BioPharma Credit (BPCR) provides access to a diverse portfolio of debt instruments for life science companies, consisting mainly of senior secured loans at present. Structural changes in the industry and high M&A activity constitute positive drivers of BPCR’s new debt investments. Despite increased life sciences equity and convertible bonds issues, the trust has invested c US$640m so far this year (and has outstanding commitments of US$140.5–160.5m). The trust has recently completed a private placement, with US$305m of final gross proceeds (after being upsized to US$200m from US$150m). Post the Amicus Therapeutics deal and advancing the second tranche of the Tesaro loan, BPCR visibly increased its exposure to floating-rate loans to c 62%.
BPCR targets an annualised dividend per share of US$0.07 and a net total NAV return of 8–9% per year in the medium term through investment in debt assets of life sciences companies mainly in the US, Europe and Japan, such as senior secured loans (making up 88% of portfolio at end-September 2018), royalty debt instruments and priority royalty tranches. The prospective borrower’s ability to service the coupon and principal payments is determined exclusively on the basis of approved drugs or medical devices with predictable cash flows and significant downside protection.
BPCR’s investment pipeline is benefitting from the specialisation and fragmentation of the life sciences industry, supportive regulatory environment, increasing importance of orphan drugs and the willingness of large players to sell their noncore assets. This is further assisted by higher M&A activity in the sector driven by record-high FDA approval numbers, a solid level of smaller acquisitions of highquality assets and the completion of tax reform. Although both equity and convertible bond issuance volumes have risen considerably in H118 (+31% and +126%, respectively), BPCR has proved it can effectively source new investments, as illustrated for instance by the recent Amicus deal.
At 2 November 2018, BPCR’s ordinary shares traded at a 1.6% premium to its last reported NAV (as at end-September 2018). The shares offer a 5.7% trailing dividend yield, but the last payment already represented, on an annualised basis, a yield of 7% at par (in line with BPCR’s target of US$0.07 annualised).