Biopharma Credit Share Discussion Threads

[davebowler] 19/6/2023 08:31

Arguably the most exotic and arcane in this handful is BioPharma Credit (BPCR). This fund focuses on lending to life sciences businesses – mostly well established and publicly-quoted but looking for extra capital to scale up. It’s built up a long track record of successful exits – repayments – many of which have triggered additional fees because of early repayment. Traditionally, it traded close to NAV but the current discount reflects concern over a loan to LumiraDX, which represents 15% of assets.

This facility was supposed to pay back in 2022 but has now been rescheduled for repayment in 2026. It’s clear there are real concerns about the financial health of the firm but BioPharma could – in extreme circumstances – just grab hold of the firm and its intellectual property and sell them to a bigger life sciences firm. So, there is some security and a decent chance of getting not only the originally lent capital back but generating extra income because of the rescheduled debt.

[brucie5] 14/6/2023 11:04

Company seeing value in its own shares.

[williamcooper104] 24/5/2023 08:26

Yep - still a lot of market faith in never had a credit loss track record

[jonwig] 24/5/2023 08:08

Thanks for that, mondex!

Was abroad until Monday pm and missed the news. Quite a muted reaction, so won't be selling right now.

[mondex] 24/5/2023 07:17

From CityWire:

Concerns are rising around BioPharma Credit (BPCR) as the lender to US drugs companies reported ‘problem’; borrower LumiraDx has seen a slide in revenues this year as Covid-19 revenues fizzle out.

Pharmakon Advisors, which manages the £984m investment trust, made a $300m loan to diagnostics platform LumiraDx in 2021, half of which was funded by BPCR, representing 15% of assets, its fifth biggest of 12 loans. The debt matures in 2024 and is secured against LumiraDx’s assets, including the rights to its testing platform, point-of-care diagnostic systems, and its molecular technology.

The size of the loan to the company is now causing nervousness as LumiraDx delivered revenue of just $22.2m in the first three months of the year, a steep fall from the $126m delivered in the same period in 2022, which was the final quarter of Covid-19-related revenues from the Omicron variant. It racked up a loss of $44.1m for the quarter.

Shares in Nasdaq-listed LumriaDx have fallen 8% over the past five days, while BPCR’s 8%-yielding shares have shed 4% to stand at a 1% discount below net asset value.

Over the past year, stock in LumiraDx shares has plunged 87%. The company plans to go back to the market to raise as much as $100m of additional capital this year, having raised around $840m on the stock market as of 31 March, plus an additional $52m in grants from the Bill & Melinda Gates Foundation. However, a capital raise last year saw the stock shed 20% of its value.

Jefferies analyst Matthew Hose said a raise would come with ‘execution risk and would not be enough to cash cover the loan’.

He noted the Nasdaq exchange has notified the company that its shares could be subject to delisting because it failed to meet the $1 minimum bid price.

‘Furthermore, even though the loan has a relatively modest fixed interest rate of 8%, we see a refinancing via a third-party lender as doubtful in the context of the current cash burn,’ said Hose, who downgraded BPCR from ‘hold’ to ‘underperform’.

‘A more likely option, in our view, would be that Pharmakon and BPCR amends and extends the loan.’

The company is currently in the middle of a restructuring, which accounted for a large drop in operating expenses, although BPCR said additional restructuring announced in April is not factored into the accounts.

‘Additional restructuring activities are expected to reduce the global workforce by 40% with expense reductions of $36m per annum with the full impact from June 2023 onward,’ said the trust.

A ‘problem child’
Numis investment trust analyst Ewan Lovett-Turner said it was ‘clearly disappointing to see a large investment…suffering declining sales and a cash shortage’.

However, he said this was not a new problem but a ‘continuation of a trend seen throughout 2022 as Covid-19-related revenues declined for its point-of-care diagnostic systems’.

‘This has been a problem child for BPCR and its adjusted covenants in 2022 to reflect the changing environment,’ he said.

However, Lovett-Turner said the trust had ‘never made a loss on a loan’ thanks to the strength of its underwriting, which is based on borrowers having assets to support the loan.

‘This has often led to troubled companies being acquired, which funds the debt repayment,’ he said.

‘Strengthening the cash position and balance sheet would be welcomed and we expect the results of the equity raise to be closely watched, we note the company has previously had some significant backing from investors such as the Bill & Melinda Gates Foundation. It will be also interesting to see whether there is further corporate action on the horizon.’

Stifel analyst Sachin Saggar said a concentrated loan book like BPCR is ‘always going to have moments where investors are unnerved if borrowers fall materially below expectations’. However, he said disappointing fund updates should not be a ‘bolt from the blue’ and should instead be ‘progressively priced into the NAV, as clearly borrower risk has increased since underwriting’.

He noted that an investor call with LumiraDx focused on product growth and approvals, even in the Q&A section, with ‘no concern around balance sheet’ from investors.

‘It does not appear to us that despite Covid-19 revenues falling off a cliff the company is running into immediate issues, but also that investors would prefer this loan, which is 15% of NAV, to be repaid sooner rather than later,’ said Saggar.

‘This is likely to take some months and in the interim we expect the discount to widen, given we expect the loan to be marked at par.’

Launched in March 2017, BPCR has generated a five-year total shareholder return of 40% from the quarterly dividends it pays.

[kimboy2] 19/5/2023 16:52

I’d have expected the share price to trade down 7-10 percent

(As in they usually over shoot potential credit losses)

It is a Friday.

[williamcooper104] 19/5/2023 13:33

I'd have expected the share price to trade down 7-10 percent (As in they usually over shoot potential credit losses)

[williamcooper104] 19/5/2023 13:32

Yep - I got out as well this morning I only ever had about 1/3rd of the position that I'd like to have had owning to the loan concentration risk Seems that the market is putting a lot of faith in management to get a par recovery Will keep on watch list And least there's no/minimal leverage - so any credit losses aren't going to be catastrophic but will ruin the never had a credit loss reputation and likely de-rate the sp

[kimboy2] 19/5/2023 13:27

Sold this morning. If I want to get back in I am pretty sure I will get back cheaper.

The original investment RNS;



It is unclear exactly what the investment was for but the covid related stuff seemed to be the main selling point.

Lumira results would suggest the profits from that are up the porcelain;



I don't think that there is any chance that BPCR's loan will be repaid on time. The broker says;
We have confidence in the ability of the manager to get the best result possible for investors

Those are somewhat weasel words. Their due diligence is going to be tested and if they come out of this with all their payments in tact then kudos to BPCR. It is going to require some luck with the new developments though, which is not exactly what an investor wants to hear when they have relatively few large investments.

[davebowler] 19/5/2023 10:00

Liberum-EventBioPharma Credit published an update on its investment in LumiraDx, a $150m loan agreement entered in March 2021 with an 8% interest rate, maturing in March 2024.For the three months ended 31 March 2023, LumiraDx (LMDX US) saw its revenue decline to $22.2m (down 82.4% YoY) as Covid antigen test revenues and Fast Labs Covid revenues dried up. The net loss for the quarter was $44.1m reducing the cash holdings of LumiraDX to $68.1m (cash was $100m at 31 December 2022). In addition, LumiraDx management expressed the intention to raise additional equity capital to the tune of $100m. LumiraDx further announced plans to cut costs through a reduction in staff by 40%, which is expected to lead to cost reductions of £36m per annum from June 2023 onward.Liberum viewThe announcement is disappointing since BioPharmaCredit's loan is 50% of a total $300m loan and amounts to 15% of the fund's portfolio. Given that Lumira Dx has to repay the loan in ten months plus an additional consideration of 9% of the loan at maturity, an equity raise of $100m is unlikely to raise enough funds given the low cash reserves and the continued cash burn in the business.The loan is secured by substantially all of LumiraDx' assets, but these assets have likely significantly devalued following the pandemic since the most valuable assets of LumiraDx are its testing platform that produces faster results than PCR tests. The problem just is that the demand for such testing platforms has declined significantly now that the pandemic has subsided. Analyst estimates have guided to a significant decline in company revenues in 2023, with an improvement in 2024, though not at the COVID-era level.BioPharmaCredit and Pharmakon Advisors do have an excellent track record in managing loans like this and are monitoring the developments carefully. We have confidence in the ability of the manager to get the best result possible for investors, but the news today is likely to lead to a widening discount to NAV as the future of LumiraDx and BioPharma Credit's loan to it hang in the balance.

[williamcooper104] 19/5/2023 08:34

Always was the problem here - only ever would take one loan to cause a material share price hit

[speedsgh] 19/5/2023 07:56

with reference to orinocor's post...

Update on Investment -

[orinocor] 19/5/2023 07:38

That's a concern. LumiraDx is 15% of the portfolio.

[jonwig] 11/5/2023 07:13

Another loan:

[gsbmba99] 02/5/2023 11:50

The company started including a chart in their presentations that depicts the gross yield (defined as the weighted average effective coupon across the various investments held by BPCR at the end of each calendar quarter).
4Q21 - 9.0%
1Q22 - 9.0%
2Q22 - 8.9%
3Q22 - 9.5%
4Q22 - 10.8%
1Q23 - 11.7%
2Q23 - 12.1% (estimated)
Obviously, this interest rate only applies to the loan balance. A significant portion of the fixed rate loans were taken out. Pro forma 1Q23 is stated as 76% floating / 24% fixed.

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[jonwig] 30/4/2023 15:13

Chrysalis - I haven't had time to be more thorough, but at end-2021 and early 2022, they were making loans between 7.5 and 8.5% (sometimes plus libor or whatever it changed to). So their rates might be pretty inelastic.

And if rates go lower, chances of a default might reduce. (I know they've been default-free, but it's not a negligible risk.)

EDIT:I'm more miffed by rising GBP vs USD!

[chrysalis99] 30/4/2023 12:34

With in interest cycle about to turn, interest income will presumably be declining in the coming months. Will this threaten the dividends received by shareholders?

[speedsgh] 20/4/2023 20:28

Two new loans put Biopharma Credit on track for special dividend -

Debt fund's 7 cent per share dividend was already 'easily covered' and with almost half its $333m cash pile now deployed the prospects for another special end-of-year payment are good...

[davebowler] 19/4/2023 08:49

Liberum-Up to $180m senior secured loan at 3-month SOFR+700bps.Analyst: Joachim KlementMkt Cap £1,016m | Share price $0.96 | Prem/(disc) -6.8% | Div yield 7.3%EventThe company announced that it will invest up to $180m into a senior secured loan for BioCryst Pharmaceuticals, a NASDAQ-listed biopharmaceutical company with an approved medication against hereditary angioedema that generated revenues of $251.6m in 2022. Biopharma-V will co-invest up to $270m with the company.Of the $180m investment, $120m were drawn at the close of the deal and up to $60m can be drawn until 30 September 2024. The loan will expire in April 2028 and carry an interest rate of 3-month SOFR+700bps with a 1.75% floor. An additional consideration of 1.75% for the $120m drawn along with 50% of the remaining loan volume was paid at close of the deal. The remaining consideration of 1.75% on $30m of undrawn loans ($0.525m) will become due should BioCryst choose to draw on the remaining loan volume.

[jonwig] 19/4/2023 08:08

Another large and lucrative investment;



7% + SOFR + extras.

[davebowler] 14/4/2023 16:21

htTPs://quoteddata.com/2023/04/biopharma-credit-lends-immunogen/

[davebowler] 22/3/2023 09:06

Liberum
BioPharma Credit

Strong income play
Analyst: Shonil Chande and Joachim Klement

Mkt Cap £1,018m | Share price $0.95 | Prem/(disc) -6.9% | Div yield 7.4%

Event

BioPharma Credit's NAV per share of 101.4 cents, as at 31 December 2022, represented an increase of 2.1% and a NAV total return of 13.9%. As at 22 March 2023, the investment portfolio comprises c.$1.1bn across 10 transactions, with a weighted average loan life of 3.7 years. Senior secured loans comprised 90% of the invested portfolio with the balance attributable to purchased payments. Within senior secured, 81% are floating-rate loans and 19% are fixed-rate loans. BPCR held cash of $333m at 31 December 2022.

BPCR made five investments totalling $665m in FY22, the largest being $325m that was funded to Collegium. Cash totalling $830m was received from five repayments, amortisation payments and the BMS purchased payments.



Liberum view
Returns in 2022 were well-above BPCR's medium-term annual target of 8-9% (+8% annualised from inception in Mar-17, assuming reinvestment of dividends) and the FY23 dividend is expected to be comfortably covered. The proportion of floating-rate senior loans increased from 46% to 81% in the year. While this is a strategy built around concentrated positions, investments are de-risked by the loan investments (predominantly secured) being to established companies with approved commercial-stage products. Collateral values are assigned only to approved products. The nature of BPCR's strategy means periods of high undeployed cash. The manager remains confident of reinvesting the proceeds given the significant capital needs in the sector.



BPCR operates in an attractive area of the debt market where large dedicated lenders are absent. It invests in predominantly secured loans, with counterparties that have approved, commercial-stage products. 97% of BPCR's investments since launch have comprised senior corporate loans and senior royalty loans. Loans are typically structured to offer protection against cash drag from repayments in the form of prepayment fees and make-whole penalties.

This was demonstrated by BPCR’s ability to pay a special dividend last year, despite the high level of prepayments. Including the special dividend, BPCR paid total dividends in excess of 13 cents, representing a near 14% yield. We believe the company is well set to deliver further special dividends in 2023, with the ordinary dividend well covered and the portfolio currently generating an 11.7% gross yield, 270bps higher than this time last year. We view the current near 7% discount to NAV as particularly attractive, given the long-term track record of the manager and the strong discount control mechanisms in place (c.$52m of buybacks in 2022).

[jonwig] 22/3/2023 08:12

FY results:



Prepayments again contributing a big proportion of income. You'd think lots of other lenders would want to occupy this space, given the rewards. Or have BPCR been lucky rather than skilful in dodging bad loans?

[davebowler] 17/3/2023 09:15

The Company does not hold deposits or other investments in SVB. In addition, Pharmakon has consulted with all of the Company's borrowers and is pleased to reiterate that they also have no significant exposure to SVB.