BioPharma Credit (BPCR) has recently entered into an agreement to provide up to US$82.5m in the form of a five-year senior secured loan to OptiNose, a Nasdaq-listed, commercial-stage pharma company with its flagship product XHANCE, an FDA-approved nasal spray for the treatment of chronic rhinosinusitis with nasal polyps. The therapy uses the inhaled corticosteroid fluticasone propionate coupled with OptiNose’s proprietary Exhalation Delivery System (EDS) designed to reach deep into the nasal passages. We estimate that BPCR still has c US$400m in uncommitted cash available for further deals. We also acknowledge the recent settlement of the dispute between Lexicon (one of BPCR’s borrowers) and Sanofi, which will result in a US$260m cash inflow for Lexicon.
The notes bear interest at 10.75%, which we consider quite attractive for BPCR and even slightly ahead of some of the earlier deals. In the context of the Fed’s recent return to monetary easing, the fixed rate is positive for investors. BPCR received a 0.75% upfront fee (ie c US$0.6m), somewhat below earlier deals (1– 2%), but in addition it received three-year warrants on Optinose shares at zero cost. The warrants have an exercise price of US$6.72 per share (c 14% below the current share price). We estimate that BPCR is thus entitled to acquire a c 1% stake in OptiNose for US$3.0m (if exercised in full). As the note is secured on all of OptiNose’s assets and based on current XHANCE sales consensus, we feel that interest and principal payments are well covered by this product alone.
OptiNose will issue up to US$150m in senior secured notes to BPCR (US$82.5m) and BioPharma V (US$67.5m), Pharmakon’s recently launched new private debt fund. This illustrates BPCR’s improved capacity to enter into more/larger deals alongside the private fund. The notes purchased by both funds are subject to a 2.5- year make-whole arrangement, as well as prepayment fees at 2% and 1% before the third and fourth anniversary, respectively.
As at 26 September 2019, BPCR’s shares are trading at a minor 0.6% discount to its last reported NAV (as at end-July 2019). Including the DPS of 1.8c payable in September, the shares offer a c 7% trailing dividend yield, in line with BPCR’s target.