan will mature in November 2024 and bears 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 paid upon
funding. The Akebia loan began amortising in September 2022.
On 18 February 2022, the Akebia loan was amended to provide
Akebia certain waivers.
On 15 July 2022, the Akebia loan was amended to provide Akebia
with certain waivers. As a result of this amendment, Akebia made a
$25 million pre-payment, of which $12.5 million went to the
Company, as well as a 2 per cent. prepayment fee. The Company's
outstanding balance as of 31 December 2022 is $33.5 million.
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.
Investment type Total loan amount
Secured loan $100m
Date invested Company commitment
25 November 2019 $50m
Maturity
November 2024
OPTINOSE
On 12 September 2019, the Company and the Private Fund 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, Inc a
wholly-owned subsidiary of OptiNose (Nasdaq: OPTN), a
commercial-stage specialty pharmaceutical company ("OptiNose").
OptiNose drew a total of $130 million in three tranches: $80
million on 12 September 2019, $30 million on 13 February 2020 and
$20 million on 1 December 2020. There are no additional funding
commitments.
The Company and its subsidiaries funded a total $72 million
across all tranches. The notes mature in September 2024 and bore
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 was committed to purchase under the facility
and 445,696 warrants exercisable into common stock of OptiNose at a
strike price of $6.72.
In prior years, there were two amendments to the OptiNose note
purchase agreement, resulting in re-tiered sales covenants,
permission for an equity issuance, amended amortisation and
make-whole provisions, and the issuance of new three-year warrants,
with the original warrants being cancelled.
On 10 August 2022, the OptiNose note and purchase agreement was
amended resulting in re-tiered sales covenants in exchange for an
amendment fee of $780,000, payable upon repayment, of which the
Company will be allocated $429,000.
On 9 November 2022, OptiNose negotiated certain waivers in
exchange for a waiver fee, of which the Company earned $715,000 of
the total $1.3 million waiver fee.
On 21 November 2022, OptiNose entered into an Amended and
Restated Note Purchase Agreement (the "A&R NPA"). As part of
the A&R NPA, Pharmakon revised the sales covenants, amended the
amortization and make-whole, and modified the loan interest from a
fixed rate of 10.75 per cent. to a floating rate equal to 3-month
SOFR plus 8.50 per cent., subject to a 2.50 per cent. floor, in
exchange for an amendment fee.
OptiNose's leading product, XHANCE (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 utilises a novel and proprietary
exhalation delivery system to deliver the drug high and deep into
the sinuses, targeting areas traditional intranasal sprays are not
able to reach.
Investment type Total loan amount
Secured loan $130m
Date invested Company commitment
12 September 2019 $72m
Maturity
September 2024
BRISTOL-MYERS SQUIBB COMPANY.
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 BristolMyers Squibb Company
(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 through 2020,
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.
The Company funded all of the Purchased Payments based on sales
from 1 January 2018 to 31 December 2019 for a total of $162
million.
REALISED INVESTMENTS
GBT
On 17 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 Inc. (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. On 14 December 2021 the
loan agreement was amended and restated. The amendment increased
the aggregate principal amount of the loan to $250 million through
a $100
million third tranche, which was drawn on 22 December 2021. The
Company and its subsidiaries funded $133 million across all three
tranches. The loan was due to mature in December 2027 and bore
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 paid upon
funding and an additional 2.00 per cent. payable upon the repayment
of the loan. The third tranche also incurred additional
consideration of 1.50 per cent. at the time of funding. As a part
of the amendment in 2021, the Company and its subsidiaries received
a one-time fee equal to 1.25 per cent. of the first two tranches
and the three-year make- whole period was reset to December 2021.
On 5 October 2022, Pfizer acquired GBT and, as a result, GBT repaid
its $250 million senior secured loan. The Company received
its $133 million of principal and $43 million in prepayment and
makewhole fees. The Company and its subsidiaries earned a 27.6 per
cent. internal rate of return* on its GBT investment.
* Internal rate of return means an aggregate, annual,
compounded, as applicable, internal rate of return, calculated on
the basis of historical and projected capital inflows and outflows
related to the particular investment, without taking into account
the impact of management fees, incentive compensation, taxes, or
transaction and organizational costs and expenses.
Sarepta
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, Inc. (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 was originally due to
mature in December 2023 and the second tranche in December 2024.
The loan bore 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 paid upon funding
and an additional 2 per cent. payable upon the repayment of the
loan. On
12 September 2022, Sarepta announced the early termination and
repayment of its existing senior secured debt with proceeds from
the issuance of $1 billion in convertible bonds. On 16 September
2022, Sarepta repaid its $550 million senior secured loan. The
Company received its $350 million of
principal and $22 million in prepayment, paydown fees, makewhole
fees, and accrued interest. The Company and its subsidiaries earned
a 12.0 per cent. Internal rate of return on its Sarepta
investment.
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, Inc. (Nasdaq: EPZM), a late-stage biopharmaceutical
company developing novel epigenetic therapies for cancer
("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 was originally due to mature in November 2024 and bore
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 paid upon funding. On 27
June 2022, Ipsen announced a definitive agreement pursuant to
which Ipsen would acquire Epizyme. On 12 August 2022, Epizyme
repaid its $220 million senior secured loan. The Company received
its
$110 million of principal and $8 million in prepayment and
makewhole fees. The Company and its subsidiaries earned a 15.2 per
cent. internal rate of return* on its Epizyme investment.
* Internal rate of return means an aggregate, annual,
compounded, as applicable, internal rate of return, calculated on
the basis of historical and projected capital inflows and outflows
related to the particular investment, without taking into account
the impact of management fees, incentive compensation, taxes, or
transaction and organizational costs and expenses.
Collegium 2020
On 7 February 2020, the Company and BioPharma-V 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 2020"). The Company and
its subsidiaries funded $165 million of the $200 million loan
on 13 February 2020. The secured loan began amortising
immediately and was due to fully mature in February 2024. The loan
bore 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 paid upon funding. The loan was repaid in its entirety on
22 March 2022. The Company and its subsidiaries earned a 11.9 per
cent. internal rate of return on its Collegium 2020 investment.
Biodelivery Sciences
On 23 May 2019, the Company entered into a senior secured loan
agreement for up to $80 million with BioDelivery Sciences
International, Inc. (Nasdaq: BDSI), a commercial-stage specialty
pharmaceutical
company ("BDSI"). In addition, the Company acquired 5,000,000
BDSI shares at $5.00 each for a total cost of $25 million in a
public offering that took place on 11 April 2019. 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 was
due to mature in May 2025 and bore interest at LIBOR plus 7.5 per
cent., along with 2.00 per cent. additional consideration paid at
closing. On 23 September 2021, BDSI made an early prepayment of $20
million, and made its final payment for the remainder of the loan
on 22 March 2022 as a result of Collegium's acquisition of BDSI.
The Company earned a 11.9 per cent. internal rate of return* on the
BDSI loan. The Company sold 46 per cent of its BDSI shares during
2019 at an average price of $6.50 and received $5.60 per remaining
shares on the date Collegium bought BDSI.The Company earned $5.3
million on the BDSI equity investment.
MARKET ANALYSIS
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 non-dilutive 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
decreased 4 per cent. during 2022, consistent with the 4 per cent.
decrease
during 2021. Global equity issuance by life sciences companies
during 2022 was $34 billion, a 68 per cent. decrease from the $106
billion issued during 2021. Similarly, convertible bond issuance by
life sciences companies declined to $7.3 billion in 2022 from $
10.1 billion in 2021. We anticipate 2023 equity and convertible
bond issuance to remain below 2021 levels which should continue to
support appetite for non-dilutive debt during the remainder of
2023.
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 2022 was $91 billion, a 38 per cent. decrease from the $146
billion witnessed during 2021, driven mainly by the volatility in
the equity markets.
We are encouraged by the number of M&A opportunities that
are starting to build up which should lead to a more active market
in the near term.
USD LIBOR
On 5 March 2021, the Financial Conduct Authority ("FCA"), the
regulatory supervisor of USD LIBOR's administrator ("IBA")
announced in a public statement the future cessation of the 3-month
USD LIBOR tenor setting. As of 30 June 2023, all available Tenor of
USD LIBOR must have either permanently or indefinitely ceased to be
provided by IBA or have been announced by or on behalf of the FCA
pursuant to public statement or publication of information to be no
longer representative, a replacement
benchmark will be used in the absence of USD LIBOR. If the
benchmark replacement is daily simple SOFR (secured overnight
financing rate), all interest payments will be calculated with SOFR
beginning on the effective date on a quarterly basis. The Company
has five loans with coupons that reference 3-month USD LIBOR and
have floors in the 1.00 to 2.00 per cent. range. As of 30 December
2022, the 3-month LIBOR rate was 4.78 per cent, significantly above
the floors in the five loans. The Company
has two loans with coupons that reference 3-month SOFR that each
have a floor of 2.50 per cent. As of 30 December 2022, the 3-month
SOFR rate was 4.59 per cent, significantly above the floors in the
two loans. Pharmakon will continue to monitor the news on the
replacement benchmark and will take
steps to update its interest payments as of the effective
date.
INTERNATIONAL OUTLOOK
The impact of COVID-19 and the risk resulting from the
inflationary environment and disruptions to the global supply chain
are closely monitored at Pharmakon in relation to the existing
portfolio and future
investments. However, we have confidence in the performance of
our loans and there has not been a material impact on the credit
quality of the Company's investments. The Company's operations and
its service providers have adopted hybrid schedules, which have not
affected any technical or operational functions during or post-
pandemic.
The invasion of Ukraine by Russia has led to increased market
volatility and widespread sanctions on Russian assets and
individuals, contributing to the high inflation introduced by the
pandemic. While the portfolio has no direct exposure to Russia,
Ukraine, or Belarus, we remain vigilant in monitoring this major
event closely and will inform investors of any material
changes.
INVESTMENT OUTLOOK
We expect our investment pipeline to grow as new products and
companies enter the market in 2023 and beyond. Pharmakon's
extensive network and thorough approach will continue to identify
strong investment opportunities. 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. Although the global economic
outlook remains uncertain, we believe the successful prepayment of
five portfolio assets within 2022 reinforces our vetting and
underwriting process. Furthermore, Pharmakon remains confident of
its ability to deliver its target dividend yield to its
investors.
Pedro Gonzalez de Cosio
Co-founded and CEO, Pharmakon
21 March 2023
STRATEGIC OVERVIEW
Pharmakon's ESG Policy and the selected case studies can be
found in the full report.
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,
which include Royalty Investments, Senior Secured Debt, Unsecured
Debt and Credit Linked Notes.
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
-- 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 25 per cent. of the Company's gross assets will
be exposed to any single Borrower or investment;
-- no more than 35 per cent. of the Company's gross assets will be invested in Unsecured Debt;
-- no more than 15 per cent. of the Company's gross assets will
be invested in equity securities issued by LifeSci Companies;
and
-- the Company will invest no more than 10 per cent., in
aggregate, of gross asset value at the time of acquisition in other
listed closed-ended investment funds.
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 2021 so as to be able to
continue to qualify as an investment trust.
The Company has two wholly-owned subsidiaries, 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 as set out in
the full 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
Investment Manager provides regular investor updates and
presentations to shareholders. 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 report.
All shareholders are encouraged to attend and vote at annual
general meetings ("AGM"), 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 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 in the
full report.
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. However, the Directors believed that it was
beneficial to the Company for the first continuation resolution to
be held earlier, at the General Meeting on 30 September 2021, so as
to give investors greater certainty as to the Company's longer term
existence in the context of the then proposed migration to the
Premium Segment. 635,130,451 shares were voted, all of which were
in favour of the approval of the continuation resolution. The next
continuation vote will take place in 2024.
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 in the full report.
Service Providers
Importance
In order to function as an investment trust on the Premium
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 in December each year. 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 report. Further information about the review of service
providers and the culture of the Investment Manager is set out in
the full 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 2022 was $1.0139 per Share, compared to
$0.9926 per Share at 31 December 2021.
A full description of the Company's performance for the year
ended 31 December 2022 is included in the Investment Manager's
Report above.
Share price return
The Company's Share price at 31 December 2022 was $0.9500,
giving a return since 31 December 2021 of -1.9 per cent. The
Company's Share price at 31 December 2021 was $0.9680, giving a
return since 31 December 2020 of -2.8 per cent.
Share price discount / premium to NAV per Share
Under the terms of the Discount Control Mechanism ("DCM"),
described in the Company's Prospectuses dated 1 March 2017 and 14
March 2018, if the shares of the Company trade at a discount
greater than 5 per cent. over a three-month period (the "First
Trigger"), the Company is required to apply up to 50 per cent. of
proceeds from debt repayments in purchasing Company shares until
such time that the two-week discount is less than 1 per cent. In
addition, if the discount is greater than 10 per cent. over a
six-month period (the "Second Trigger"), the Company is required to
apply up to 100 per cent. of proceeds from debt repayments until
such time that the two-week discount is less than 1 per cent.
On 7 November 2022, the DCM was updated so that the trigger
levels remain at previous levels but provide for greater
flexibility as to when the Company can freely deploy capital:
-- The First Trigger will remain at a 5 per cent. discount to
NAV and the Company will be required to apply 50 per cent. of the
principal being returned to repurchase shares until such time that
the discount to NAV over a two-week period is less than 5 per cent.
(compared with less than 1 per cent. previously)."
-- The Second Trigger will remain at a 10 per cent discount to
NAV and the Company will be required to apply 100 per cent. of the
principal being returned to repurchase shares until such time that
the discount to NAV over a two-week period is less than 5 per cent.
(compared with less than 1 per cent. previously).
Ongoing charges
The Company's ongoing charges ratio is shown in the table
below.
Year ended Year ended
31 December 2022 31 December 2021
% %
--------------------------------------- ----------------- -----------------
Ongoing charges excluding performance
fee* 1.1 1.2
Performance fee 1.5 0.2
Ongoing charges including performance
fee 2.6 1.4
--------------------------------------- ----------------- -----------------
* 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 totaling 11.50 cents per Ordinary Share, including one
special dividend of 4.50 cents, have been paid during the year
ended 31 December 2022. Dividends totaling 7.29 cents per Ordinary
Share, including one special dividend of 0.29 cents, were paid
during the year ended 31 December 2021.
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 2022, 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 2022, 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 2022. 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 25 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 25 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 There can be no assurance that any regulatory
life sciences approvals for indications granted to one or more
products are life sciences products will not be subsequently
subject to revoked or restricted. Such revocation or restriction
regulatory may have a material adverse effect on the sales
actions that of such products and on the ability of borrowers
could harm under the relevant Debt Asset to make continuing
the Company's payments of interest on, and repayment of the
ability to principal of, that Debt Asset, in which case the
make distributions Company's ability to make distributions to investors
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.
---------------------- ------------------------------------------------------------
Global Pandemics Global pandemics have the potential to affect
may affect the daily operations of the Investment Manager
the operation and its service providers. The Company's Investment
and performance Manager and current service providers may rely
of the Company on their business continuity plans for remote
work and there is an increased risk of control
deficiencies.
The ultimate impact of a pandemic or a similar
health epidemic is highly uncertain, subject to
change and may affect the credit quality of the
loans in the Company's portfolio.
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 next continuation vote of
the Company will also take place within this five-year time frame,
in 2024. The Board has developed a matrix of risks facing the
Company and has put in place certain investment restrictions which
are in line with the Company's investment objective and policy in
order to mitigate these risks as far as practicable. The principal
risks which have been identified, and the steps taken by the Board
to mitigate these risks, are presented above.
The Company believes its borrowing capabilities provide further
flexibility and help ensure it is in a position to finance its
funding obligations in the event that internally generated cash
flow in the period is insufficient to finance the unfunded portion
of a lending commitment. The Board reviews the Company's financing
arrangements quarterly to ensure that the Company is in a strong
position to fund all outstanding commitments on existing
investments as well as being able to finance new investments. In
addition, the Board regularly reviews the prospects for the
Company's portfolio and the pipeline of potential investment
opportunities which provide comfort that the Company is able to
continue to finance its activities for the medium-term future.
Based on this assessment, the Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the next five-year
period.
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 report.
There are five Directors, four male and one female. Further
information on the composition and operation of the Board is
detailed in the full report.
The Strategic Report has been approved by the Board and signed
on its behalf by
Harry Hyman
Chairman
21 March 2023
EXTRACTS FROM THE DIRECTORS' REPORT
The Directors are pleased to present the Annual Report and
audited financial statements for the year ended 31 December
2022.
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
Duncan Budge - Senior Independent Director
Colin Bond - Chairman of the Audit and Risk Committee
Stephanie Léouzon - Director
Rolf Soderstrom - Director
Share capital
An allotment authority for the issuance of up to 137,387,200
ordinary or C shares was passed at the Company's Annual General
Meeting held on 9 June 2022. This authority will expire at the
conclusion of, and renewal will be sought at, the annual general
meeting to be held in May 2023. No shares were issued during the
year.
At the Annual General Meeting held on 9 June 2022, 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. This authority will expire at the
conclusion of, and renewal will be sought at, the Annual General
Meeting to be held in May 2023. No shares were purchased for
cancellation during the year.
At 31 December 2022, and as at the date of this report, there
are 1,373,932,067 Ordinary Shares in issue. As at 31 December 2022
there were 54,753,398 Ordinary Shares held in treasury,
including
2,000,000 unsettled shares, and at the date of this report
55,277,181. 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 2022
was 1,319,178,669, and as at the date of this report
55,277,181.
Further information on the Company's share capital is set out in
Note 13 to the financial statements.
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 UK
adopted International Accounting Standards ("UK IAS").
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 UK IASs 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.
The directors are responsible for the maintenance and integrity
of the company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors' confirmations
The Directors consider that the Annual Report and accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Company's
position and performance, business model and strategy.
Each of the directors, whose names and functions are listed in
the Board of Directors section above confirm that, to the best of
their knowledge:
-- the company financial statements, which have been prepared in
accordance with UK IASs, 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
21 March 2023
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's statutory accounts for the years ended 31 December 2021
and 31 December 2022 but is derived from those accounts. Statutory
accounts for the year ended 31 December 2021 have been delivered to
the Registrar of Companies, and those for the year ended 31
December 2022 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 2022
(In $000s except per share amounts)
Year ended 31 December 2022 Year ended 31 December 2021
-------------------------------- --------------------------------
Note Revenue Capital Total Revenue Capital Total
------------------------------- ----- ---------- --------- --------- ---------- --------- ---------
Income
Investment income* 3 211,077 - 211,077 127,615 - 127,615
Other income 3 1,145 - 1,145 17 - 17
Net gains/(losses) on
all investments at fair
value 7 - 5,947 5,947 - (23,753) (23,753)
Net currency exchange
losses - (29) (29) - (18) (18)
------------------------------- -----
Total income/(expense) 212,222 5,918 218,140 127,632 (23,771) 103,861
------------------------------- ----- ---------- --------- --------- ---------- --------- ---------
Expenses
Management fee 4 (13,640) - (13,640) (13,670) - (13,670)
Performance fee 4 (20,255) - (20,255) (2,222) - (2,222)
Directors' fees 4 (415) - (415) (395) - (395)
Other expenses 4 (1,519) - (1,519) (2,615) - (2,615)
------------------------------- -----
( 35,829
Total expenses ) - (35,829) (18,902) - (18,902)
------------------------------- ----- ---------- --------- --------- ---------- --------- ---------
Return on ordinary activities
after finance costs and
before taxation 176,393 5,918 182,311 108,730 (23,771) 84,959
------------------------------- ----- ---------- --------- --------- ---------- --------- ---------
Taxation on ordinary
activities 5 - - - -
------------------------------- ----- ---------- --------- --------- ---------- --------- ---------
Return on ordinary activities
after finance costs and
taxation 176,393 5,918 182,311 108,730 (23,771) 84,959
Net revenue and capital
return per ordinary share
(basic and diluted) 11 $0.1293 $0.0043 $0.1336 $0.0791 -$0.0173 $0.0618
------------------------------- ----- ---------- --------- --------- ---------- --------- ---------
* 2021 Investment income includes $20,484,000 from prior year
income from its financing subsidiary, BPCR Limited Partnership.
Please see note 3 below for full details.
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 2022
(in $000s)
Total equity
attributable
Share Special to
For the year ended 31 Share premium distributable Capital Revenue Shareholders
December 2022 Note capital account reserve* reserve reserve* of the Company
------------------------------ ----- --------- --------- --------------- --------- ---------- -----------------
Net assets attributable
to shareholders at 1 January
2022 13,739 607,125 726,239 (3,757) 20,371 1,363,717
------------------------------ ----- --------- --------- --------------- --------- ---------- -----------------
Return on ordinary activities
after finance costs and
taxation - - - 5,918 176,393 182,311
------------------------------ ----- --------- --------- --------------- --------- ---------- -----------------
Dividends paid to Ordinary
Shareholders 6 - - (3,672) - (152,865) (156,537)
------------------------------ ----- --------- --------- --------------- --------- ---------- -----------------
Cost of shares bought back
for treasury - - (52,038) - - (52,038)
------------------------------ -----
Net assets attributable
to shareholders at 31
December
2022 13,739 607,125 670,529 2,161 43,899 1,337,453
------------------------------ ----- --------- --------- --------------- --------- ---------- -----------------
Total equity
attributable
Share Special to
For the year ended 31 Share premium distributable Capital Revenue Shareholders
December 2021 capital account reserve* reserve reserve* of the Company
------------------------------ ----- --------- --------- --------------- --------- ---------- -----------------
Net assets attributable
to shareholders at 1 January
2021 13,739 607,125 730,492 20,014 7,545 1,378,915
------------------------------ ----- --------- --------- --------------- --------- ---------- -----------------
Return on ordinary activities
after finance costs and
taxation - - - (23,771) 108,730 84,959
------------------------------ ----- --------- --------- --------------- --------- ---------- -----------------
Dividends paid to Ordinary
Shareholders 6 - - (4,253) - (95,904) (100,157)
------------------------------ ----- --------- --------- --------------- --------- ---------- -----------------
Cost of shares bought back
for treasury - - - - - -
Net assets attributable
to shareholders at 31
December
2021 13,739 607,125 726,239 (3,757) 20,371 1,363,717
------------------------------ ----- --------- --------- --------------- --------- ---------- -----------------
* The special distributable and revenue reserves can be
distributed in the form of a dividend.
The notes below form part of these financial statements.
STATEMENT OF FINANCIAL POSITION
As at 31 December 2022 (In $000s except per share amounts)
31 December 31 December
Note 2022 2021
--------------------------------------- ----- ------------ ------------
Non-current assets
Investments at fair value through
profit or loss 7 1,223,651 1,265,898
1,223,651 1,265,898
--------------------------------------- ----- ------------ ------------
Current assets
Trade and other receivables 8 19,838 10,010
--------------------------------------- ----- ------------ ------------
Cash and cash equivalents 9 120,527 94,709
--------------------------------------- -----
140,365 104,719
--------------------------------------- -----
Total assets 1,364,016 1,370,617
--------------------------------------- -----
Current liabilities
Trade and other payables 10 26,301 6,342
--------------------------------------- -----
Total current liabilities 26,301 6,342
--------------------------------------- ----- ------------ ------------
Total assets less current liabilities 1,337,715 1,364,275
--------------------------------------- ----- ------------ ------------
Non-current liabilities
--------------------------------------- ----- ------------ ------------
Deferred income 10 262 558
--------------------------------------- ----- ------------ ------------
Net assets 1,337,453 1,363,717
--------------------------------------- ----- ------------ ------------
Represented by:
Share capital 13 13,739 13,739
Share premium account 607,125 607,125
Special distributable reserve 670,529 726,239
Capital reserve 2,161 (3,757)
Revenue reserve 43,899 20,371
Total equity attributable to
shareholders of the Company 1,337,453 1,363,717
--------------------------------------- ----- ------------ ------------
Net asset value per ordinary
share (basic and diluted) 12 $1.0139 $0.9926
--------------------------------------- ----- ------------ ------------
The financial statements of BioPharma Credit PLC registered
number 10443190 were approved and authorised for issue by the Board
of Directors on 21 March 2023 and signed on its behalf by:
Harry Hyman
Chairman
21 March 2023
The notes below form part of these financial statements.
CASH FLOW STATEMENT
For the year ended 31 December 2022 (In $000s)
Year ended Year ended
31 December 31 December
Note 2022 2021
----------------------------------------- ----- ------------- -------------
Cash flows from operating activities
Investment income received 210,780 127,615
Other income received 954 20
Investment management fee paid (13,723) (19,177)
Performance fee paid (2,222) -
Other expenses paid (1,570) (2,429)
Change in amounts due from BPCR
Limited Partnership (9,942) (9,593)
Cash generated from operations 15 184,277 96,436
Net cash flow generated from
operating activities 184,277 96,436
----------------------------------------- ----- ------------- -------------
Cash flow from investing activities
Purchase of investments* (100,000) (187,141)
Sales of investments* 148,194 92,320
----------------------------------------- ----- ------------- -------------
Net cash flow generated from/(used
in) investing activities 48,194 (94,821)
----------------------------------------- ----- ------------- -------------
Cash flow from financing activities
Dividends paid to Ordinary shareholders 6 (156,537) (100,157)
Share buybacks (50,087) -
Net cash flow used in financing
activities (206,624) (100,157)
----------------------------------------- ----- ------------- -------------
Increase/ (decrease) in cash
and cash equivalents for the
year 25,847 (98,542)
----------------------------------------- ----- ------------- -------------
Cash and cash equivalents at
start of year 9 94,709 193,269
Revaluation of foreign currency
balances (29) (18)
----------------------------------------- ----- ------------- -------------
Cash and cash equivalents at
end of year 9 120,527 94,709
----------------------------------------- ----- ------------- -------------
* BPCR Limited Partnership investments not included.
The notes below form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
1. GENERAL INFORMATION
BioPharma Credit PLC is a closed-ended investment company
incorporated and domiciled in England and Wales on 24 October 2016
with registered number 10443190. The registered office of the
Company is 6th Floor, 65 Gresham Street, London, United Kingdom,
EC2V 7NQ.
The Company carries on business as an investment trust company
within the meaning of Sections 1158/1159 of the Corporation Tax Act
2010.
The Company's Investment Manager is Pharmakon Advisors L.P.
("Pharmakon") . Pharmakon is a limited partnership established
under the laws of the State of Delaware. It is registered as an
investment adviser with the Securities and Exchange Commission
("SEC") under the United States Investment Advisers Act of 1940, as
amended.
Pharmakon is authorised as an Alternative Investment Fund
Manager ("AIFM") under the Alternative Investment Fund Managers
Directive ("AIFMD") . Pharmakon has, with the consent of the
Directors, delegated certain administrative duties 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 2022 to 31 December 2022 and have been prepared in
accordance with UK-adopted International Accounting Standards (UK
IAS) and as applied in accordance with the Disclosure Guidance
Transparency Rules sourcebook of the Financial Conduct Authority
(FCA) and the AIC SORP (issued in July 2022) 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 UK IAS . The financial statements have been
prepared in accordance with the Companies Act 2006, as applicable
to companies reporting under those standards.
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 subsidiary BPCR Limited Partnership, are reported at
fair value to the extent allowed by UK IAS.
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. Most of the Company's investments are held
indirectly via its subsidiary, BPCR Limited Partnership. In
accordance with UK IAS, 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.
The fair value hierarchy consists of the following three
levels:
-- Level 1 - Quoted price (unadjusted) in active markets for
identical assets or liabilities
-- Level 2 - Valuation techniques using observable Inputs
-- Level 3 - Valuation techniques using significant unobservable
inputs
Level 1 investments are priced by unadjusted quoted prices in
active 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 2022), 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. More information
can be found in Note 2(n) below.
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.
IFRS 9 'Financial Instruments', interest benchmark reform. The
Phase 2 amendments address issues that arise from the
implementation of the reforms, including the replacement of one
benchmark with an alternative one. Although this is now in effect
USD LIBOR will not be phased out until June 2023.
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 six 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. 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. 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. 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, with the
exception of director's expenses which are accounted for on a cash
basis. Expenses, including investment management fees, performance
fees and finance costs, are charged through the revenue account
except as follows:
-- expenses which are incidental to the acquisition or disposal
of an investment are treated as capital costs and separately
identified and disclosed in Note 4; and
-- expenses of a capital nature are accounted for through the
capital account.
The performance fee is considered to be an annual fee and is
only recognised at the end of each performance period. It is
calculated in accordance with the details in Note 4(b) below. Any
performance fee triggered, whether payable or deferred, is
recognised in the Statement of Comprehensive Income. Where a
performance fee is payable it is treated as a current liability in
the Statement of Financial Position. Where a performance fee is
deferred, it is treated 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 comprises cash in hand and demand deposits. Cash
equivalents are short-term with original maturities of three months
of less and highly liquid investments, that are readily convertible
to known amounts of cash and which are subject to an insignificant
risk of changes in value. Cash and cash equivalents includes
interest and income from money market funds and US Treasury
bills.
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
UK-adopted IAS 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 included in
other notes, together with information about the basis of
calculation for each line in the financial statements.
Judgements
Using the criteria in Note 2(a) above, the Directors have judged
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.
Estimates and assumptions
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
judgement, 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 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 judgements and estimates are reviewed on an ongoing basis.
Revisions to these judgements and estimates are also reviewed on an
ongoing basis. Revisions are recognised prospectively.
o) Accounting standards not yet effective
There are no standards or amendments not yet effective which are
relevant or have a material impact on the Company.
The standards or amendments not yet effective that will be
adopted on their effective date are:
-- Amendment to IAS1, presentation of financial statements on
classification of liabilities, effective from 1 January 2024
clarify that liabilities are classified as either current or
non-current, depending on the rights that exist at the end of the
reporting period.
3. INCOME
Year ended Year ended
31 December 31 December
2022 2021
$000 $000
---------------------------------------- ------------ ------------
Income from investments
Unfranked investment income from BPCR
Limited Partnership 210,780 122,991
Fixed interest investment income* - 136
Floating interest investment income - 2,978
Prepayment premium** - 1,474
Additional consideration received*** 297 36
---------------------------------------- ------------ ------------
211,077 127,615
Other income
Interest income from liquidity/money
market funds 487 17
Interest income from US treasury bonds 657 -
Other interest 1 -
1,145 17
Total income**** 212,222 127,632
---------------------------------------- ------------ ------------
* In 2021 $136,000 of fixed investment income was received,
which had been incorrectly deducted as tax at source in 2020.
** In 2021 the Company's senior secured term loan to Sebela
included a prepayment premium of $1,474,000, which was paid upon
the loan repayment and recognised as income in the year.
*** In 2022 $297,000 was recorded as additional income from the
Company's investment in OptiNose Warrants (2021: $36,000).
**** In 2021, $20,484,000 of undistributed net income earned by
BPCR Limited Partnership in 2020 was received by the Company and
was recognised in Investment income in the Statement of
Comprehensive Income and as a corresponding unrealised loss in the
fair value of the investment. If this had been included in the year
in which the income was received, Investment income for the year
ending 31 December 2021 would have been $107,148,000.
4. FEES AND EXPENSES
EXPENSES
Year ended 31 December 2022 Period ended 31 December 2021
-------------------------------- ----------------------------------
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
----------------------------------------- ---------- ---------- -------- ----------- ---------- ---------
Management fee (Note 4a) 13,640 - 13,640 13,670 - 13,670
----------------------------------------- ---------- ---------- -------- ----------- ---------- ---------
Performance fee (Note 4b) 20,255 - 20,255 2,222 - 2,222
----------------------------------------- ---------- ---------- -------- ----------- ---------- ---------
Directors' fees (Note 4c) 415 - 415 395 - 395
----------------------------------------- ---------- ---------- -------- ----------- ---------- ---------
Other expenses
Company Secretarial fee 89 - 89 93 - 93
Administration fee 132 - 132 127 - 127
Legal & professional fees 114 - 114 180 - 180
Public relations fees 200 - 200 200 - 200
Director's and Officer's liability
insurance 180 - 180 196 - 196
Auditors' remuneration - Statutory
audit 283 - 283 461 - 461
Auditors' remuneration - Other
audit related services - Half
year review and agreed upon procedures 85 - 85 84 - 84
Auditors' remuneration - Other
audit related procedures - Listing
fee** - - - 127 - 127
VAT* 36 - 36 (47) - (47)
Listing fee** - - - 854 - 854
Other expenses 400 - 400 340 - 340
----------------------------------------- ---------- ---------- -------- ----------- ---------- ---------
1,519 - 1,519 2,615 - 2,615
----------------------------------------- ---------- ---------- -------- ----------- ---------- ---------
Total expenses 35,829 - 35,829 18,902 - 18,902
----------------------------------------- ---------- ---------- -------- ----------- ---------- ---------
* Negative VAT expense in 2021 is due to an over accrual of VAT
in 2020.
**In 2021 the company incurred costs of $981,000 to be admitted
to trade on the premium segment of the main market of the London
Stock Exchange. Includes $127,000 auditors' remuneration - LSE
listing.
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 2022 As at 31 December 2021
$000 $000
Accrued performance fee 20,255 2,222
Performance fee payable 20,255 2,222
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 $73,500 per annum for each
Director other than:
-- the Chairman, who will receive an additional $31,500 per
annum; and
-- the Chairman of the Audit and Risk Committee, who will
receive an additional $15,800 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 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.
There will be in increase in the UK corporation tax rate from
19% to 25%, effective from April 2023, which was substantively
enacted on 24 May 2021. This is expected to have no effect on the
tax charge for the Company as the exemptions above will still
apply.
Year ended 31 December 2022 Year ended 31 December 2021
-------------------------------- --------------------------------
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
--------------------------------------- --------- --------- ---------- ---------- --------- ---------
Total return on ordinary activities
before taxation 176,393 5,918 182,311 108,730 (23,771) 84,959
--------------------------------------- --------- --------- ---------- ---------- --------- ---------
Theoretical tax at UK Corporation
tax rate of 19.00%
(2021: 19.00% ) 33,515 1,124 34,639 20,659 (4,517) 16,142
Effects of:
Capital items that are not taxable - (1,124) (1,124) - 4,517 4,517
(33,515
Tax deductible interest distributions ) - (33,515) (20,659) - (20,659)
Total tax charge - - - - - -
--------------------------------------- --------- --------- ---------- ---------- --------- ---------
At 31 December 2022, the Company had no unprovided deferred tax
liabilities.
At that date, based on current estimates and including the
accumulation of net allowable losses, the Company had no unrelieved
losses.
Deferred tax is not provided on capital gains and losses arising
on the revaluation or disposal of investments because the Company
meets (and
intends to continue for the foreseeable future to meet) the
conditions for approval as an Investment Trust company.
6. DIVIDS
The below table represents the dividends paid in the financial
year.
Year ended 31 December Year ended 31 December
2022 2021
---------------------------- ----------------------------
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
--------------------------------------------- -------- -------- -------- -------- -------- --------
In respect of the previous year ended
31 December 2021:
-------- -------- --------
Fourth interim dividend of $0.0175 per
ordinary share (2021: $0.0175 per Ordinary
Share) 20,371 3,672 24,043 - - -
In respect of the previous year ended
31 December 2020:
Special dividend of $0.0029 per Ordinary
share - - - 3,985 - 3,985
Fourth interim dividend of $0.0175 per
Ordinary share - - - 24,043 - 24,043
In respect of the current year:
First interim dividend of $0.0175 per
Ordinary share
(2021: $0.0175 per Ordinary share) 24,043 - 24,043 21,780 2,263 24,043
Second interim dividend of $0.0175 per
Ordinary share
(2021: $0.0175 per Ordinary share) 24,016 - 24,016 24,043 - 24,043
Third interim dividend of $0.0175 per
Ordinary share
(2021: $0.0175 per Ordinary share) 23,642 - 23,642 22,053 1,990 24,043
Special dividend of $0.045 per Ordinary
share (2021: $nil per Ordinary Share 60,793 - 60,793 - - -
152,865 3,672 156,537 95,904 4,253 100,157
--------------------------------------------- -------- -------- -------- -------- -------- --------
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
2022 2021
---------------------------- ---------------------------
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
--------------------------------------------- -------- -------- -------- -------- -------- -------
First interim dividend of $0.0175 per
Ordinary share (2021: $0.0175 per Ordinary
share) 24,043 - 24,043 21,780 2,263 24,043
Second interim dividend of $0.0175 per
Ordinary share (2021: $0.0175 per Ordinary
share) 24,016 - 24,016 24,043 - 24,043
Third interim dividend of $0.0175 per
Ordinary share (2021: $0.0175 per Ordinary
share) 23,642 - 23,642 22,053 1,990 24,043
Special dividend of $0.045 per Ordinary
share (2021: nil per Ordinary share) 60,793 - 60,793 - - -
Fourth interim dividend of $0.0175 per
Ordinary share (2021: $0.0175 per Ordinary
share) - - - 20,371 3,672 24,043
132,494 - 137,494 88,247 7,925 96,172
--------------------------------------------- -------- -------- -------- -------- -------- -------
On 22 March 2023, the Board approved a fourth interim dividend,
for the year ended 31 December 2022, of $0.0175 per Ordinary Share
and a special dividend of $0.0158 per Ordinary Share, both payable
on 28 April 2023. In accordance with UK IAS, 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 2022 31 December 2021
$000 $000
------------------------------------------ ----------------- -----------------
Investment portfolio summary
Listed investments at fair value through
profit or loss - 8,328
Unlisted investments in subsidiaries at
fair value through profit or loss 1,222,694 1,256,676
Unlisted fixed interest investments at
fair value through profit or loss 957 894
1,223,651 1,265,898
------------------------------------------ ----------------- -----------------
Year ended 31 December 2022
----------------
Unlisted Unlisted
Unlisted fixed floating
Listed investments interest Interest
in
investments subsidiaries investments investments Total
$000 $000 $000 $000 $000
---------------------------- ---------------- ------------------- ------------ ------------ ------------
Investment portfolio
summary
Opening cost at beginning
of year 13,544 1,256,389 891 - 1,270,824
Opening unrealised (losses)
/ gains at beginning of
year (5,216) 287 3 - (4,926)
Opening fair value at
beginning
of year 8,328 1,256,676 894 - 1,265,898
Movements in the year:
Purchases at cost - 100,000 - - 100,000
Redemption and sales
proceeds (15,093) (133,101) - - (148,194)
Realised loss on sale of
investments 1,549 - - - 1,549
Change in unrealised
gains/(losses) 5,216 (881) 63 - 4,398
------------------- ------------ ------------ ------------
Closing fair value at the
end of the year - 1,222,694 957 - 1,223,651
---------------------------- ---------------- ------------------- ------------ ------------ ------------
Closing cost at end of year - 1,223,288 891 - 1,224,179
Closing unrealised
(losses)/gains
at end of year - (594) 66 - (528)
---------------------------- ---------------- ------------------- ------------ ------------ ------------
Closing fair value at the
end of the year - 1,222,694 957 - 1,223,651
Year ended 31 December 2021
Unlisted Unlisted Unlisted
fixed floating
Listed investments interest interest
in
investments subsidiaries investments investments Total
$000 $000 $000 $000 $000
-------------------------------- ------------ ------------------- ------------ ------------ ----------
Investment portfolio
summary
Opening cost at beginning
of year 13,544 1,070,139 1,238 92,321 1,177,242
Opening unrealised
(losses)/gains
at beginning of year (2,224) 20,748 (935) - 17,589
Opening fair value at
beginning
of year 11,320 1,090,887 303 92,321 1,194,831
Movements in the year:
Purchases at cost - 186,250 891 - 187,141
Redemption and sales
proceeds - - - (92,321) (92,321)
Realised loss on sale of
investments - - (1,238) - (1,238)
Change in unrealised
(losses)/gains (2,992) (20,461) 938 - (22,515)
----------------------------- ------------ ------------------- ------------ ------------ ----------
Closing fair value at the
end of the year 8,328 1,256,676 894 - 1,265,898
----------------------------- ------------ ------------------- ------------ ------------ ----------
Closing cost at end of year 13,544 1,256,389 891 - 1,270,824
Closing unrealised (losses)
/ gains at end of year (5,216) 287 3 - (4,926)
----------------------------- ------------ ------------------- ------------ ------------ ----------
Closing fair value at the
end of the year 8,328 1,256,676 894 - 1,265,898
----------------------------- ------------ ------------------- ------------ ------------ ----------
Year ended Year ended
31 December 31 December
2022 2021
$000 $000
--------------------------------- ------------ ------------
Realised gains/(losses) on sale
of investments 1,549 (1,238)
Unrealised gains/(losses) 4,398 (22,515)
5,947 (23,753)
--------------------------------- ------------ ------------
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 2022
----------------------------------------
Level Level Level Total
1 2 3
Financial assets $000 $000 $000 $000
-------------------------------------- -------- ------ ---------- ----------
Investment portfolio summary
Listed investments at fair
value through profit or loss - - - -
Unlisted investments in subsidiaries
measured at fair value through
profit or loss - - 1,222,694 1,222,694
Unlisted fixed interest investments
at fair value through profit
or loss - 957 - 957
- 957 1,222,694 1,223,651
Liquidity/money market funds 120,080 - - 120,080
-------------------------------------- -------- ------ ---------- ----------
Total 120,080 957 1,222,694 1,343,731
-------------------------------------- -------- ------ ---------- ----------
Year ended 31 December 2021
----------------------------------------
Level 1 Level Level Total
2 3
$000 $000 $000 $000
-------------------------------------- -------- ------ ---------- ----------
Investment portfolio summary
Listed investments at fair
value through profit or loss 8,328 - - 8,328
Unlisted investments in subsidiaries
measured at fair value through
profit or loss - - 1,256,676 1,256,676
Unlisted fixed interest investments
at fair value through profit
or loss - 894 - 894
8,328 894 1,256,676 1,265,898
Liquidity/money market funds 94,456 - - 94,456
-------------------------------------- -------- ------ ---------- ----------
Total 102,784 894 1,256,676 1,360,354
-------------------------------------- -------- ------ ---------- ----------
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 2022
Unlisted Unlisted
floating
investments interest
in
subsidiaries investments Total
$000 $000 $000
-------------------- ------------- ------------ ----------
Opening balance 1,256,676 - 1,256,676
Purchases 100,000 - 100,000
Redemptions* (133,101) - (133,101)
Unrealised losses (881) - (881)
Closing balance at
31 December 2022 1,222,694 - 1,222,694
-------------------- ------------- ------------ ----------
Year ended 31 December 2021
Unlisted
floating
Unlisted interest
investments investments Total
$000 $000 $000
-------------------- ------------ ------------ ----------
Opening balance 1,090,887 92,321 1,183,208
Purchases 186,250 - 186,250
Redemptions* - (92,321) (92,321)
Unrealised losses (20,461) - (20,461)
Closing balance at
31 December 2021 1,256,676 - 1,256,676
-------------------- ------------ ------------ ----------
* Redemptions are the proceeds received from the repayment of
investments.
There were no transfers between levels during the year.
Valuation techniques
Unrealised gains and losses recorded on Level 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 specific
discount rate used for each investment summarised in the table
below.
Investments held in subsidiaries, namely BPCR Limited
Partnership, 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 Limited Partnership, 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 2022
----------------------------------------------------------------------------------------------------------------------
Fair value Fair value Fair value
of Level 3 sensitivity sensitivity
financial assets to a 100bps to a 100bps
at fair value decrease in decrease
through profit Valuation Unobservable Discount the discount in the discount
Assets or loss technique input rate rate rate
----------------- ----------------- ----------------- -------------- ----------- -------------- ----------------
Assets held by
BPCR Limited
Partnership*
Discounted cash
Akebia 33,500 flow Discount rate 11.4% 33,240 33,764
Discounted cash
BMS 103,529 flow Discount rate 8.7% 101,912 105,194
Discounted cash
Coherus 125,000 flow Discount rate 13.9% 121,787 128,340
Discounted cash
Collegium 287,500 flow Discount rate 13.0% 283,481 291,631
Discounted cash
Evolus 37,500 flow Discount rate 14.2% 36,567 38,470
Discounted cash
Immunocore 25,000 flow Discount rate 10.3% 24,005 26,054
Discounted cash
Insmed 140,000 flow Discount rate 13.1% 136,048 144,124
Discounted cash
LumiraDX 150,000 flow Discount rate 10.8% 148,395 151,637
Discounted cash
OptiNose US 71,500 flow Discount rate 14.5% 69,701 73,370
Discounted cash
UroGen 50,000 flow Discount rate 13.9% 48,672 51,382
Other net assets
of BPCR Limited
Partnership 199,165 Amortised cost - - 199,165 199,165
----------------- ----------------- ----------------- -------------- ----------- -------------- ----------------
1,222,694 1,202,973 1,243,131
----------------- ----------------- ----------------- -------------- ----------- -------------- ----------------
* 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 2021
----------------------------------------------------------------------------------------------------------------------
Fair value of 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
or loss technique input rate rate(1) rate
----------------- ----------------- ----------------- -------------- ----------- ----------------- -------------
Assets held by
BPCR Limited
Partnership*
----------------- ----------------- ----------------- -------------- ----------- ----------------- -------------
Discounted cash
Akebia 50,000 flow Discount rate 10.0% 49,234 50,788
Discounted cash
BDSI 60,000 flow Discount rate 10.0% 59,032 60,998
Discounted cash
BMS 137,277 flow Discount rate 10.5% 134,860 139,778
Discounted cash
Collegium 92,813 flow Discount rate 10.0% 91,835 93,814
Discounted cash
Epizyme 110,000 flow Discount rate 10.3% 107,002 113,125
Discounted cash
Evolus 37,500 flow Discount rate 10.0% 36,248 38,815
Global Blood Discounted cash
Therapeutics 132,500 flow Discount rate 9.6% 128,010 137,218
Discounted cash
LumiraDX 150,000 flow Discount rate 9.0% 147,186 152,897
Discounted cash
OptiNose US 71,500 flow Discount rate 11.7% 70,450 72,577
Sarepta Discounted cash
Therapeutics 350,000 flow Discount rate 9.7% 343,119 357,096
Other net assets
of BPCR Limited
Partnership 65,086 Amortised cost - - - -
----------------- ----------------- ----------------- -------------- ----------- ----------------- -------------
1,256,676 1,166,976 1,217,106
----------------- ----------------- ----------------- -------------- ----------- ----------------- -------------
* 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.
(1) The Company is restating the prior year discount rate and
discount rate sensitivity calculations as the discount used in the
prior year was incorrectly presented. The restatement does not
affect the reported carrying value of the related assets.
8. TRADE AND OTHER RECEIVABLES
As at As at
31 December 2022 31 December
2021
$000 $000
------------------------------------- ----------------- ------------
Income receivable from BPCR Limited
Partnership 19,535 9,593
Interest accrued on liquidity/money
market funds 192 1
Other debtors 111 416
19,838 10,010
------------------------------------- ----------------- ------------
There have been no write-offs in the year and any expected
credit losses are not material.
9. CASH AND CASH EQUIVALENTS
As at As at
31 December 2022 31 December
2021
$000 $000
------------------------------ ----------------- ------------
Cash at bank 447 253
Liquidity/money market funds 120,080 94,456
------------------------------ ----------------- ------------
120,527 94,709
------------------------------ ----------------- ------------
Any expected credit losses are not material.
10. TRADE AND OTHER PAYABLES
As at As at
31 December 2022 31 December
2021
$000 $000
------------------------- ----------------- ------------
Current liabilities
------------------------- ----------------- ------------
Performance fee payable 20,255 2,222
Management fees accrual 3,314 3,397
Repurchase of shares 1,951 -
Accruals 781 723
26,301 6,342
------------------------- ----------------- ------------
Non-current liabilities
Deferred Income 262 558
------------------------- ----------------- ------------
26,563 6,900
------------------------- ----------------- ------------
11. RETURN PER ORDINARY SHARE
Revenue return per ordinary share is based on the net revenue
after taxation of $176,393,000 (2021: $108,730,000) and
1,363,999,006 (2021: 1,373,872,373) ordinary shares, being the
weighted average number of ordinary shares for the year.
Capital return per ordinary share is based on net capital gain
for the year of $5,918,000 (2021: net capital loss of $23,771,000)
and on 1,363,999,006 (2021:1,373,872,373) 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 2022
of $1,337,453,000 (31 December 2021: $1,363,717,000) and ordinary
shares of 1,319,178,669 (2021: 1,373,872,373), being the number of
ordinary shares outstanding at 31 December 2022.
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
2022 2021
--------------------------- ------------------------- ---------------------------
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 2022 were 1,319,178,669 (31
December 2021: 1,373,872,373). In 2022, 54,693,704 shares were
bought back for treasury (2021: nil). The balance of treasury
shares on 31 December 2022 was 54,753,398 (31 December 2021:
59,694).
14. SUBSIDIARIES
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"). On 22
May 2020, BPCR Ongdapa was transferred to BPCR Limited Partnership
for the purpose of entering into the new credit facility, see
further below. The registered address for BPCR Ongdapa is BPCR
Ongdapa Limited, 2nd Floor, Block 5, Irish Life Centre, Abbey
Street Lower, Dublin 1, Ireland. The aggregate amount of its
capital reserves as at 31 December 2022 is $1 (2021: $1) and the
profit or loss for the year ended 31 December 2022 is $225,000
(2021: $236,000) .
The Company formed a wholly-owned subsidiary, BPCR Limited
Partnership, organised 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 6th Floor, 65 Gresham Street, London,
United Kingdom, EC2V 7NQ and received an initial contribution of
GBP1 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 is recognised at
fair value through profit or loss.
The General Partner for BPCR Limited Partnership 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 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 Companies Act, 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, 6th Floor, 65 Gresham Street, London, United Kingdom, EC2V
7NQ. The aggregate amount of its capital reserves as at 31 December
2022 is $nil (2021: $nil) and a return for the year to 31 December
2022 is $nil (2021: $nil) .
15. RECONCILIATION OF TOTAL RETURN FOR THE YEAR BEFORE TAXATION
TO CASH GENERATED FROM OPERATIONS
Year ended Year ended
31 December 31 December
2022 2021
----------------------------------
$000 $000
---------------------------------- ------------ ------------
Total return for the year before
taxation 182,311 84,959
Capital gains/(losses) (5,918) 23,771
Increase in trade receivables (9,828) (9,802)
Increase/(decrease) in trade
payables 17,712 (2,492)
Cash generated from operations 184,277 96,436
---------------------------------- ------------ ------------
Analysis of net cash and net debt
At At
1 January Exchange 31 December
2022 Cash flow movement 2022
Net cash $000 $000 $000 $000
--------------------------- ---------- ---------- --------- ------------
Cash and cash equivalents 94,709 25,847 (29) 120,527
--------------------------- ---------- ---------- --------- ------------
At At
1 January Exchange 31 December
2021 Cash flow movement 2021
Net cash $000 $000 $000 $000
--------------------------- ---------- ---------- --------- ------------
Cash and cash equivalents 193,269 (98,542) (18) 94,709
--------------------------- ---------- ---------- --------- ------------
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 2022 31 December 2021
-------------------------- -----------------------
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 - - 8,328 833
OptiNose US warrants 957 96 894 89
Assets held by BPCR
Limited Partnership
Akebia 33,500 3,350 50,000 5,000
Biodelivery Sciences
International Loan - - 60,000 6,000
BMS Purchased Payments
(BPCR Ongdapa) 103,529 10,353 137,277 13,728
Coherus 125,000 12,500 - -
Collegium 287,500 28,750 92,813 9,281
Epizyme - - 110,000 11,000
Evolus 37,500 3,750 37,500 3,750
Global Blood Therapeutics - - 132,500 13,250
Immunocore 25,000 2,500 - -
Insmed 140,000 14,000 - -
LumiraDX 150,000 15,000 150,000 15,000
LumiraDX warrants 91 9 2,068 207
OptiNose US Equity 45 5 40 4
OptiNose US Note 71,500 7,150 71,500 7,150
Other Assets of BPCR
Limited Partnership 199,029 19,903 62,978 6,298
Sarepta - - 350,000 35,000
UroGen 50,000 5,000 - -
1,223,651 122,366 1,265,898 126,590
--------------------------- ----------- ------------- ----------- ----------
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 2022, the Company held cash balances in GBP of
GBP160,000 ($192,000) (2021: GBP180,000 ($244,000)) and in Euro of
EUR2,000 ($2,000) (2021: EUR5,000 ($5,000)).
The currency exposures (including non-financial assets) of the
Company as at 31 December 2022:
Other net
Cash Investments assets Total
$000 $000 $000 $000
----------- -------- ------------ ---------- ----------
Sterling 192 - (34) 158
Euro 2 - - 2
US Dollar 120,333 1,223,651 (6,691) 1,337,293
----------- -------- ------------ ---------- ----------
120,527 1,223,651 (6,725) 1,337,453
----------- -------- ------------ ---------- ----------
The currency exposures (including non-financial assets) of the
Company as at 31 December 2021:
Other net
Cash Investments assets Total
$000 $000 $000 $000
----------- ------- ------------ ---------- ----------
Sterling 244 - 2 246
Euro 5 - - 5
US Dollar 94,460 1,265,898 3,108 1,363,466
----------- ------- ------------ ---------- ----------
94,709 1,265,898 3,110 1,363,717
----------- ------- ------------ ---------- ----------
A 10 per cent increase in the Sterling exchange rate would have
increased net assets by $8,000 (2021: $15,000).
A 10 per cent. increase in the Euro exchange rate would have
increased net assets by $nil (2021: $1,000).
A 10 per cent decrease would have decreased net assets by the
same amount (2021: 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 OptiNose US warrants, Immunocore and LumiraDX instruments
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
2022 2021
% of Company Net % of Company Net
Assets Assets
---------------------- ------------------ ------------------
LumiraDX 11.22 11.15
Immunocore 1.87 -
OptiNose US* 0.07 5.31
Sarepta Therapeutics - 25.67
---------------------- ------------------ ------------------
*In 2022 OptiNose US fixed loan changed from a fixed interest
rate to a floating rate of interest. The figure as at 31 December
2022 is for the OptiNose US warrants only.
The Akebia, BMS Purchased Payments, Coherus, Collegium, Evolus,
Insmed, OptiNose US and UroGen 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
2022 2021
% of Company Net % of Company Net
Assets Assets
Collegium 21.50 6.81
Insmed 10.47 -
Coherus 9.35 -
BMS Purchased Payments
(BPCR Ongdapa) 7.74 10.07
OptiNose US 5.35 -
UroGen 3.74 -
Evolus 2.80 2.75
Akebia 2.50 3.67
Cash and cash equivalents 9.01 6.94
--------------------------- ------------------ ------------------
Epizyme - 8.07
Global Blood Theraputics - 6.05
Biodelivery Sciences
International Loan - 5.01
A 100 basis point increase in LIBOR would have increased net
assets by $17,271,000 (2021: $295,000).
A 100 basis point decrease in LIBOR would have decreased net
assets by $18,285,000 (2021: $nil) .(1)
A 300 basis point increase in LIBOR(2) would have increased net
assets by $50,813,000 (2021: $17,160,000) .
(1) The Company has five loans with coupons that reference
3-month USD LIBOR and five have floors in the 1.00 to 2.00 per
cent. range. The Company has two loans with coupons that reference
3-month SOFR that each have a floor of 2.50 per cent.
(2) All references to LIBOR relate to USD LIBOR. The transition
away from USD LIBOR will be effective from 30 June 2023.
(ii) Liquidity risk
This is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities.
At 31 December 2022, the Company had cash and cash equivalents
of $120,527,000 (2021: $94,709,000), including investments in
treasury bills with balances of $100,480,000 (2021: $nil) and
liquidity/money market funds with balances of $19,601,000 (2021:
$94,456,000) and maximum unfunded commitments of $nil (2021: $nil).
These assets can be sold easily to meet funding commitments if
necessary.
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 Partnership
entered into a $200 million revolving credit facility with JPMorgan
Chase Bank, expiring on 21 May 2023, (the "Facilities Agreement").
The Partnership paid a commitment fee on undrawn amounts of 200
basis points and would have paid a LIBOR margin of 400 basis points
on drawn amounts. On 10 September 2021 the Partnership entered into
an amendment including reducing the revolving credit facility from
$200 million to $50 million together with changes in the accordian
feature allowing for an increase in the revolving credit facility
to $100 million and up to $200 million in term loans, extension of
the maturity date to 22 June 2024 and a reduction on the LIBOR
margin payable under the revolving credit facility from 400 basis
points to 275 basis points. This facility will increase the
Company's flexibility in relation to funding new lending
opportunities and provide liquidity for funding outstanding
obligations. The Company drew down $138 million on its credit
facility in March 2022 and repaid the full amount in September
2022. As of 31 December 2022, the outstanding balance on the credit
facility was $nil (2021: $nil).
The Company's liabilities as at 31 December 2022 were
$26,563,000 (2021: $6,900,000) of which $26,301,000 (2021:
$6,342,000) was repayable within one year. There is sufficient cash
and cash equivalents to repay the liabilities when they become
due.
(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 so 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 and cash and
receivables. At 31 December 2022, the Company's maximum exposure to
credit risk was $1,364,016,000 (2021: $1,265,898,000). The
Company's concentration of credit risk by counterparty can be found
in the Investment Manager's Report above.
Capital management
Policies and procedures
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.
This is to be achieved through an appropriate balance of equity
capital and gearing. The Company operates a flexible gearing policy
which depends on prevailing conditions. The Company may incur
indebtedness up to 25 per cent. of the Company's net asset value
with a maximum of up to 50 per cent. with Board approval.
17. RELATED PARTY TRANSACTIONS
The amount incurred in respect of management fees during the
year to 31 December 2022 was $13,640,000 (31 December 2021:
$13,670,000), of which $3,314,000 (31 December 2021: $3,397,000)
was outstanding at 31 December 2022. The amount due to the
Investment Manager for performance fees at 31 December 2022 was
$20,255,000 (31 December 2021: $2,222,000).
The amount incurred in respect of Directors' fees during the
year to 31 December 2022 was $415,000 (31 December 2021: $395,000)
of which $nil was outstanding at 31 December 2022 (31 December
2020: $nil).
A 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 Limited
Partnership from the Company. In the year to 31 December 2022, the
Company recorded income from BPCR Limited Partnership of
215,868,000 (31 December 2021: $109,478,000) and the outstanding
balance on 31 December 2022 was $19,535,000 (31 December 2021:
$9,593,000) . BPCR GP Limited had an outstanding balance as at 31
December 2022 of $nil (31 December 2021: $nil).
On 8 November 2022, 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 with Immunocore Limited ("Immunocore"). Under the terms
of the transaction, the Company will invest up to $50,000,000 and
the loan will mature in November 2028. Tranche A has a fixed coupon
of 9.75 per cent. and Tranche B will bear interest at SOFR plus
8.75 per cent. (subject to a 1.00 per cent. floor), with additional
consideration of 2.50 per cent. of the total loan amount. The
Company funded Tranche A of $25,000,000 on 8 November 2022. In the
year to 31 December 2022, BPCR Limited Partnership recorded
interest of $366,000 (31 December 2021: $nil). The outstanding
balance as at 31 December 2022 was $25,000,000 (31 December 2021:
$nil).
On 17 October 2022, the Company and BioPharma V entered into a
definitive senior secured term loan agreement with Insmed, Inc.
("Insmed"). Under the terms of the transaction, the Company
invested $140,000,000 on 19 October 2022. The loan will mature in
October 2027 and will bear interest at 3-month SOFR plus 7.75 per
cent. per annum subject to a 2.50 per cent. floor along with a
one-time additional consideration of 2.00 per cent. of the loan
amount payable upon funding. In the year to 31 December 2022, BPCR
Limited Partnership recorded interest of $3,277,000 (31 December
2021: $nil). The outstanding balance as at 31 December 2022 was
$140,000,000 (31 December 2021: $nil).
On 7 March 2022, the Company and BioPharma V entered into a
definitive senior secured term loan agreement with UroGen Pharma,
Inc. ("UroGen"). Under the terms of the transaction, the Company
will invest up to $50,000,000. The loan will mature in March 2027
and will bear interest at 3-month LIBOR plus 8.25 per cent. per
annum subject to a 1.25 per cent. floor along with a one-time
additional consideration of 1.75 per cent. of the total loan amount
payable upon funding of the first tranche. The Company funded
$37,500,000 on 16 March 2022 and $12,500,000 on 16 December 2022.
In the year to 31 December 2022, BPCR Limited Partnership recorded
interest of $3,291,000 (31 December 2021: $nil). The outstanding
balance as at 31 December 2022 was $50,000,000 (31 December 2021:
$nil) .
On 5 January 2022, the Company and BioPharma V entered into a
definitive senior secured term loan agreement with Coherus Inc.
("Coherus"). Under the terms of the transaction, the Company will
invest up to $150,000,000 ($50,000,000 in the first tranche,
$50,000,000 million by 1 April 2022 and up to an additional
$50,000,000 by 17 March 2023). The loan will mature in January 2027
and will bear interest
at 3-month LIBOR plus 8.25 per cent. per annum subject to a 1.00
per cent. floor along with a one-time additional consideration of
2.0 per cent. of the total loan amount payable upon funding of the
first tranche. The Company funded $50,000,000 on 5 January 2022,
$50,000,000 on 31 March 2022 and $25,000,000 on 14 September 2022.
In the year to 31 December 2022, BPCR Limited Partnership recorded
interest of $10,122,000 (31 December 2021: $nil). The outstanding
balance as at 31 December 2022 was $125,000,000 (31 December 2021:
$nil).
On 14 December 2021, the Company and BioPharma V entered into a
definitive senior secured term loan agreement with Evolus Inc.
("Evolus"). The Company's share of the transaction will be up to
$62,500,000 and the Company funded the first tranche of $37,500,000
on 29 December 2021. The loan will mature in December 2027 and
bears interest at 3-month LIBOR plus 8.50 per cent. per annum
subject to a 1.00 per cent. floor along with a one-time additional
consideration of 2.25 per cent. of the total loan amount paid upon
funding of the first tranche. In the year to 31 December 2022, BPCR
Limited Partnership recorded interest of $3,999,000 (31 December
2021: $30,000). The outstanding balance as at 31 December 2022 was
$37,500,000 (31 December 2021: $37,500,000).
On 23 March 2021, the Company and BioPharma V entered into a
definitive senior secured term loan agreement for $300,000,000 with
LumiraDx Group Limited ("LumiraDx"). The Company's share of the
transaction was $150,000,000 and the Company funded the term loan
on 29 March 2021. The loan will mature in March 2024 and bears
interest at 8.00 per cent. per annum along with a one-time
additional
consideration of 2.50 per cent. of the loan amount paid upon
funding plus an additional 1.50 per cent. of the loan payable at
maturity. On 28 September 2021, LumiraDx became public via a SPAC
transaction with CA Healthcare Acquisition Corp. and began trading
on NASDAQ under the ticker LMDX. The Company and BioPharma-V both
received 742,924 warrants exercisable into common stock of LumiraDx
under the terms of the transaction. On 17 June 2022, the LumiraDx
loan was amended to provide LumiraDx with certain waivers in
exchange for increasing the fee payable at maturity from 1.50 to
3.00 per cent of the loan. On 25 July 2022, LumiraDx raised $100
million in a followon offering at a price of $1.75. As part of the
financing, Pharmakon re-tiered its sales covenants, received a
facility fee, and was issued new five- year warrants, with the
original warrants being cancelled. In the year to 31 December 2022,
BPCR Limited Partnership recorded interest of $12,167,000 (31
December 2021: $9,267,000). The outstanding balance as at 31
December 2022 was $150,000,000 (31 December 2021:
$150,000,000).
On 7 February 2020, the Company and BioPharma V 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 was originally due to mature in
January 2024 and bore 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. On 14 February 2022, the Company and BioPharma
V provided Collegium Pharmaceutical, Inc. a commitment to enter
into a new senior secured term loan agreement for $650,000,000.
Proceeds from the new loan were used to fund Collegium's
acquisition of BioDelivery Sciences International, Inc. as well as
repay the outstanding debt of Collegium and BDSI. Under the terms
of the new loan, the Company invested $325,000,000 million in a
single drawing. The four-year loan for the Company's investment
will have $50,000,000 in amortization payments during the first
year and the remaining $275,000,000 balance will amortize in equal
quarterly installments. The loan bears interest at 3-month LIBOR
plus 7.50 per cent. per annum subject to a 1.20 per cent. floor
along with a one-time additional consideration of 2.00 per cent. of
the loan amount payable at signing and 1.00 per cent. of the loan
amount payable at funding. In the year to 31 December 2022, BPCR
Limited Partnership recorded interest of $26,361,000 (31 December
2021: $11,413,000). The outstanding balance as at 31 December 2022
was $287,500,000 (31 December 2021: $92,813,000).
On 17 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. On 14 December 2021 the loan agreement was amended
and restated. The amendment increased the aggregate principal
amount of the loan to $250,000,000 through a $100,000,000 third
tranche, which was drawn on 22 December 2021. The Company and its
subsidiaries funded $132,500,000 across all three tranches. The
loan was originally due to mature in December 2027 and bore
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 paid upon
funding and an additional 2.00 per cent. payable upon the repayment
of the loan. The third tranche also incurred additional
consideration of 1.50 per cent. at the time of funding. As a part
of the amendment in 2021, the Company and its subsidiaries received
a one-time fee equal to 1.25 per cent. of the first two tranches
and the three-year make-whole period was reset to December 2021. On
5 October 2022, Pfizer acquired GBT and, as a result, GBT repaid
its $132,500,000 senior secured loan to the Company. The Company
received $175,000,000 including $43,000,000 in accrued income,
paydown, prepayment and make-whole fees. In the year to 31 December
2022, BPCR Limited Partnership recorded interest of $48,898,000 (31
December 2021: $7,653,000). The outstanding balance as at 31
December 2022 was $nil (31 December 2021: $132,500,000).
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 was
originally due to mature in December 2023 and the second tranche in
December 2024. The loan bore 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. On 12 September 2022, Sarepta repaid its
senior secured loan and the Company received $372,000,000 including
$16,000,000 in prepayment and make-whole fees. In the year to 31
December 2022, BPCR Limited Partnership recorded interest of
$37,346,000 (31 December 2021: $30,163,000). The outstanding
balance as at 31 December 2022 was $nil (31 December 2021:
$350,000,000).
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. On 15
July 2022, the Company and BioPharma-V entered into a Second
Amendment and Waiver with Akebia which amends and waives certain
provisions of the Loan Agreement, dated 11 November 2019. As a
result of this amendment Akebia made a $12,500,000 pre-payment,
triggering a 2.0 per cent. prepayment fee on the $12,500,000. In
the year to 31 December 2022, BPCR Limited Partnership recorded
interest of $4,557,000 (31 December 2021: $4,816,000). The
outstanding balance as at 31 December 2022 was $33,500,000 (31
December 2021: $50,000,000).
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 were originally due to mature
in November 2024 and the fourth tranche to mature in November 2026.
The loan bore 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. On 27
June 2022, Ipsen announced a definitive agreement pursuant to which
Ipsen will acquire Epizyme. Upon closing, Epizyme was required to
repay the $110,000,000 senior secured loan and the Company received
$9,000,000 in prepayment and makewhole fees. In the year to 31
December 2022, BPCR Limited Partnership recorded interest of
$14,614,000 (31 December 2021: $10,874,000). The outstanding
balance as at 31 December 2022 was $nil (31 December 2021:
$110,000,000) .
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 prior years, there were two
amendments to the OptiNose note purchase agreement, resulting in
retiered sales covenants, permission for an equity issuance,
amended amortisation and make-whole provisions, and the issuance of
new three-year warrants, with the original warrants being canceled.
On 10 August 2022, the OptiNose note and purchase agreement was
amended resulting in re-tiered sales covenants in exchange for an
amendment fee of $780,000, payable upon repayment, of which the
Company will be allocated $429,000. On 9 November 2022, OptiNose
negotiated certain waivers in exchange for a waiver fee, of which
the Company earned $715,000 of the total $1,300,000 waiver fee. On
21 November 2022, OptiNose entered into the A&R NPA. As part of
the A&R NPA, Pharmakon revised the sales covenants, amended the
amortization and make-whole, and modified the loan interest rate to
3-month SOFR plus 8.50 per cent., subject to a 2.50 per cent.
floor, in exchange for an amendment fee. In the year to 31 December
2022, BPCR Limited Partnership recorded interest of $7,959,000 (31
December 2021: $7,793,000). The outstanding balance as at 31
December 2022 was $71,500,000 (31 December 2021: $71,500,000), and
there were 1,375,000 warrants outstanding at 31 December 2022 (31
December 2021: 1,375,000).
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
affiliatalty 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
$nil to RPI Acquisitions in the period to 31 December 2022 (31
December 2021: $nil) for the Purchased Payments. In the period to
31 December 2022 the Company recorded interest of $12,983,000 (31
December 2021: $13,612,000).
BioPharma III, BioPharma IV, and RPI Acquisitions are related
entities of the Company due to a principal of the Investment
Manager having significant influence over each of these
entities.
18. CONTINGENCIES, GUARANTEES AND FINANCIAL COMMITMENTS
As at 31 December 2022, there were outstanding commitments in
BPCR Limited Partnership of up to $75,000,000. (31 December 2021:
$25,000,000) in respect of investments (see Note 17 for further
details).
19. SUBSEQUENT EVENTS
On 9 January 2023, the Company repurchased 523,783 shares. The
Company currently holds 55,277,181 of its ordinary shares in
treasury and has 1,318,654,886 ordinary shares in issue (excluding
treasury shares).
On 6 February 2023, The Coherus loan was amended to allow for a
short term waiver to the sales covenant, as well switching the
LIBOR component of the loan coupon to SOFR.
On 22 February 2023, the LumiraDx loan was amended to provide
LumiraDx with certain waivers in exchange for increasing the fee
payable at maturity from 3.00 to 9.00 per cent of the loan.
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.
The calculation below is in line with AIC guidelines.
Year to 31 December 2022
--------------------------------------------------- ----- -------------------------
Total expenses (d) 35,829,000
--------------------------------------------------- ----- -------------------------
Less: Performance fee (20,255,000)
---------------------------------------------------------- -------------------------
Total (a) 15,574,000
--------------------------------------------------- ----- -------------------------
Average monthly net assets (b) 1,371,693,601
--------------------------------------------------- ----- -------------------------
Ongoing charges excluding performance fee (c=a/b) (c) 1.14%
--------------------------------------------------- ----- -------------------------
Ongoing charges including performance fee (e=d/b) (e) 2.61%
--------------------------------------------------- ----- -------------------------
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
10(th) Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Company Secretary and Registered Office
Link Company Matters Limited
6th Floor
Gresham Street
London
EC2V 7NQ
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
Ernst & Young
Harcourt Centre
Harcourt Street
Dublin 2 Ireland
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
SHAREHOLDER INFORMATION
Key dates
March Annual results announced
Payment of fourth interim
dividend
May Annual General Meeting
June 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 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/#/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 SESFUFEDSEID
(END) Dow Jones Newswires
March 22, 2023 03:00 ET (07:00 GMT)
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