BioPharma Credit (BPCR) has entered into a definitive agreement to provide US$165m in a single-tranche senior secured loan to Collegium Pharmaceutical, a Nasdaq-listed biopharmaceutical company, which currently markets an abuse-deterrent formulation of oxycodone (opioid) under the Xtampza brand, as well as Nucynta, a centrally acting synthetic analgesic. Collegium reported US$223m in total sales for these two drugs in 9M19. The investment is made alongside BioPharma-V, which provides an additional US$35m, implying BPCR’s share of the deal is 83%.
The loan bears a floating coupon rate of Libor + 7.5% pa with a 2.0% floor, which is broadly in line with BPCR’s recent transactions. At the same time, BPCR will receive an upfront fee of 2.5%, which is somewhat ahead of its current portfolio investments (0–2%) and translates into a c US$4.1m cash inflow on drawdown of the loan. The loan has a four-year term and matures in February 2024. No details about exit or prepayment fees have been disclosed at this stage.
We estimate that, after funding the Collegium Pharmaceutical loan, BPCR’s net cash position will represent less than 10% of its NAV. BPCR currently has c US$320m in outstanding commitments, most of which are to be drawn before the end of 2020 (if at all), while none of BPCR’s debt investments mature in 2020. We calculate that BPCR’s current portfolio of senior secured loans (of which 55% have a floating rate) pays a weighted average coupon of 9.2%, which broadly covers its dividend target and ongoing charges. Consequently, we believe BPCR is likely to seek external capital in 2020 to meet its commitments or fund new investments. Additional income may come from its investments in royalty streams, convertible bonds and equities, which currently make up 16% of the portfolio.
As at 7 February 2020, BPCR’s shares are trading at a minor 2.1% discount to last reported NAV (as at end-December 2019). The shares currently offer a 7.2% trailing dividend yield, in line with BPCR’s target of an annual dividend yield of 7% with respect to its IPO price of US$1.00.