BioPharma Credit (BPCR) offers investors access to a diverse portfolio of secured debt instruments for life science companies. During 2019, BPCR was able to deploy more than US$500m and was thus able to reduce the large cash position accumulated as a result of the share issue in late 2018 and prepayment of the Tesaro note in January 2019. New investments include the largest deal so far with Sarepta Therapeutics, where BPCR provided funding of up to US$350m (of which half was initially drawn). We estimate that BPCR’s current loan portfolio has an attractive average coupon rate of c 9% (of which c 50% is at a fixed rate). On drawdown of outstanding commitments, arrangement fees and additional coupons will provide full cover of the annual dividend.
BPCR takes advantage of the increasingly fragmented drug discovery market. As a result of the supportive regulatory environment (for orphan drugs in particular), there is a growing number of products entering clinical trials and being approved. The increasing number of cash-generating companies that are too young to obtain debt financing from traditional sources provides ample investment opportunities for BPCR at attractive coupon rates and arrangement/exit fees. High M&A activity normally supports BPCR’s deal pipeline, while high equity valuations (encouraging companies to seek equity funding) constitute a limiting factor
Access to biotech expertise through Pharmakon Advisors.
Investment manager’s expertise proven by 7–11% IRR on closed private funds.
Benefiting from the cash flows generated by recently approved drugs.
BPCR shares offer exposure to high-yielding, illiquid assets with daily trading.
As at 22 January 2020, BPCR’s shares are trading at a modest 0.2% discount to its last reported NAV (as at end-December 2019). The shares currently offer a c 7.0% trailing dividend yield, in line with BPCR’s target.