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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Biopharma Credit Plc | LSE:BPCR | London | Ordinary Share | GB00BDGKMY29 | ORD USD0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.876 | 0.876 | 0.88 | 332,594 | 09:19:41 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Finance Services | 135.74M | 108.45M | 0.0833 | 10.56 | 1.15B |
From Apr 2019 to Apr 2024
TIDMBPCR
RNS Number : 6342F
BioPharma Credit PLC
10 March 2020
The Company notes that the announcement released at 7.00am on 10 March 2020 under reference 5194F contained a small number of inconsistencies.
The correct details are as follows: Cash invested in the year - $509 million; Net income - $114 million; Net income per share - $0.0828; Remaining commitments - $319 million.
All other details in the announcement remain correct.
BIOPHARMA CREDIT PLC
(THE "COMPANY")
ANNUAL REPORT FOR THE YEARED 31 DECEMBER 2019
DELIVERING DEFENSIVE INCOME FROM AN INCREASINGLY DIVERSE PORTFOLIO
BioPharma Credit PLC (LSE: BPCR), the specialist life sciences debt investment trust, is pleased to present the Annual Report of the Company for the period ended 31 December 2019.
The full Annual Report and Financial Statements can be accessed via the Company's website at www.bpcruk.com or by contacting the Company Secretary by telephone on 01392 477500.
INVESTMENT HIGHLIGHTS
-- In the twelve-month period the Company made a number of significant investments in attractive life sciences companies including:
o $500m senior secured loan commitment to Sarepta Therapeutics Inc. (Nasdaq: SRPT) alongside BioPharma Credit Investments V (Master) LP ("BioPharma-V") of which the Company initially invested $175m on 13 December 2019
o $150m senior secured loan commitment to OptiNose (Nasdaq: OPTN) alongside BioPharma-V of which the Company initially invested $44m on 13 September 2019
o $150m senior secured loan commitment to Global Blood Therapeutics (Nasdaq: GBT) alongside BioPharma-V of which the Company initially invested $41.25m on 18 December 2019
o $100m senior secured loan commitment to Akebia (Nasdaq: AKBA) alongside BioPharma-V of which the Company initially invested $40m on 13 November 2019
o $80m senior secured loan commitment to BioDelivery Sciences International (Nasdaq: BDSI) ("BDSI") of which the Company initially invested $60m on 23 May 2019
o $70m senior secured loan commitment to Epizyme (Nasdaq: EPZM) alongside BioPharma-V of which the Company initially invested $12.5m on 13 November 2019
o $25m equity investment in BDSI acquired at a cost of $5.00 per share through participation in a public offering that took place on 11 April 2019
o Post period end on 7 February 2020, the Company entered into a $200m senior secured loan agreement with Collegium Pharmaceutical Inc. (Nasdaq: COLL) alongside BioPharma-V of which the Company has invested its full commitment of $165m
o Post period end on 11 February 2020, the Company alongside BioPharma-V invested in the second tranche of $30m to Optinose with the Company funding $16.5m
-- GlaxoSmithKline completed its acquisition of TESARO Inc ("Tesaro") on 22 January 2019, triggering the repayment of the Company's $322m loan, generating $45.8m in prepayment and other fees and earning a 22.5% annualised rate of return on the Company's investment
-- The Company paid four dividends totalling $0.0718 per Ordinary Share for the four quarters ended 30 September 2019 continuing to meet its dividend target of 7 cents per share
-- Post period end the Company announced a further dividend distribution of 3.03 cents per share comprising the ordinary dividend of 1.75 cents per share and a special dividend of 1.28 cents per share
-- The Company continues to have a substantial pipeline of attractive potential investments and looks forward to updating shareholders on these opportunities in due course.
FINANCIAL HIGHLIGHTS
ORDINARY SHARES Assets as at 31 December 2019 as at 31 December 2019 Share price Net assets $1.0200 $1,403.7m (31 December 2018: $1.0650) (31 December 2018: $1,380.0m) NAV per Share Shares in issue $1.0217 1,373.9m (31 December 2018: $1.0044) (31 December 2018: 1,373.9m) Premium to NAV per Share Target dividend (0.17%) 7 cents per annum (31 December 2018: 6.0%) Net income per share $0.0828 (31 December 2018: $0.0707)
PORTFOLIO COMPOSITION
Hot Features
Premium
($ in millions) As at 31 December As at 31 December
2019 2018
Sarepta Therapeutics senior 175 -
secured loan
Novocure senior secured loan 150 150
Amicus senior secured loan 150 150
BMS purchased payments 150 64
Sebela senior secured loan 130 189
Lexicon senior secured loan 125 125
BioDelivery Sciences senior 60 -
secured loan
OptiNose US senior secured note 46 -
and warrants
Global Blood Therapeutics senior 41 -
secured loan
Akebia senior secured loan 40 -
Convertible bonds 20 -
BioDelivery Sciences equity 17 -
Epizyme senior secured loan 13 -
Cash and cash equivalents 297 364
Tesaro senior secured loan - 322
Limited partnership interest
in BioPharma III - 8
Other net assets (9) 9
---------------------------------- ------------------ ------------------
Total net assets 1,404 1,380
---------------------------------- ------------------ ------------------
Pedro Gonzalez de Cosio, CEO and co-founder of Pharmakon Advisors L.P., the Investment Manager of BioPharma Credit PLC said:
"We have delivered another year of considerable investment activity that has transformed our investment portfolio as we deployed the cash resources into compelling opportunities and roughly doubled the number of our portfolio holdings.
The significant cash resources available to the Company at the outset of 2019 provided a unique opportunity to increase the scale of the portfolio. We are delighted that this process has been completed on schedule with the cash resources fully invested or otherwise allocated towards a leading portfolio of life sciences credit investments.
We continue to see a number of significant opportunities in our pipeline and will update the market in due course as these progress through our rigorous due diligence process. We believe the Company is ideally poised from its 2019 investment activity to deliver further growth and add additional diversification to our income base.
The manager also launched BioPharma-V in 2019, a private vehicle investing in similar assets to the Company and has through the year co-invested alongside the Company in many transactions. This has had a noticeable effect in materially diversifying the BioPharma Credit portfolio and has also enhanced the transactional resources available to the manager, ensuring that the most attractive deals can be secured for the benefit of the Company's shareholders.
At a time of uncertainty in the global equity markets, we are focused on continuing to deliver a robust income stream delivered on a quarterly basis and derived from contracted revenues that are uncorrelated to broader equity market movements.
The global sales of approved life sciences products continue to increase in value year on year driven by four fundamental growth drivers of a global growing population, an ageing population, growth in emerging markets and continued innovation. BioPharma Credit remains ideally placed to offer investors defensive exposure to this important asset class through life sciences companies that provide critical solutions to unmet needs to deliver regular returns to shareholders and transformative outcomes for patients."
Results presentation
As announced on 17 February 2020, a management presentation will be delivered through a conference call facility at 2:00pm GMT on 10 March 2020. To request dial-in details, please email henryw@buchanan.uk.com .
Enquiries
Buchanan
David Rydell / Mark Court / Jamie Hooper / Henry Wilson
+44 (0) 20 7466 5000
Biopharmacredit@buchanan.uk.com
Notes to Editors
BioPharma Credit PLC is London's only specialist debt investor to the life sciences industry and joined the LSE in March 2017. The Company seeks to provide long-term shareholder returns, principally in the form of sustainable income distributions from exposure to the life sciences industry. The Company seeks to achieve this objective primarily through investments in debt assets secured by royalties or other cash flows derived from the sales of approved life sciences products.
INVESTMENT
Portfolio diversity increased in
2019
As at As at
31 Dec 31 Dec
Key statistics ($ in millions) 2019 2018 % change
------------------------------------- -------- -------- ---------
Cash and cash equivalents 297 364 -18.4%
Limited partnership interest in
BioPharma III - 8 -
Tesaro senior secured loan - 322 -
Lexicon senior secured loan 125 125 -
Novocure senior secured loan 150 150 -
Sebela senior secured loan 130 189 -30.9%
BMS purchased payments 150 64 132.7%
Amicus senior secured loan 150 150 -
BioDelivery Sciences senior secured
loan 60 - -
BioDelivery Sciences equity 17 - -
OptiNose US senior secured note
and warrants 46 - -
Epizyme senior secured loan 13 - - Akebia senior secured loan 40 - - Sarepta Therapeutics senior secured loan 175 - - Global Blood Therapeutics senior secured loan 41 - - Convertible bonds 20 - - Other net (liabilities)/assets (9) 9 -198.5% ------------------------------------- -------- -------- --------- Total net assets 1,404 1,380 1.7% ------------------------------------- -------- -------- --------- Portfolio diversification as at 31 December 2019 Type Percentage ---------------------------------- ----------- Cash and cash equivalents 21.1% Lexicon senior secured loan 8.9% Novocure senior secured loan 10.7% Sebela senior secured loan 9.3% BMS purchased payments 10.7% Amicus senior secured loan 10.7% BioDelivery Sciences senior secured loan 4.3% BioDelivery Sciences equity 1.2% OptiNose US senior secured loan and warrants 3.3% Epizyme senior secured loan 0.9% Akebia senior secured loan 2.8% Sarepta Therapeutics senior secured loan 12.5% Global Blood Therapeutics senior secured loan 2.9% Convertible bonds 1.4% Other net (liabilities)/assets -0.7% ---------------------------------- ----------- Total net assets 100.0% ---------------------------------- -----------
CHAIRMAN'S STATEMENT
Introduction
2019 was the Company's second full year of operations and I am pleased to be able to report on another year of success.
Investments
As described in previous reports, January 2019 saw the early repayment to the Company of its largest investment, that of $322 million to Tesaro. That repayment was accompanied by prepayment and other fees totalling $46 million, thereby securing a very attractive rate of return on our investment but presenting our manager with the challenge of re-employing a substantial amount of capital. Over the course of the 2019 the Company was able to announce six new investments totalling $728 million, of which $423 million was funded in 2019. In addition, $86 million of previous commitments were also funded, leading to a total of $509 million being invested over the course of the year. The balance of outstanding commitments at the end of 2019 is expected to be funded over the course of 2020.
Shareholder returns
The Company reported total Net Income of $114 million for 2019 or $0.0828 per share. Over the course of the year, Net Asset Value per share increased from $1.0044 on 31 December 2018 to $1.0217 on 31 December 2019, an increase of $0.0173 per share. Over the same period the Company made four dividend payments totalling $0.0718 per share, referencing the four quarters ending 30 September 2019. The Company was therefore able to maintain its record of paying a dividend of at least 1.75 cents per share in every quarter since that ending 30 June 2018.
Following the end of the year, the Company declared a further dividend in respect of the last quarter of 2019 of 3.03 cents per share made up of an ordinary dividend of 1.75 cents per share together with a special dividend of 1.28 cents per share.
Over the year the Company's ordinary share price declined from $1.0650 as at 31 December 2018 to $1.0200 as at 31 December 2019, therefore ending the year closely in line with Net Asset Value per share of $1.0217.
Portfolio diversification
The Company ended the year with total net assets of $1,404 million, comprised of $1,116 million of investments, $297 million of cash, $16 million of other assets and $25 million of other liabilities. Follow-on commitments totalled $319 million as at 31 December 2019, of which most is expected to be funded during the second half of 2020.
As at 31 December 2019, the Company had outstanding 12 investments with amounts outstanding ranging in size from $10 million to $175 million. This compares with a portfolio as at 31 December 2018 of seven loans with commitments between $76 million and $96 million. Since year end, one further commitment, with Collegium Pharmaceutical, was made for $165 million, adding further diversification to the portfolio and taking the number of outstanding investments to 13, almost double the number outstanding 12 months earlier.
Outlook
Our investment manager, Pharmakon Advisors, continues to develop a pipeline of additional potential investments and, as a consequence, we expect to be evaluating a number of potential alternatives to fund this expected growth.
On behalf of the Board, I should like to express our thanks to Pharmakon for their continued achievements on behalf of the Company in 2019 and to our shareholders for their continued support.
Jeremy Sillem
Chairman
9 March 2020
MARKET OVERVIEW
LIFE SCIENCES IS A LARGE, VITAL INDUSTRY WITH A TRACK RECORD OF STRONG, CONSISTENT GROWTH
Size and growth dynamics of the industry
The life sciences industry consists of pharmaceutical and biotechnology firms and is a large and vital industry with a track record of strong, consistent growth. Worldwide prescription drugs sales were $827 billion in 2018 and are expected to reach $1.2 trillion by 2024, reflecting a compounded annual growth rate of 6 per cent. While medical and scientific advances contribute to a portion of that increase, other growth drivers include more basic demographic and macroeconomic factors, such as a growing population, ageing populations and increasing prosperity in developing countries which is improving access to healthcare for millions of patients. The increase in spending is expected to be largely driven by brands and increased usage in emerging markets, offset by expiring patents.
Product life cycle
Pharmaceutical and biotechnology products have long life cycles, which can provide considerable downside protection for the Company. Worldwide patents can lead to more than 20 years of protection, which frequently translates into as long as 15 years of exclusivity from the time the products are first approved by regulatory agencies such as the U.S. Food and Drug Administration ("FDA"). Some governments also provide for regulatory exclusivity, which provides for six to ten years of commercial exclusivity independent of an approved patent, if an innovator performs clinical trials. On average, sales growth is very robust for the first 12 years of a product's life cycle, after which some of these products begin to lose exclusivity, and their sales growth slows and starts to decline shortly thereafter. A key driver of initial sales growth is increasing prescriptions from physicians in the early-launch markets, but subsequent commercialisation rates in additional geographic markets, as well as expanding indications, frequently drive attractive growth for more than a decade.
Market dynamics create fragmentation of the industry and more lending opportunities
Despite growth in the pharmaceutical market, large pharmaceutical companies continue to face mounting pressure on top-line sales from patent expiry on blockbuster products and failures in their research and development pipelines. The internal research and development departments of larger pharmaceutical companies have struggled to replace lost revenue with new products. Dramatically escalating research and development costs have also put pressure on industry participants to adapt their business model and seek partners to reduce risk. The amount of research and development investment per FDA-approved product is now approximately $1.4 billion. As a result of these factors, large pharmaceutical companies are increasingly relying on in-licensing and corporate acquisitions for new products.
Over the last 30 to 40 years, the landscape of the pharmaceuticals industry has been transformed from one dominated by fully integrated pharmaceutical companies to a more dynamic and entrepreneurial research and development ecosystem comprised of thousands of participants. As a result of this research and development evolution, smaller companies, investor groups, universities and non-profit research institutes increasingly have rights to royalty streams on products that have been out-licensed to larger pharmaceutical companies. This broader shift in research and development approach provides an expanding landscape of lending opportunities for the Company, as smaller companies are increasingly partnering with large pharmaceutical companies.
The pharmaceutical and biotechnology ecosystem has evolved to one where innovation and commercialisation, which was once centralised in fewer than 100 big pharmaceuticals, has now spread among more than 5,000 academic labs, government-funded entities and more than 5,000 biotech companies. The pool of creditworthy borrowers has increased exponentially.
INVESTMENT MANAGER'S REPORT
AN ATTRACTIVE INVESTMENT ENVIRONMENT TO BUILD ON PAST PERFORMANCE
INTRODUCTION TO THE INVESTMENT MANAGER
Pharmakon Advisors, the Company's Investment Manager, was founded in 2009 and has invested $3.8 billion in 40 transactions on behalf of its clients.
Pharmakon prides itself on its ability to identify and structure investments that meet its target returns while minimising risk through its rigorous diligence process and industry expertise.
As at 31 December 2019, Pharmakon clients included four previous BioPharma Funds (I, II, III and IV), BioPharma V, a private fund also investing in life sciences debt managed by Pharmakon Advisors launched in June 2019, and seven managed co-investor accounts. The four previous BioPharma Funds have now reached the end of their investment period.
The Pharmakon team has extensive expertise investing in debt and other cash flows backed by life sciences products.
Through a shared services agreement with RP Management LLC, Pharmakon has access to the complementary expertise of the team behind the market-leading investor in pharmaceutical royalties. RP Management LLC, an affiliate of Pharmakon, was established in 1996 and acquires revenue-producing intellectual property, with over $17 billion in royalty assets.
INVESTMENTS
Pharmakon is pleased to present an update on the Company's portfolio and investment outlook. We are delighted with the results over the past year and look forward to a productive 2020 as we continue to solidify our position as the leading investor in life sciences debt. 2019 started with the previously announced repayment of the Tesaro loan which increased the Company's cash position to $768 million by 31 January 2019. During the remainder of the year Pharmakon was successful in executing six transactions on behalf of the Company and BioPharma V. The Company's share of these transactions amounted to $728 million, of which $319 million are commitments expected to be funded during 2020. Cash invested during the year totalled $509 million including funding $86 million in previous commitments. Below is an update on the Company's portfolio.
GBT
On 18 December 2019, the Company and BioPharma-V entered into a definitive senior secured term loan agreement for up to $150 million with Global Blood Therapeutics (Nasdaq: GBT), a biopharmaceutical company focused on innovative treatments that provide hope to underserved patient communities with a current market capitalisation of approximately $4,027 million as at 2 March 2020 ("GBT"). Under the terms of the agreement, GBT drew down $75 million at closing and has until December 2020 to draw the remaining $75 million, at their option.
The Company funded $41 million of the $75 million first tranche and will fund up to $41 million of the second tranche if the full $75 million of the second tranche is drawn. The loan will mature in December 2025 and will bear interest at three month LIBOR plus 7.00 per cent. per annum subject to a 2.00 per cent. floor along with a one-time additional consideration of 1.50 per cent. of the total loan amount payable upon funding and an additional 2.00 per cent. payable upon the repayment of the loan. GBT recently obtained US FDA approval for its first product, Oxbryta TM (voxelotor) for the treatment of sickle cell disease in adults and pediatric patients 12 years of age and older.
Investment type Date Secured loan 20 December 2019 Total amount Company commitment $150m $83m Maturity Dec 2025
Sarepta Therapeutics
On 13 December 2019, the Company and BioPharma-V entered into a definitive senior secured term loan agreement for up to $500 million with Sarepta Therapeutics (Nasdaq: SRPT), a fully integrated biopharmaceutical company focused on precision genetic medicine with a current market capitalisation of approximately $9,322 million as at 2 March 2020 ("Sarepta"). Under the terms of the agreement Sarepta drew down a first tranche of $250 million and has until December 2020 to draw the remaining second tranche of $250 million, at their option.
The Company funded $175 million of the $250 million first tranche and will fund up to $175 million of the second tranche if the full $250 million of the second tranche is drawn. The loan will mature in December 2023 and will bear interest at 8.5 per cent per annum along with a one-time additional consideration of 1.75 per cent of the total loan amount payable upon funding and an additional 2 per cent. payable upon the repayment of the loan.
Sarepta currently markets Exondys 51 (eteplirsen) in the US for the treatment of Duchenne muscular dystrophy (DMD) in patients who have a confirmed mutation of the DMD gene that is amenable to exon 51 skipping. On 12 December 2019, Sarepta announced the FDA approval of Vyondys 53 (golodirsen), its second RNA exon-skipping treatment for DMD approved in the U.S. and that commercial distribution of Vyondys 53 in the US will commence immediately. On 23 December 2019, Sarepta announced a partnership with Roche in territories outside the United States for its investigational micro-dystrophin gene therapy for duchenne muscular dystrophy. Sarepta received an upfront payment of $1.15 billion, comprising $750 million in cash and $400 million in equity and will receive future success-based milestones and royalties.
Investment type Date Secured loan 20 December 2019 Total amount Company commitment $500m $350m Maturity Dec 2023
Akebia
On 11 November 2019, the Company and BioPharma-V entered into a definitive senior secured term loan agreement for up to $100 million with Akebia (Nasdaq: AKBA), a fully integrated biopharmaceutical company focused on the development and commercialisation of therapeutics for people living with kidney disease with a current market capitalisation of approximately $1,079 million as at 2 March 2020 ("Akebia"). Under the terms of the agreement Akebia drew down $80 million at closing and has until December 2020 to draw the remaining $20 million, at their option.
The Company funded $40 million of the $80 million first tranche and will fund $10 million of the second tranche if it is drawn. The loan will mature in November 2024 and will bear interest at LIBOR plus 7.5 per cent. per annum along with a one-time additional consideration of 2 per cent. of the total loan amount. Akebia currently markets Auryxia(R) (ferric citrate) which is approved in the US for hyperphosphatemia (elevated phosphorus levels in blood serum) in adult patients with chronic kidney disease (CKD) on dialysis and iron deficiency anaemia in adult patients with CKD not on dialysis.
Investment type Date Secured loan 25 November 2019 Total amount Company commitment $100m $50m Maturity Nov 2024
Epizyme
On 4 November 2019, the Company and BioPharma-V entered into a definitive senior secured term loan agreement for up to $70 million with Epizyme (Nasdaq: EPZM), a late-stage biopharmaceutical company developing novel epigenetic therapies with a current market capitalisation of $2,317 million as at 2 March 2020 ("Epizyme"). Under the terms of the agreement Epizyme drew down $25 million at closing and has until December 2020 to draw the remaining $45 million, in two tranches.
The Company funded $13 million of the $25 million first tranche and will fund $23 million of the remaining tranches if they are drawn. The loan will mature in November 2024 and will bear interest at LIBOR plus 7.75 per cent. per annum along with a one-time additional consideration of 2 per cent. of the total loan amount. Epizyme's lead product, tazemetostat, is a first-in-class, oral EZH2 inhibitor in clinical development for certain oncology indications, including epithelioid sarcoma and follicular lymphoma. Since tazemetostat was not FDA approved at the time the loan was funded, the loan was over collateralised with cash. This requirement went away when tazemetostat was approved on 23 January 2020.
Investment type Date Secured loan 18 November 2019 Total amount Company commitment $70m $35m Maturity Nov 2024
Optinose
On 12 September 2019, the Company and BioPharma-V entered into a definitive senior secured note purchase agreement for the issuance and sale of senior secured notes in an aggregate original principal amount of up to US$150 million by OptiNose US, a wholly-owned subsidiary of OptiNose (Nasdaq: OPTN), a commercial-stage specialty pharmaceutical company with a current market capitalisation of approximately $284 million as at 2 March 2020 ("OptiNose"). Under the terms of the agreement Optinose purchased $80 million at closing and has until February 2021 to purchase the remaining $70 million of notes, in three tranches, at OptiNose's option.
The Company funded $44 million of the $80 million first tranche and will issue $39 million of the remaining tranches if they are drawn. The notes mature in September 2024 and bear interest at 10.75 per cent. per annum along with a one-time additional consideration of 0.75 per cent. of the aggregate original principal amount of senior secured notes which the Company and BioPharma-V are committed to purchase under the facility and approximately 800,000 warrants exercisable into common stock of OptiNose.
OptiNose's leading product, XHANCE(R) (fluticasone propionate), is a nasal spray approved by the U.S. Food and Drug Administration (FDA) in September 2017 for the treatment of nasal polyps in patients 18 years or older. XHANCE(R) utilises a novel and proprietary exhalation delivery system to deliver the drug high and deep into the sinuses, targeting areas traditional intranasal spray are not able to reach.
Investment type Date Secured loan 12 September 2019 Total amount Company commitment $150m $82.5m Maturity September 2024
Biodelivery Sciences International
On 23 May 2019, the Company entered into a senior secured loan agreement for up to $80 million with BioDelivery Sciences International (Nasdaq: BDSI), a commercial-stage specialty pharmaceutical company ("BDSI") with a market capitalisation of approximately $496 million as at 2 March 2020. BDSI utilizes its novel and proprietary BioErodible MucoAdhesive (BEMA(R)) technology, to develop and commercialize new applications of proven therapies aimed at addressing important unmet medical needs. BDSI's leading products include BELBUCA(R) (buprenorphine buccal film) and Symproic(R) (naldemedine).
In addition, the Company acquired 5,000,000 BDSI shares at $5.00 each for a total cost of $25 million in a public offering that took place on 11 April 2019. As at 28 June 2019, BDSI's shares closed at $4.65. The first tranche of the loan for $60 million was funded on 28 May 2019 and an additional tranche of $20 million is available to be drawn down by May 2020 at BDSI's option. The loan will mature in May 2025 and bears interest at LIBOR plus 7.5 per cent., along with 2 per cent. additional consideration. Proceeds from this financing, along with available cash on hand, were used to repay and retire the company's existing term loan with CRG Servicing LLC which had an outstanding balance of $62 million and a maturity date of December 2022. As at 2 March 2020 BDSI had a market capitalisation of $496 million.
Investment type Date Secured loan and equity 28 May 2019 Total amount Equity $80m $25m Company commitment Maturity $105m May 2025
Amicus Therapeutics
On 20 September 2018, the Company entered into a definitive senior secured loan agreement for $150 million with Amicus Therapeutics, Inc (NASDAQ: FOLD), a commercial stage, rare metabolic disease-focused biopharmaceutical company ("Amicus").
The $150 million loan has a five-year maturity and is interest-only for the first four years. The loan bears interest at LIBOR plus 7.5 per cent. (subject to certain caps) and includes 2 per cent. Additional consideration. Amicus can prepay the loan at any time subject to a two year make-whole premium and prepayment fees.
Amicus has commercial operations in the United States, Europe, Japan and several other geographies in which it currently markets Galafold(R) (migalastat HCl) for Fabry disease with sales of $182 million during 2019. As at 2 March 2020 Amicus had a market capitalisation of $2,398 million.
Sebela Pharmaceuticals
On 1 May 2018, the Company was lead arranger of a $316 million senior secured term loan for Sebela BT Holdings Inc. ("Sebela"), a subsidiary of Sebela Pharmaceuticals. The Company committed to a $194 million investment, with the remaining $122 million balance coming from co-investors.
The five-year senior secured loan began amortising in the third quarter of 2018 and fully matures in December 2022. The loan bears interest at LIBOR (un-capped) plus a single-digit spread and includes additional consideration.
Sebela is a private specialty pharmaceutical company focused on gastrointestinal medicines, dermatology, and women's health. As at 31 December 2019, the principal amount outstanding of the Company's investment was $130 million.
Novocure Limited
On 7 February 2018, the Company entered into a senior secured loan agreement for $150 million with Novocure Limited (NASDAQ: NVCR), a commercial stage oncology company with a current market capitalisation of
approximately $7,467 million as at 2 March 2020 ("Novocure").
The $150 million loan will mature in February 2023 and bears interest at 9.0 per cent. per annum. Novocure used $100 million of the net proceeds to entirely prepay the $100 million, 10.0 per cent. coupon loan made by BioPharma III Holdings, LP ("BioPharma III") in 2015 that was scheduled to mature in 2020.
The Company was a limited partner in BioPharma III and therefore received a distribution of approximately $46 million from BioPharma III as a result of the prepayment from Novocure.
Novocure manufactures and sells the Optune system, a cancer treatment centered on a proprietary therapy called TTFields, which involves the use of electric fields tuned to specific frequencies to disrupt solid tumor cancer cell division. Optune is currently approved for the treatment of adults with Glioblastoma ("GBM").
On 27 February 2020, Novocure reported revenues of $351 million for the year ended 31 December 2019 a 42 per cent. increase over 2018. Novocure invests meaningfully in research and development and has late stage trials (Phase III pivotal studies) underway for TTFields in brain metastases, non-small cell lung cancer and pancreatic cancer.
On 23 May 2019, the FDA approved the NovoTTF-100L system in combination with chemotherapy for the treatment of malignant pleural mesothelioma. This is the first FDA approved mesothelioma treatment in over 15 years.
Lexicon Pharmaceuticals
On 4 December 2017, the Company and BioPharma IV entered into a definitive term loan agreement for up to $200 million with Lexicon Pharmaceuticals (NASDAQ: LXRX) ("Lexicon"), a fully integrated biopharmaceutical company with a current market capitalisation of approximately $301 million as at 2 March 2020.
The Company funded $125 million of the $200 million first tranche and Lexicon did not draw the second tranche. The loan pays a fixed 9.0% coupon. Lexicon markets Xermelo(R) (teloristat ethyl) for the treatment of carcinoid syndrome diarrhoea in the United States and has licensed Xermelo(R) to Ipsen Pharma SA for commercialisation in territories outside of the United States and Japan. Lexicon is also developing Zynquista (sotagliflozin) for the treatment of type 1 and type 2 diabetes in partnership with Sanofi. The loan is secured by substantially all of Lexicon's assets, including its rights to XERMELO and Zynquista.
Zynquista (sotagliflozin) received approval in Europe for Type 1 diabetes on 26 April 2019. On 22 March 2019, the FDA issued a Complete Response Letter (CRL) which indicated that a New Drug Application for the oral treatment of type 1 diabetes would not be approved in its present form for Zynquista. Lexicon appealed the decision to the FDA and on 2 December 2019, the FDA affirmed its initial decision. Lexicon has escalated its appeal to the FDA's Center for Drug Evaluation and Research and is awaiting a decision. The drug is still being evaluated for use in Type 2 patients with potential to generate $110 million in development milestones by early 2020 plus $150 million upon approval. The Type 2 diabetes market is much larger than the Type 1 market.
On 26 July 2019, Lexicon announced Sanofi's notice of termination in relation to its collaboration and license agreement with Lexicon for the development and commercialisation of Zynquista. Sanofi's actions do not impact XERMELO(R) which is marketed by Lexicon in the US and is partnered outside the US with Ipsen. Lexicon and Sanofi came to an agreement effective 9 September 2019 in which Lexicon will regain all rights to and will be solely responsible for the worldwide development and commercialization of Zynquista. Under the terms of the settlement, Sanofi agreed to pay Lexicon US$260 million and coordinate with Lexicon in the transition of responsibility for ongoing clinical studies and other activities. Sanofi paid Lexicon $208 million in September 2019 and will pay the remaining $52 million in the next 12 months.
Bristol-Myers Squibb
On 8 December 2017, the Company's wholly-owned subsidiary entered into a purchase, sale and assignment agreement with a wholly-owned subsidiary of Royalty Pharma Investments ("RPI"), an affiliate of the Investment Manager, for the purchase of a 50 per cent. interest in a stream of payments (the "Purchased Payments") acquired by RPI's subsidiary from Bristol-Myers Squibb (NYSE: BMY) through a purchase agreement dated 14 November 2017.
As a result of the arrangements, RPI's subsidiary and the Company's subsidiary are each entitled to the benefit of 50 per cent. of the Purchased Payments under identical economic terms. The Purchased Payments are linked to tiered worldwide sales of Onglyza and Farxiga, diabetes agents marketed by AstraZeneca, and related products. The Company was expected to fund $140 million to $165 million during 2018 and 2019, determined by product sales over that period, and will receive payments from 2020 through 2025. The Purchased Payments are expected to generate attractive risk-adjusted returns in the high single digits per annum. As of 31 December 2019, the Company funded seven of the Purchased Payments based on sales from 1 January 2018 to 30 September 2019 for a total of $150 million out of the originally expected range.
Tesaro
On 21 November 2017, the Company and BioPharma Credit Investments IV, S.àr.L. ("BioPharma IV") entered into a definitive loan agreement for up to $500 million with Tesaro (NASDAQ: TSRO) ("Tesaro").
The Company funded $222 million of the $300 million first tranche on 6 December 2017 and $100 million of the $200 million second tranche on 29 June 2018 for a total investment of $322 million.
The Tesaro loan had a term of seven years and was secured by Tesaro's US rights to ZEJULA(R). The first $300 million tranche bore interest at LIBOR plus 8 per cent. and the second tranche bore interest at LIBOR plus 7.5 per cent. The LIBOR rate was subject to a floor of 1 per cent. and certain caps. Each tranche of the loan was interest only for the first two years, amortises over the remaining term. Following its acquisition by GlaxoSmithKline, Tesaro repaid the $500 million loan on 23 January 2019.
The Company received a payment of $370 million on its $322 million share of the loan, including the make-whole and prepayment premium totalling $46 million, or 14.2 per cent., of the $322 million investment, which is the equivalent of what the Company would have received had the loan remained
outstanding for another approximately fifteen months. The Company earned a 29 per cent. Internal rate of return on its Tesaro investment.
Update on seed assets
The Company acquired $339 million in seed assets at the time of the IPO in March 2017, consisting of a $185 million investment in the RPS Note and a 46 per cent. limited partnership interest in BioPharma III, valued at $154 million at the time of the IPO. On 15 October 2018, the Company received its final payment on the RPS Note of $20 million, realising a 12.9 per cent. IRR. On 29 January 2019, the Company received $8 million as its final payment from BioPharma III, realising a 13.6 per cent. IRR.
Investment outlook
The life sciences industry is expected to continue to have substantial capital needs during the coming years as the number of products undergoing clinical trials continues to grow. All else being equal, companies seeking to raise capital are generally more receptive to straight debt financing alternatives at times when equity markets are soft, increasing the number and size of fixed-income investment opportunities for the Company, and will be more inclined to issue equity or convertible bonds at times when equity markets are strong. A good indicator of the life sciences equity market is the New York Stock Exchange Biotechnology Index ("BTK Index"). While 2018 was a volatile year, with the BTK Index essentially at the same levels as it started the year, 2019 proved to be stronger with the BTK Index rising by 20%. As a result of the downside protection embedded in the debt nature of the Company's investments, the volatility in equity prices does not affect the value or quality of the assets in the portfolio. Global equity issuance by life sciences companies during 2019 was $62 billion, a 13 per cent. increase from the $55 billion issued during 2018. We anticipate an increased appetite for fixed-income as a source of capital in 2020.
Acquisition financing is an important driver of capital needs in the life sciences industry in general and a source of investment opportunities. An active M&A market helps drive opportunities for investors such as the Company, as acquiring companies need capital to fund acquisitions. Global life sciences M&A volume during 2019 was $198 billion, a 27 per cent decrease less than the $270 billion witnessed during 2018, driven by an increase in biotech consolidation. We are encouraged by the number of M&A opportunities that are starting to build up and should lead to a more active market over the coming year.
In conclusion, there continues to be a robust pipeline of investment opportunities, but as usual, the precise timing of their execution is not completely within our control. Pharmakon will continue to evaluate potential capital sources to fund additional investments in addition to the $319 million in commitments expected to be funded during 2020. While the Company can raise equity and debt, it will also be important to monitor the potential early prepayment of loans in the portfolio in order to ensure the maximum amount of funds are deployed at all times. We remain focused on our mission of creating the premier dedicated provider of debt capital to the life sciences industry while generating attractive returns and sustainable income to investors. Further, Pharmakon remains confident of our ability to deliver attractive returns that will enable the Company to pay a robust dividend yield for our investors.
Pedro Gonzalez de Cosio
Co-founder and CEO, Pharmakon
9 March 2020
STRATEGIC OVERVIEW
Investment objective
The Company aims to generate long-term Shareholder returns, predominantly in the form of sustainable income distributions from exposure to the life sciences industry.
Investment policy
The Company will seek to achieve its investment objective predominantly through direct or indirect exposure to "Debt Assets".
The Company may acquire Debt Assets:
-- directly from the entity issuing the debt asset (a "Borrower"), which may be: (i) a company operating in the life sciences industry (a "LifeSci Company"); or (ii) an entity other than a LifeSci Company which directly or indirectly holds an interest in royalty rights to certain products, including any investment vehicle or special purpose vehicle ("Royalty Owner"); or
-- in the secondary market.
The Company may also invest in equity issued by a LifeSci Company, acquired directly from the LifeSci Company or in the secondary market.
"Debt Assets" will typically comprise:
-- Royalty debt instruments
Debt issued by a Royalty Owner where the Royalty Owner's obligations in relation to the Debt are secured as to repayment of principal and payment of interest by Royalty Collateral.
-- Priority royalty tranches
Contract with a Borrower that provides the Company with the right to receive payment of all or a fixed percentage of the future royalty payments receivable in respect of a Product (or Products) that would otherwise belong to the Borrower up to a fixed monetary amount or a pre-set rate of return, with such royalty payment being secured by Royalty Collateral in respect of that Product (or Products).
-- Senior secured debt
Debt issued by a LifeSci Company, and which is secured as to repayment of principal and payment of interest by a first priority charge over some or all of such LifeSci Company's assets, which may include: (i) Royalty Collateral; or (ii) other intellectual property and marketing rights to the Products of that LifeSci Company.
-- Unsecured debt
Debt issued by a LifeSci Company which is not secured or is secured by a second lien on assets of the Borrower.
-- Credit linked notes
Derivative instruments referencing Debt Assets, being a synthetic obligation between the Company and another party where the repayment of principal and/or the payment of interest is based on the performance of the obligations under the underlying Debt Assets.
"Royalty Collateral" means, with respect to a Debt Asset, (i) future payments receivable by the Borrower on a Product (or Products) in the form of royalty payments or other revenue sharing arrangements; or (ii) future distributions receivable by the Borrower based on royalty payments generated from a Product (or Products); or (iii) both limb (i) and limb (ii).
"Debt" includes loans, notes, bonds and other debt instruments and securities, including convertible debt, and Priority Royalty Tranches.
Borrowers will predominantly be domiciled in the US, Europe and Japan, though the Company may also acquire Debt Assets issued by Borrowers in other jurisdictions.
Investment restrictions and portfolio diversification
The Company will seek to create a diversified portfolio of investments by investing across a range of different forms of Debt Assets issued by a variety of Borrowers. In particular, the Company will observe the following restrictions when making investments in accordance with its investment policy:
-- no more than 30 per cent. of the Company's gross assets will be exposed to any single Borrower;
-- no more than 35 per cent. of the Company's gross assets will be invested in Unsecured Debt; and
-- no more than 15 per cent. of the Company's gross assets will be invested in equity securities issued by LifeSci Companies.
Each of these investment restrictions will be calculated at the time of each proposed investment. In the event that any of the above limits are breached at any point after the relevant investment has been made (for instance, as a result of any movements in the value of the Company's total assets), there will be no requirement to sell any investment (in whole or in part).
Cash management
The Company's uninvested capital may be invested in cash instruments or bank deposits for cash management purposes.
Hedging
The Company does not propose to enter into any hedging or other derivative arrangements other than as may from time to time be considered appropriate for the purposes of efficient portfolio management. The Company will not enter into such arrangements for investment purposes.
Business and status of the Company
The Company is registered in England as a public limited company and is an investment company in accordance with the provisions of Section 833 of the Companies Act 2006.
The principal activity of the Company is to carry on business as an investment trust. The Company intends at all times to conduct its affairs so as to enable it to qualify as an investment trust for the purposes of Sections 1158/1159 of the Corporation Tax Act 2010 ("S1158/1159"). The Directors do not envisage any change in this activity in the foreseeable future.
The Company has been granted approval from HM Revenue & Customs ("HMRC") as an investment trust under S1158/1159 and will continue to be treated as an investment trust company, subject to there being no serious breaches of the conditions for approval. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 December 2019 so as to be able to continue to qualify as an investment trust.
The Company has a wholly-owned subsidiary, BPCR Ongdapa Limited, details of which can be found in Note 15 to the financial statements.
Stakeholder engagement - Section 172(1) Statement
Overview
The Directors' overarching duty is to promote the success of the Company for the benefit of its shareholders, having regard to the interests of its stakeholders, as set out in section 172(1) of the Companies Act 2006. The Directors have considered each aspect of this section of the Act and consider that the information set out below is particularly relevant in the context of the Company's business as an externally managed investment company which does not have any employees or suppliers.
The importance of stakeholders is taken into account at every Board meeting. All discussions involve careful consideration of the longer-term consequences of any decisions and their implications for stakeholders.
Stakeholders
The Board seeks to understand the needs and priorities of the Company's stakeholders and these are taken into account during all its discussions and as part of its decision-making. During the period under review, the Board has discussed which parties should be considered as stakeholders of the Company. The Board believes that the Company's key stakeholders comprise its shareholders, clients and service providers. The section below discusses why these stakeholders are considered of importance to the Company and the actions taken to ensure that their interests are taken into account.
The Company recognises the importance of maintaining high standards of business conduct and seeks to ensure that these are applied in all of its business dealings and in its engagement with stakeholders. Further information on the impact of the Company's operations on the community and the environment is set out below.
For more information on the purpose, culture and values of the Company, and the processes which the Board has put in place to ensure these, see the Corporate Governance Statement on pages [X to X].
Shareholders
Continued shareholder support and engagement are critical to the existence of the Company and the delivery of its long-term strategy.
Although the Company has been established with an indefinite life, the Articles provide that a continuation vote be put to shareholders at the first annual general meeting of the Company to be held following the fifth anniversary of Initial Admission i.e. in 2022 and, if passed, at the annual general meeting of the Company held every third year thereafter; and within two months of the expiration of any 12 month rolling period where the Shares have, on average, traded at a discount in excess of 10 per cent. to the Net Asset Value per Share (calculated by comparing the middle market quotation of the Shares at the end of each month in the relevant period to the prevailing published Net Asset Value per Share (exclusive of any dividend declared) as at such month end and averaging this comparative figure over the relevant period).
Engagement with shareholders is given a high priority by both the Board and the Investment Manager. The Chairman ensures that the Board as a whole has a clear understanding of the views of shareholders by receiving regular updates from the Brokers and Investment Manager. The Investment Manager and the Company's Brokers are in regular contact with major shareholders and report the results of all meetings and the views of those shareholders to the Board on a regular basis. The Chairman and the other Directors are available to attend these meetings with shareholders if required. Relations with shareholders are also considered as part of the annual Board evaluation process. Further details regarding this process are set out in the full Annual Report.
All shareholders are encouraged to attend and vote at annual general meetings, during which the Board and the Investment Manager will be available to discuss issues affecting the Company and answer any questions. Shareholders wishing to raise questions or concerns directly with the Chairman, Senior Independent Director or Company Secretary, outside of the AGM, should do so using the contact details available in the full Annual Report.
Clients
The Company's clients are pharmaceutical and biotechnology companies within the life sciences industry to which it provides debt capital. The Investment Manager is highly experienced in this area with a strong track record of meeting the capital needs of its clients. The investments made by the Company support the large capital needs of its portfolio companies, supporting their research and development budgets for life sciences products. The Investment Manager meets regularly with the management teams of current and prospective investee companies to enhance relationships and to understand their views and capital requirements. The Directors receive updates from the Investment Manager on the companies within its investment portfolio at all Board meetings, and outside of meetings as appropriate. Further information on the Company's investee companies, including case studies regarding their products, is set out above and in the full Annual Report.
Service Providers
In order to function as an investment trust on the Specialist Fund Segment of the London Stock Exchange, the Company relies on a number of reputable advisors for support in complying with all relevant legal and regulatory obligations.
The Company's day-to-day operational functions are delegated to a number of third-party service providers, each engaged under separate contracts. The Company's principal service providers include the Investment Manager, Company Secretary, Brokers, Administrator, Legal Adviser, Auditor and the Registrar.
The Board keeps the ongoing performance of the Investment Manager under continual review and conducts an annual appraisal of the Investment Manager, along with the performance of all other third party service providers. The Investment Manager has executed the investment strategy according to the Board's expectations and it is the opinion of the Directors that the continuing appointment of Pharmakon is in the interests of shareholders as a whole.
The Audit and Risk Committee reviews and evaluates the control environments in place at each service provider. Further details regarding the role of the Audit and Risk Committee are available in the full Annual Report.
The above mechanisms for engaging with stakeholders are kept under review by the Directors and are discussed on a regular basis at Board meetings to ensure that they remain effective.
Key performance indicators
The Company assesses its performance in meeting its investment objectives using the following Key Performance Indicators ("KPIs"):
NAV performance
The NAV at 31 December 2019 was $1.0217 per Share, compared to $1.0044 per Share at 31 December 2018.
A full description of the Company's performance for the year ended 31 December 2019 is included in the Investment Manager's Report above.
The early repayment of the $322 million loan to Tesaro accompanied by pre-payment and other fees and re-employing a substantial amount of capital over the course of the year contributed to the income over the last 12 months.
Share price return
The Company's Share price at 31 December 2019 was $1.02, giving a return since 31 December 2018 of (4.2) per cent.
Share price premium (discount) to NAV per Share
The Company's Share price was at a premium to the NAV per Share for the first nine months of the year, ending the period at a discount of (0.17) per cent. The daily closing price of the Company's Shares ranged from $0.99 -
$1.07 throughout the year.
If, during the last month of a Performance Period, the Shares have, on average, traded at a discount of 1 per cent. or more to the Net Asset Value per Share, the Investment Manager shall apply 50 per cent. of any Performance Fee paid by the Company to the Investment Manager to make market acquisitions of Shares until the Shares have, on average, traded at a discount of less than 1 per cent. to the Net Asset Value per Share over a period of five business days.
Dividend yield
The Company declared and paid dividends during the year in line with the expected 7 per cent. annual yield as disclosed in its IPO Prospectus dated 1 March 2017.
Ongoing charges
The Company's ongoing charges ratio is shown in the table below.
Year ended Year ended
31 December 2019 31 December 2018
% %
--------------------------------------- ----------------- -----------------
Ongoing charges excluding performance
fee* 1.0 1.2
Performance fee 1.0 0.8
Ongoing charges including performance
fee 2.0 2.0
--------------------------------------- ----------------- -----------------
* Ongoing charges are the Company's expenses (excluding performance fees) expressed as a percentage of its average monthly net assets and follow the AIC recommended methodology.
Dividends
Dividends totalling 7.18 cents per Ordinary Share, including a special dividend of 0.18 cent, have been paid during the year ended 31 December 2019. On 20 February 2020, the Company declared an interim dividend in respect of the financial period ended 31 December 2019 of $0.0303 per ordinary share, comprising an ordinary dividend of $0.0175 and a special dividend of $0.0128, payable on 27 March 2020 to ordinary shareholders on the register as at 28 February 2020.
RISK MANAGEMENT AND THE INTERNAL CONTROL ENVIRONMENT
Board
Responsibilities
The Board, when setting the risk management strategy, also determines the nature and extent of the significant risks and its risk appetite in implementing this strategy. A formal risk identification and assessment process which identifies the principal and emerging risks facing the Company has been in place since the IPO, resulting in a risk framework document which summarises the key risks and their mitigation.
Audit and Risk Committee
Responsibilities
The Board undertakes a formal risk review with the assistance of the Audit and Risk Committee at least twice a year in order to robustly assess the effectiveness of the Company's risk management and internal control systems. During the course of its review in respect of the year ended 31 December 2019, the Board has not identified, nor been advised of any failings or weaknesses which it has determined to be of a material nature. The principal risks and uncertainties which the Company faces are set out below.
Principal risks and uncertainties
The Board of Directors has overall responsibility for risk management and internal control of the Company. The Board recognises that risk is inherent in the operation of the Company and that effective risk management is key to the success of the organisation. The Board has delegated responsibility for the assurance of the risk management process and the review of mitigating controls to the Audit and Risk Committee.
The principal risks and the Company's policies for managing these risks are set out below and the policy and practice with regard to financial instruments are summarised in Note 17 to the financial statements.
There were no changes to these risks in the current year or at the date of this report.
Risk Description and mitigation
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Failure to The target returns are targets only and are based
achieve target on financial projections that are themselves based
returns on assumptions regarding market conditions, economic
environment, availability of investment opportunities
and investment-specific assumptions that may not
be consistent with conditions in the future.
The Company seeks to achieve its investment objective
predominantly through direct or indirect exposure
to debt assets. Debt assets typically comprise
royalty debt instruments, priority royalty tranches,
senior secured debt, unsecured debt and credit-linked
notes. A variety of factors, including lack of
attractive investment opportunities, defaults
and prepayments under debt assets, inability of
the Company to obtain debt at an appropriate rate,
changes in the life sciences industry, exchange
rates, government regulations, the non-performance
(or underperformance) of any life sciences product
(or any life sciences company) could adversely
impact the Company's ability to achieve its investment
objective and deliver the target returns. A failure
by the Company to achieve its target returns could
adversely impact the value of the Shares and lead
to a loss of investment.
The Company has an investment policy to achieve
a balanced investment with a diversified asset
base and has investment restrictions in place
to limit exposure to potential risk factors. These
factors enable the Company to build a diversified
portfolio that should deliver returns that are
in line with its stated target return.
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The success In accordance with the Investment Management Agreement,
of the Company the Investment Manager is responsible for the
depends on investment management of the Company's assets.
the ability The Company does not have its own employees and
and expertise all of its Directors are appointed on a non-executive
of the Investment basis. All investment and asset management decisions
Manager are made by the Investment Manager (or any delegates
thereof) and not by the Company or the Directors
and, accordingly, the Company is completely reliant
upon, and its success depends on, the Investment
Manager and its personnel, services and resources.
The Investment Manager is required, under the
terms of the Investment Management Agreement,
to perform in accordance with the Service Standard.
The Investment Manager does not submit individual
investment decisions to the Board for approval
and the Board does not supervise the due diligence
performed by the Investment Manager. As part of
its asset management decisions, the Investment
Manager may from time to time make commitments
for future investments for which the Company may
need to raise funds in the future by issuing equity
and/or debt or by selling all or part of other
investments to raise liquidity.
The Company is entitled to terminate the Investment
Management Agreement if the Investment Manager
has (i) committed fraud, gross negligence or wilful
misconduct in the performance of its obligations
under the Investment Management Agreement, or
(ii) breached its obligations under the Investment
Management Agreement, and the Company is reasonably
likely to suffer a loss arising directly or indirectly
out of or in connection with such breach of an
amount equal to or greater than 10 per cent. of
the NAV as at the date of the breach. The Investment
Management Agreement may also be terminated at
the Company's discretion on not less than six
months' notice to the Investment Manager, such
notice not to expire earlier than: (i) 36 months
following Admission, unless approved by Shareholders
by ordinary resolution; and (ii) 18 months following
Admission, in any event.
Under the terms of the Investment Management Agreement,
the Investment Manager is only liable to the Company
(and will only lose its indemnity) if it has committed
fraud, gross negligence or wilful misconduct or
acted in bad faith, or knowingly violated applicable
securities' laws. The performance of the Company
is dependent on the diligence, skill and judgement
of certain key individuals at the Investment Manager,
including Pedro Gonzalez de Cosio and other senior
investment professionals and the information and
investments' pipeline generated through their
business development efforts. On the occurrence
of a Key Person Event (as defined in the Investment
Management Agreement), the Company may be entitled
to terminate the Investment Management Agreement
with immediate effect (subject to the Investment
Manager's right to find an appropriate replacement
to be approved by the Board (such approval not
to be unreasonably withheld or delayed) within
180 days)). However, if the Company elects to
exercise this right, it would be required to pay
the Investment Manager a termination fee equal
to either 1 per cent. or 2 per cent. of the invested
NAV (depending on the reason for the Key Person
Event), as at the date of such termination. If
the Company elects not to exercise this right,
the precise impact of a Key Person Event on the
ability of the Company to achieve its investment
objective and target returns cannot be determined
and would depend inter alia on the ability of
the Investment Manager to recruit individuals
of similar experience, expertise and calibre.
There can be no guarantee that the Investment
Manager would be able to do so and this could
adversely affect the ability of the Company to
meet its investment objective and target returns
and may adversely affect the NAV and Shareholder
returns and result in a substantial loss of a
Shareholder's investment.
Pharmakon Advisors, the Investment Manager, has
extensive expertise and a track record of successfully
investing in debt and other cash flows backed
by life sciences products. The Investment Management
Agreement provides attractive incentives for the
Investment Manager to perform prudently and in
the best interests of the Company. In addition,
the Investment Manager and its affiliates own
approximately 6 per cent. of the Company as at
31 December 2019, creating a strong alignment
of interests between the Investment Manager and
its affiliates and Shareholders of the Company.
---------------------- ------------------------------------------------------------
The Company From time to time, the Company may commit to make
may from time future investments for which the Company will
to time commit need to raise funds by issuing equity and/or debt,
to make future or by selling all or part of other investments.
investments Investment opportunities may require the Company
that exceed to fund transactions in two or more tranches,
its current with the later tranches to be funded six or more
liquidity months in the future. Refusing to offer such later
tranches would decrease the attractiveness of
the Company's investment proposals and harm the
Company's ability to successfully deploy its capital.
Requiring the Company to maintain low-yielding
cash balances sufficient to fund all such later
tranches at the time of the initial commitment
would decrease the average yield on the Company's
assets, adversely impacting the returns to investors,
and may also result in missed investment opportunities.
However, in order to fund all such later tranches,
the Company could be forced to issue debt, sell
assets or renegotiate with the party to which
it has committed the funding on unattractive terms.
Furthermore, there can be no assurance that the
Company will always be able to raise sufficient
liquidity (by issuing equity and/or debt, or by
selling investments) to meet its funding commitments.
If the Company were to fail to meet its funding
commitments, the Company could be in breach of
its contractual obligations, which could adversely
affect the Company's reputation, could result
in the Company facing legal action from its counterparty,
and could adversely affect the Company's financial
results.
Pharmakon Advisors, the Investment Manager, together
with its affiliate RP Management LLC, believes
that the risks associated with such unfunded commitment
is manageable without undue risk. Pharmakon Advisors
has extensive expertise in raising debt secured
by cash flows from life sciences products and
has extensive relationships with banks and other
financial institutions who can be called on to
provide debt financing to the Company in order
to raise liquidity. In addition, Pharmakon Advisors
has expertise purchasing and selling life sciences
debt assets in the secondary market and has extensive
relationships with the major participants in the
life-sciences debt market who would be the likely
purchasers of any assets offered for sale by the
Company in order to raise liquidity.
---------------------- ------------------------------------------------------------
The Investment Returns on the shareholders' investments will
Manager's depend upon the Investment Manager's ability to
ability to source and make successful investments on behalf
source and of the Company. There can be no assurance that
advise appropriately the Investment Manager will be able to do so on
on investments an ongoing basis. Many investment decisions of
the Investment Manager will depend upon the ability
of its employees and agents to obtain relevant
information. There can be no guarantee that such
information will be available or, if available,
can be obtained by the Investment Manager and
its employees and agents. Furthermore, the Investment
Manager will often be required to make investment
decisions without complete information or in reliance
upon information provided by third parties that
is impossible or impracticable to verify. For
example, the Investment Manager may not have access
to records regarding the complaints received regarding
a given life science product or the results of
research and development related to products.
Furthermore, the Company may have to compete for
attractive investments with other public or private
entities, or persons, some or all of which may
have more capital and resources than the Company.
These entities may invest in potential investments
before the Company is able to do so or their offers
may drive up the prices of potential investments,
thereby potentially lowering returns and, in some
cases, rendering them unsuitable for the Company.
An inability to source investments would have
a material adverse effect on the Company's profitability,
its ability to achieve its target returns and
the value of the Shares.
The Investment Manager believes that sourcing
investments is one of its competitive advantages.
The Investment Manager's professionals, together
with those at its affiliate RP Management LLC,
accessible through the Shared Services Agreement,
have complementary scientific, medical, licensing,
operating, structuring and financial backgrounds
which the Investment Manager believes provide
a competitive advantage in sourcing, evaluating,
executing and managing credit investments in the
life sciences industry.
---------------------- ------------------------------------------------------------
There can Under the terms of the Investment Management Agreement,
be no assurance the Investment Management Agreement may be terminated
that the Board by: (A) the Investment Manager on not less than
will be able six months' notice to the Company, such notice
to find a not to expire earlier than 18 months following
replacement Admission; or (B) the Company on not less than
investment six months' notice to the Investment Manager,
manager if such notice not to expire earlier than: (i) 36
the Investment months following Admission, unless approved by
Manager resigns Shareholders by ordinary resolution; and (ii)
18 months following Admission, in any event. The
Board would, in these circumstances, have to find
a replacement investment manager for the Company
and there can be no assurance that a replacement
with the necessary skills and experience would
be available and/or could be appointed on terms
acceptable to the Company. In this event, the
Board may have to formulate and put forward to
Shareholders proposals for the future of the Company
which may include its merger with another investment
company, reconstruction or winding up. It is possible
that, following the termination of the Investment
Manager's appointment, the Investment Manager
will continue to have a role in the investment
management of certain assets, where a debt asset
is shared with one or more other entity managed
by the Investment Manager that continue to retain
the Investment Manager's services.
In the event the Investment Manager resigns, the
Board will put forward to Shareholders proposals
for the future of the Company which may include
its merger with another investment company, reconstruction
or winding up. Entities affiliated with the Investment
Manager own approximately 6 per cent. of the Company
as at 31 December 2019. This affiliate ownership
level, coupled with the fact that the Investment
Manager is fairly compensated, provide further
incentive for them to remain as Investment Manager
to the Company.
---------------------- ------------------------------------------------------------
Concentration The Company's published investment policy allows
in the Company's the Company to invest up to 30 per cent. of the
portfolio Company's assets in a single debt asset or in
may affect debt assets issued to a single borrower. While
the Company's the investment limits in the investment policy
ability to have been set keeping in mind the debt capital
achieve its requirements of the life sciences industry and
investment the investment opportunities available to the
objective Investment Manager, it is possible that the Company's
portfolio may be significantly concentrated at
any given point in time.
Concentration in the Company's portfolio may increase
certain risks to which the Company is subject,
some or all of which may be related to events
outside the Company's control. These would include
risks around the creditworthiness of the relevant
borrower, the nature of the debt asset and of
any life sciences product(s) in question. The
occurrence of these situations may result in greater
volatility in the Company's investments and, consequently,
its NAV, and may materially and adversely affect
the performance of the Company and the Company's
returns to shareholders. Such increased concentration
of the Company's assets could also result in greater
losses to the Company in adverse market conditions
than would have been the case with a less concentrated
portfolio, and have a material adverse effect
on the Company's financial condition, business,
prospects and results of operations and, consequently,
the Company's NAV and/or the market price of the
Shares.
---------------------- ------------------------------------------------------------
Life sciences The biopharmaceutical and pharmaceutical industries
products are are highly competitive and rapidly evolving. The
subject to length of any life sciences product's commercial
intense competition life cannot be predicted. There can be no assurance
and various that the life sciences products will not be rendered
other risks obsolete or non-competitive by new products or
improvements made to existing products, either
by the current marketer of the life sciences products
or by another marketer. Adverse competition, obsolescence
or governmental and regulatory life sciences policy
changes could significantly impact royalty revenues
of life sciences products which serve as the collateral
or other security for the repayment of obligations
outstanding under the Company's investments. If
a life sciences product is rendered obsolete or
non-competitive by new products or improvements
on existing products or governmental or regulatory
action, such developments could have a material
adverse effect on the ability of the borrower
under the relevant debt asset to make payment
of interest on, and repayments of the principal
of, that debt asset, and consequently could adversely
affect the Company's performance. If additional
side effects or complications are discovered with
respect to a life sciences product, and such life
sciences product's market acceptance is impacted
or it is withdrawn from the market, continuing
payments of interest on, and repayment of the
principal of, that debt asset may not be made
on time or at all. It is possible that over time
side effects or complications from one or more
of the life sciences products could be discovered,
and, if such a side effect or complication posed
a serious safety concern, a life sciences product
could be withdrawn from the market, which could
adversely affect the ability of the borrower under
the relevant debt asset to make continuing payments
of interest on, and repayment of the principal
of, that debt asset, in which case the Company's
ability to make distributions to investors may
be materially and adversely affected.
Furthermore, if an additional side effect or complication
is discovered that does not pose a serious safety
concern, it could nevertheless negatively impact
market acceptance and therefore result in decreased
net sales of one or more of the life sciences
products, which could adversely affect the ability
of borrowers under the relevant debt asset(s)
to make continuing payments of interest on, and
repayment of the principal of, that debt asset(s),
in which case the Company's ability to make distributions
to investors may be materially and adversely affected.
The Investment Manager engages in a thorough diligence
process before entering into any debt instrument
with the counterparty and interacts with each
counterparty as needed to evaluate the status
of its investment on an ongoing basis.
---------------------- ------------------------------------------------------------
Investments Debt instruments are subject to credit and interest
in debt obligations rate risks. Credit risk refers to the likelihood
are subject that the borrower will default in the payment
to credit of principal and/or interest on an instrument.
and interest Financial strength and solvency of a borrower
rate risks are the primary factors influencing credit risk.
In addition, lack or inadequacy of collateral
or credit enhancement for a debt asset may affect
its credit risk. Credit risk may change over the
life of an instrument. Interest rate risk refers
to the risks associated with market changes in
interest rates. Interest rate changes may affect
the value of a debt asset indirectly (especially
in the case of fixed rate debt assets) and directly
(especially in the case of debt assets whose rates
are adjustable). In general, rising interest rates
will negatively impact the price of a fixed rate
debt asset and falling interest rates will have
a positive effect on price. Adjustable rate instruments
also react to interest rate changes in a similar
manner although generally to a lesser degree (depending,
however, on the characteristics of the reset terms,
including the index chosen, frequency of reset
and reset caps or floors, among other factors).
Interest rate sensitivity is generally more pronounced
and less predictable in instruments with uncertain
payment or prepayment schedules. In addition,
interest rate increases generally will increase
the interest carrying costs to the Company (or
any entity through which the Company invests)
of leveraged investments.
The Company will often seek to be a secured lender
for each Debt Asset. However, there is no guarantee
that the relevant borrower will repay the loan
or that the collateral will be sufficient to satisfy
the amount owed under the relevant Debt Asset.
Credit risk will be assessed on an ongoing basis
along with interest rate risk, and is further
mitigated by the Company's investment policy permitting
up to 30 per cent. of the Company's assets to
be invested in a single Debt Asset or in Debt
Assets issued to a single borrower. Interest rate
risk can be managed in a variety of ways, including
with the use of derivatives.
---------------------- ------------------------------------------------------------
Counterparty The Company intends to hold debt assets that will
risk generate an interest payment. There is no guarantee
that any borrower will honour their obligations.
The default or insolvency of such borrowers may
substantially affect the Company's business, financial
condition, results of operations, the NAV and
Shareholder returns.
The Company will often seek to be a secured lender
for each Debt Asset. However, there is no guarantee
that the relevant borrower will repay the loan
or that the collateral will be sufficient to satisfy
the amount owed under the relevant Debt Asset.
---------------------- ------------------------------------------------------------
Sales of life There can be no assurance that any regulatory
sciences products approvals for indications granted to one or more
are subject life sciences products will not be subsequently
to regulatory revoked or restricted. Such revocation or restriction
actions that may have a material adverse effect on the sales
could harm of such products and on the ability of borrowers
the Company's under the relevant Debt Asset to make continuing
ability to payments of interest on, and repayment of the
make distributions principal of, that Debt Asset, in which case the
to investors Company's ability to make distributions to investors
may be materially and adversely affected. Changes
in legislation are monitored with the use of third-party
legal advisers and the Investment Manager will
maintain awareness of new approvals or revoked
approvals.
---------------------- ------------------------------------------------------------
Net asset Generally, there will be no readily available
values published market for a significant number of the Company's
will be estimates investments and hence, the majority of the Company's
only and may investments are not valued based on market-observable
differ materially inputs.
from actual
results The valuations used to calculate the NAV on a
monthly basis will be based on the Investment
Manager's unaudited estimated fair market values
of the Company's investments. It should be noted
any such estimates may vary (in some cases materially)
from the results published in the Company's financial
statements (as the figures are published at different
times) and that they, and any NAV figure published,
may vary (in some cases materially) from realised
or realisable values.
The Investment Manager sends valuations on a monthly
basis to the administrator for calculation of
the NAV. The NAV is prepared by the administrator
on the basis of information received from the
Investment Manager and, once finalised, is reviewed
and approved by a representative of the Investment
Manager. Once approved, the Investment Manager
notifies the Board and the NAV is released to
the market.
---------------------- ------------------------------------------------------------
Changes in Any change in the Company's tax status, or in
taxation legislation taxation legislation or practice in the UK, US
or practice or elsewhere, could affect the value of the Company's
may adversely investments and the Company's ability to achieve
affect the its investment objective, or alter the post-tax
Company and returns to Shareholders. It is the intention of
the tax treatment the Directors to conduct the affairs of the Company
for Shareholders so as to satisfy the conditions for approval of
investing the Company by HMRC as an investment trust under
in the Company section 1158 of the Corporation Tax Act 2010 (as
amended) and pursuant to regulations made under
Section 1159 of the Corporation Tax Act 2010.
However, although the approval has been obtained,
neither the Investment Manager nor the Directors
can guarantee that this approval will be maintained
at all times. The Company has been granted approval
from HMRC as an investment trust and will continue
to have investment trust status in each subsequent
accounting period, unless the Company fails to
meet the requirements to maintain investment trust
status, pursuant to the regulations. For example,
it is not possible to guarantee that the Company
will remain a non-close company, which is a requirement
to maintain investment trust status, as the Shares
are freely transferable. Failure to maintain investment
trust status could, as a result, (inter alia)
lead to the Company being subject to UK tax on
its chargeable gains. Existing and potential investors
should consult their tax advisers with respect
to their particular tax situations and the tax
effects of an investment in the Company.
Environmental, human rights, employee, social and community issues
The Board recognises the requirement under the Companies Act 2006 to detail information about employees, human rights, environmental and community issues, including information about any policies it has in relation to these matters and the effectiveness of these policies. These requirements do not apply directly to the Company as it has no employees, all the Directors are non-executive and it has outsourced all its functions to third-party service providers. The Company has therefore not reported further in respect of these provisions.
While the Company is not within the scope of the Modern Slavery Act 2015 and it is not, therefore, obliged to make a slavery and human trafficking statement, the Company considers its supply chains to be of low risk as its principal service providers are the professional advisers set out in the Corporate Information section below.
Further information on the Company's anti-bribery and corruption policy is set out in the full Annual Report.
There are five Directors, four male and one female. Further information on the composition and operation of the Board is detailed in the full Annual Report.
The Strategic Report has been approved by the Board and signed on its behalf.
Jeremy Sillem
Chairman
9 March 2020
EXTRACTS FROM THE DIRECTORS' REPORT
The Directors are pleased to present the Annual Report and financial statements for the year ended 31 December 2019.
Directors
The Directors in office during the year and at the date of this report are listed below:
Jeremy Sillem - Chairman
Harry Hyman - Senior Independent Director
Colin Bond - Chairman of the Audit and Risk Committee
Duncan Budge - Director
Stephanie Léouzon - Director
Share capital
At the general meeting held on 28 February 2017, the Company was granted authority to allot ordinary Shares or C Shares up to an aggregate nominal amount of $20 million on a non pre-emptive basis for a period of five years from the date of the resolution. No Ordinary Shares or C Shares have been allotted under this authority during the year. As at the date of this report, the Company may allot further Ordinary Shares or C Shares up to an aggregate nominal amount of $6,244,039 under its existing authority. Further information on the Company's share capital, including ordinary and C shares issued in the prior year, is set out in Notes 13 and 14 to the financial statements.
At the annual general meeting held on 19 June 2019, the Company was granted authority to purchase up to 14.99% of the Company's Ordinary Share capital in issue at that date, amounting to 205,952,416 Ordinary Shares. No Ordinary Shares have been bought back under this authority. This authority will expire at the conclusion of, and renewal will be sought at, the annual general meeting to be held on 20 May 2020.
At 31 December 2019, and as at the date of this report, there are 1,373,932,067 Ordinary Shares in issue, none of which are held in treasury. At general meetings of the Company, Shareholders are entitled to one vote on a show of hands and on a poll, to one vote for every Share held. The total voting rights of the Company at 31 December 2019 were 1,373,932,067.
Dividends
Dividends paid in respect of the year ended 31 December 2019 are set out in Note 6 to the financial statements.
Dividend policy
The Company pays dividends in US dollars or GBP Sterling, if requested by a specific shareholder, on a quarterly basis. The Company may, where the Directors consider it appropriate, use the reserve created by the cancellation of its Share premium account to pay dividends.
The Company targets an annual dividend yield of 7 per cent. on the Ordinary Shares (calculated by reference to the issue price at IPO), together with a net total return on NAV of 8-9 per cent. per annum on the Ordinary Shares in the medium term.
Going concern
The Directors consider that it is appropriate to adopt the going concern basis in preparing the financial statements. After making enquiries, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion, the Directors have considered the liquidity of the portfolio and the Company's ability to meet obligations as they fall due for a period of at least 12 months from the date that these financial statements were approved.
Viability statement
The Board has assessed the principal risks facing the Company over a five-year period, including those that would threaten its business model, future performance, solvency or liquidity. The five-year period was selected to align with the average duration of the Company's existing investments. The Board has developed a matrix of risks facing the Company and has put in place certain investment restrictions which are in line with the Company's investment objective and policy in order to mitigate these risks as far as practicable. The principal risks which have been identified, and the steps taken by the Board to mitigate these risks are presented above.
The Company believes its borrowing capabilities provide further flexibility and help ensure it is in a position to finance its funding obligations in the event that internally generated cash flow in the period is insufficient to finance the unfunded portion of a lending commitment. The Board reviews the Company's financing arrangements quarterly to ensure that the Company is in a strong position to fund all outstanding commitments on existing investments as well as being able to finance new investments. In addition, the Board regularly reviews the prospects for the Company's portfolio and the pipeline of potential investment opportunities which provide comfort that the Company is able to continue to finance its activities for the medium-term future.
Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five-year period.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
In respect of the Annual Report and financial statements
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have prepared the financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable IFRS as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors' confirmations
The Directors consider that the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed above confirm that, to the best of their knowledge:
-- the financial statements, which have been prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and
-- the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
On behalf of the Board
Jeremy Sillem
Chairman
9 March 2020
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's statutory accounts for the years ended 31 December 2018 and 31 December 2019 but is derived from those accounts. Statutory accounts for the year ended 31 December 2018 have been delivered to the Registrar of Companies, and those for the year ended 31 December 2019 will be delivered in due course. The Auditor has reviewed those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor's report can be found in the Company's full Annual Report and Financial Statements
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2019
(In $000s except per Share amounts)
Year ended 31 December 2019 Year ended 31 December 2018
-------------------------------- --------------------------------
Note Revenue Capital Total Revenue Capital Total
------------------------------- ----- ---------- --------- --------- ---------- --------- ---------
Income
Investment income 3 128,935 - 128,935 92,091 - 92,091
Other income 3 13,403 - 13,403 4,582 - 4,582
Net gains on investments
at fair value 7 - 8,567 8,567 - 648 648
Net currency exchange
losses - (12) (12) - (38) (38)
------------------------------- -----
Total income 142,338 8,555 150,893 96,673 610 97,283
------------------------------- ----- ---------- --------- --------- ---------- --------- ---------
Expenses
Management fee 4 (14,023) - (14,023) (10,765) - (10,765)
Performance fee 4 (13,570) - (13,570) (7,794) - (7,794)
Directors' fees 4 (395) - (395) (330) - (330)
Other expenses 4 (529) (48) (577) (4,158) (192) (4,350)
------------------------------- -----
Total expenses (28,517) (48) (28,565) (23,047) (192) (23,239)
------------------------------- ----- ---------- --------- --------- ---------- --------- ---------
Return on ordinary activities
before finance costs
and taxation 113,821 8,507 122,328 73,626 418 74,044
Finance costs - general 4 - - - (3) - (3)
Finance costs - C Share
amortisation 13 - - - (3,677) (218) (3,895)
------------------------------- ----- ---------- --------- --------- ---------- --------- ---------
Return on ordinary activities
after finance costs and
before taxation 113,821 8,507 122,328 69,946 200 70,146
Taxation on ordinary
activities 5 - - - - - -
------------------------------- -----
Return on ordinary activities
after finance costs and
taxation 113,821 8,507 122,328 69,946 200 70,146
------------------------------- ----- ---------- --------- --------- ---------- --------- ---------
Net revenue and capital
return per Ordinary Share
(basic and diluted) 11 $0.0828 $0.0062 $0.0890 $0.0707 $0.0002 $0.0709
------------------------------- ----- ---------- --------- --------- ---------- --------- ---------
The total column of this statement is the Company's Statement of Comprehensive Income prepared in accordance with International Financial Reporting Standards ("IFRS") as endorsed by the EU. The supplementary revenue and capital columns are presented for information purposes as recommended by the Statement of Recommended Practice ("SORP") issued by the Association of Investment Companies ("AIC").
All items in the above Statement derive from continuing operations.
There is no other comprehensive income, and therefore the return on ordinary activities after finance costs and taxation is also the total comprehensive income.
The Notes below form part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2019
(In $000s)
Total equity
attributable
For the year ended 31 Share Special to
December Share premium distributable Capital Revenue Shareholders
2019 Note capital account reserve* reserve* reserve* of the Company
Net assets attributable
to shareholders at 1 January
2019 13,739 607,125 734,309 2,045 22,804 1,380,022
Gross proceeds of Ordinary
Share issue - - - - - -
Proceeds following C Share
conversion to Ordinary
Shares - - - - - -
Ordinary Share issue costs - - - - - -
C Share conversion costs - - - - - -
Return on ordinary activities
after finance costs and
taxation - - - 8,507 113,821 122,328
Dividends paid to Ordinary
shareholders 6 - - (3,678) - (94,936) (98,614)
------------------------------ -----
Net assets attributable
to shareholders at 31
December
2019 13,739 607,125 730,631 10,552 41,689 1,403,736
------------------------------ ----- --------- --------- --------------- ---------- ---------- ----------------
Total equity
For the year attributable
ended 31 Share Special to
December Share premium distributable Capital Revenue Shareholders
2018 Note capital account reserve* reserve* reserve* of the Company
Net assets
attributable
to
shareholders
at 1 January
2018 9,143 150,379 734,356 1,845 26,851 922,574
Gross
proceeds of
Ordinary
Share issue 2,975 302,025 - - - 305,000
Proceeds
following C
Share
conversion
to Ordinary
Shares 1,621 162,781 - - - 164,402
Ordinary
Share issue
costs - (8,005) - - - (8,005)
C Share
conversion
costs - (55) - - - (55)
Return on
ordinary
activities
after
finance
costs and
taxation - - - 200 69,946 70,146
Dividends
paid to
Ordinary
shareholders 6 - - (47) - (73,993) (74,040)
-------------- -----
Net assets
attributable
to
shareholders
at 31
December
2018 13,739 607,125 734,309 2,045 22,804 1,380,022
-------------- ----- -------- ---------------- ---------------------- --------- ----------------- -------------------
* The special distributable and revenue reserves can be distributed in the form of a dividend. The capital reserve is not used for distributions.
The Notes below form part of these financial statements.
STATEMENT OF FINANCIAL POSITION
As at 31 December 2019
(In $000s except per Share amounts)
31 December 31 December
Note 2019 2018
--------------------------------------- ----- ------------ ------------
Non-current assets
Investments at fair value through
profit or loss 7 1,116,127 1,007,265
Unlisted floating interest income
receivable 8 - 988
--------------------------------------- -----
1,116,127 1,008,253
--------------------------------------- ----- ------------ ------------
Current assets
Trade and other receivables 8 16,206 21,448
Cash and cash equivalents 9 296,638 363,572
--------------------------------------- -----
312,844 385,020
--------------------------------------- -----
Total assets 1,428,971 1,393,273
--------------------------------------- -----
Current liabilities
Trade and other payables 10 24,504 5,457
--------------------------------------- -----
Total current liabilities 25,235 5,457
--------------------------------------- ----- ------------ ------------
Total assets less current liabilities 1,403,005 1,387,816
--------------------------------------- ----- ------------ ------------
Non-current liabilities
Deferred performance fee 731 7,794
--------------------------------------- ----- ------------ ------------
- 7,794
--------------------------------------- ----- ------------ ------------
Net assets 1,403,736 1,380,022
--------------------------------------- ----- ------------ ------------
Represented by:
Share capital 14 13,739 13,739
Share premium account 607,125 607,125
Special distributable reserve 730,631 734,309
Capital reserve 10,552 2,045
Revenue reserve 41,689 22,804
--------------------------------------- -----
Total equity attributable to
shareholders of the Company 1,403,736 1,380,022
--------------------------------------- ----- ------------ ------------
Net asset value per Ordinary
Share (basic and diluted) 12 $1.0217 $1.0044
--------------------------------------- ----- ------------ ------------
The financial statements of BioPharma Credit PLC registered number 10443190 were approved and authorised for issue by the Board of Directors on 9 March 2020 and signed on its behalf by:
Jeremy Sillem
Chairman
The Notes below form part of these financial statements.
CASH FLOW STATEMENT
For the year ended 31 December 2019
(In $000s)
Year ended Year ended
31 December 31 December
Note 2019 2018
----------------------------------------- ----- ------------- -------------
Cash flows from operating activities
Investment income received 134,424 75,491
Other income received 13,668 4,279
Investment management fee paid (13,721) (9,575)
Finance costs paid (3) (5)
Other expenses paid (2,848) (3,052)
----------------------------------------- ----- ------------- -------------
Cash generated from operations 16 131,520 67,138
Taxation paid - -
----------------------------------------- ----- ------------- -------------
Net cash flow generated from
operating activities 131,520 67,138
----------------------------------------- ----- ------------- -------------
Cash flow from investing activities
Purchase of investments (508,506) (658,788)
Redemptions of investments 387,169 221,801
Sales of investments 21,042 -
----------------------------------------- ----- ------------- -------------
Net cash flow used in investing
activities (100,295) (436,987)
----------------------------------------- ----- ------------- -------------
Cash flow from financing activities
Gross proceeds of Ordinary Share
issue 14 - 305,000
Ordinary Share issue costs - (8,797)
Dividends paid to Ordinary shareholders 6 (98,614) (74,040)
Gross proceeds of C Share issue 467 163,782
C Share issue costs - (3,275) C Share conversion costs - (33) Net cash flow (used in)/generated from financing activities (98,147) 382,637 ----------------------------------------- ----- ------------- ------------- (Decrease)/increase in cash and cash equivalents for the year (66,922) 12,788 ----------------------------------------- ----- ------------- ------------- Cash and cash equivalents at start of year 363,572 350,822 Revaluation of foreign currency balances (12) (38) ----------------------------------------- ----- ------------- ------------- Cash and cash equivalents at end of year 9 296,638 363,572 ----------------------------------------- ----- ------------- -------------
The Notes below form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2019
1. GENERAL INFORMATION
BioPharma Credit PLC is a closed-ended investment company incorporated and domiciled in England and Wales on 24 October 2016 with registered number 10443190. The registered office of the Company is Beaufort House, 51 New North Road, Exeter, EX4 4EP. On 6 February 2017 the Company changed its name from PRECIS (2772) PLC.
The Company carries on business as an investment trust company within the meaning of Sections 1158/1159 of the Corporation Tax Act 2010.
The Company's Investment Manager is Pharmakon Advisors L.P. ("Pharmakon"). Pharmakon is a limited partnership established under the laws of the State of Delaware. It is registered as an investment adviser with the SEC under the United States Investment Advisers Act of 1940, as amended.
Pharmakon is authorised as an Alternative Investment Fund Manager ("AIFM") under the Alternative Investment Fund Managers Directive ("AIFMD"). Pharmakon has, with the consent of the Directors, delegated certain administrative functions to Link Alternative Fund Administrators Limited ("Link").
2. ACCOUNTING POLICIES
a) Basis of preparation
The Company's annual financial statements cover the year from 1 January 2019 to 31 December 2019 and have been prepared in conformity with International Financial Reporting Standards ("IFRS") as adopted by the EU and interpretations issued by the IFRS Interpretations Committee ("IFRS IC"), which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and as applied in accordance with the Disclosure Guidance Transparency Rules sourcebook of the Financial Conduct Authority ("FCA") and the Statement of Recommended Practice as issued by the Association of Investment Companies ("AIC SORP") (issued in October 2019) for the financial statements of investment trust companies and venture capital trusts, except to any extent where it is not consistent with the requirements of IFRS. The financial statements have been prepared in accordance with the Companies Act 2006, as applicable to companies using IFRS. The financial statements have adopted the following accounting policies in their preparation, which remain consistent with the accounting policies adopted in the audited financial statements for the year ended 31 December 2018.
The financial statements are presented in US dollars, being the functional currency of the Company. The financial statements have been prepared on a going concern basis under historical cost convention, except for the measurement at fair value of investments designated at fair value through profit or loss.
The information for the year ended 31 December 2018 has been extracted from the latest published financial statements, which have been delivered to the Registrar of Companies. The Auditor's Report on those financial statements contained no qualification or statement under Section 498 of the Companies Act 2006.
Assessment as an investment entity
Entities that meet the definition of an investment entity within IFRS 10 'Consolidated Financial Statements' are required to measure their subsidiaries at fair value through profit or loss rather than consolidate the entities. The criteria which define an investment entity are as follows:
-- an entity that obtains funds from one or more investors for the purpose of providing those investors with investment services;
-- an entity that commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and
-- an entity that measures and evaluates the performance of substantially all of its investments on a fair value basis.
The Directors have concluded that the Company meets the characteristics of an investment entity, in that it has more than one investor and its investors are not related parties, and that it holds a portfolio of investments, predominantly in the form of loans, which generates returns through interest income. All investments, including its subsidiary BPCR Ongdapa Limited, are reported at fair value to the extent allowed by IFRS.
b) Presentation of Statement of Comprehensive Income
In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been prepared alongside the Income Statement.
c) Segmental reporting
The Directors are of the opinion that the Company has one operating and reportable segment being the investment in debt assets secured by royalties or other cash flows derived from the sales of approved life sciences products.
d) Investments at fair value through profit or loss
The principal activity of the Company is to invest in interest-bearing debt assets with a contractual right to future cash flows derived from royalties or sales of approved life sciences products. In accordance with IFRS, the financial assets are measured at fair value through profit or loss. They are accounted for on their trade date at fair value, which is equivalent to the cost of the investment. The fair value of the asset reflects any contractual amortising balance and accrued interest.
For unlisted investments where the market for a financial instrument is not active, fair value is established using valuation techniques in accordance with the International Private Equity and Venture Capital Valuation ("IPEV") Guidelines (issued in December 2018), which may include recent arm's length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. Where there is a valuation technique commonly used by market participants to price the instrument and that technique has proved reliable from estimates of prices obtained in actual market transactions, that technique is utilised.
Unlisted investments often require the manager to make estimates and judgements and apply assumptions or subjective judgement to future events and other matters that may affect fair value. For unlisted investments valued using a discounted cash flow analysis, the key judgements are the size of the market, pricing, projected sales of the product at trade date and future growth and other factors that will support the repayment of a senior secured or royalty debt instrument.
The fair value is either bid price or the last traded price on the exchange where the investment is listed.
Changes in the fair value of investments held at fair value through profit or loss and gains or losses on disposal, are recognised in the Statement of Comprehensive Income as gains or losses from investments held at fair value through profit or loss. Transaction costs incurred on the purchase and disposal of investments are included within the cost or deducted from the proceeds of the investments. All purchases and sales are accounted for on trade date.
e) C Share financial liability
Any C Share issued that meets the definition of a financial liability under IAS 32 'Financial Instruments: Presentation', rather than an equity instrument, will be recognised on issue at fair value less directly attributable issuance costs. For details regarding previously held C Shares converted on 29 October 2018, see Note 13.
f) Foreign currency
Transactions denominated in currencies other than US Dollars are recorded at the rates of exchange prevailing on the date of the transaction. Items which are denominated in foreign currencies are translated at the rates prevailing on the balance sheet date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as an exchange gain or loss in the Statement of Comprehensive Income.
g) Income
There are four main sources of revenue for the Company: interest income, royalty revenue, make-whole and prepayment income, and dividends.
Interest income is recognised when it is probable that the economic benefits will flow to the Company. Interest is accrued on a time basis, by reference to the principal outstanding and the effective interest rate that is applicable. Accrued interest is included within trade and other receivables on the Statement of Financial Position.
Any accrued income is reflected in the fair value of the Company's limited partnership interest, and is allocated to capital within the Statement of Comprehensive Income until the Company's right to receive the income is established, when it is transferred to revenue within the Statement of Comprehensive Income.
Royalty revenue is recognised on an accrual basis in accordance with the substance of the relevant agreement (provided that it is probable that the economic benefits will flow to the Company and the amount of revenue can be measured reliably). Royalty arrangements that are based on production, sales and other measures are recognised by reference to the underlying arrangement.
Make-whole and prepayment income is recognised when payments are received by the Company and is recorded to revenue within the Statement of Comprehensive Income.
Dividends are receivable on equity shares and recognised on the ex-dividend date. Where no ex-dividend date is quoted, dividends are recognised when the Company's right to receive payment is established. Dividends from investments in unquoted shares and securities are recognised when they become receivable.
Some investments include additional consideration in the form of origination fees, which are paid on completion of the transaction. Such fees are recognised up front and are allocated to revenue within the Statement of Comprehensive Income.
Bank interest and other interest receivable are accounted for on an accruals basis.
h) Dividends paid to shareholders
Dividends to shareholders are recognised as a liability in the year which they are paid or approved by the Board and are reflected in the Statement of Changes in Equity. Dividends declared and approved after the balance sheet date are not recognised as a liability of the Company at the balance sheet date.
The Company may, if it so chooses, designate as an 'interest distribution' all or part of the amount it distributes to shareholders as dividends, to the extent that it has 'qualifying interest income' for the accounting period. Were the Company to designate any dividend it pays in this manner, it should be able to deduct such interest distributions from its income in calculating its taxable profit for the relevant accounting period. The Company intends to elect for the 'streaming' regime to apply to the dividend payments it makes to the extent that it has such 'qualifying interest income'. Shareholders in receipt of such a dividend will be treated, for UK tax purposes, as though they had received a payment of interest, which results in a reduction of the corporation tax payable by the Company.
i) Expenses
All expenses are accounted for on an accruals basis. Expenses, including investment management fees, performance fees and finance costs, are charged through the revenue account except as follows:
-- expenses which are incidental to the acquisition or disposal of an investment are treated as capital costs and separately identified and disclosed in Note 4; and
-- expenses of a capital nature are accounted for through the capital account.
The performance fee is considered to be an annual fee and is only recognised at the end of each performance period. It is calculated in accordance with the details in Note 4(b) below. Any performance fee triggered, whether payable or deferred, is recognised in the Statement of Comprehensive Income. Where a performance fee is payable it is treated as a current liability in the Statement of Financial Position. Where a performance fee is deferred, it is treated as a non-current liability in the Statement of Financial Position, it becomes payable to the Investment Manager at the end of the first performance period in respect to which the compounding condition is satisfied.
j) Trade and other receivables
Trade and other receivables do not accrue interest and are measured at fair value through profit and loss and reduced by appropriate allowances for estimated unrecoverable amounts, where necessary. The Company assesses, on a forward-looking basis, the expected credit losses associated with its trade and other receivables. The Company applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. The identified impairment loss is considered immaterial.
k) Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value.
l) Trade and other payables
Trade and other payables do not carry any interest and are measured at fair value through profit and loss.
m) Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Corporation tax is recognised in the Statement of Comprehensive Income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date and any adjustment to tax payable in respect of previous periods. The tax effect of different items of expenditure is allocated between revenue and capital on the same basis as the particular item to which it relates, using the Company's marginal method of tax, as applied to those items allocated to revenue, for the accounting year.
Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax basis of assets and liabilities and their carrying amount for financial reporting purposes. Deferred tax liabilities are measured at the tax rates that are expected to apply to the year when the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
n) Share capital and reserves
The Share capital represents the nominal value of the Company's ordinary shares.
The share premium account represents the excess over nominal value of the fair value of consideration received for the Company's ordinary shares, net of expenses of the share issue.
The special distributable reserve was created on 29 June 2017 to give the possibility or option of the Company to buy back its own Shares and pay dividends out of such distributable reserve, in each case when the Directors consider it appropriate to do so, and for other corporate purposes.
The capital reserve represents realised and unrealised capital and exchange gains and losses on the disposal and revaluation of investments, and of foreign currency items. The realised capital reserve can be used for the repurchase of shares.
The revenue reserve represents retained profits from the income derived from holding investment assets less the costs and interest on cash balances associated with running the Company. This reserve can be distributed.
o) Critical accounting estimates and assumptions
The preparation of these financial statements in conformity with IFRS requires the Directors to make accounting estimates which will not always equal the actual results. The Directors also need to exercise judgement in applying the Company's accounting policies.
This note provides an overview of the areas that involve a higher degree of judgement or complexity and of items which are more likely to be materially adjusted due to estimates and judgements included in other notes, together with information about the basis of calculation for each line in the financial statements.
In particular, judgements and estimates are made in the determining the fair valuation of unquoted investments for which there is no observable market and may cause material adjustments to the carrying value of those investments. Determining fair value of investments with unobservable market inputs is an area involving management judgement, requiring assessment as to whether the value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, certain assumptions are required to be made including management's expectations of short and long term growth rates in product sales and the selection of discount rates to reflect the risks involved. These are valued in accordance with Note 2(d) above and using the valuation techniques described in Note 7 below.
Also, judgements are made when determining any deferred performance fee; this may be affected by future changes in the Company's portfolio and other assets and liabilities. Any deferred performance fee is calculated in accordance with Note 4(b) below and is recognised in accordance with Note 2(i) above.
These judgements and estimates are reviewed on an ongoing basis. Revisions to these judgements and estimates are also reviewed on an ongoing basis. Revisions are recognised prospectively.
p) New accounting standards effective since 1 January 2019
Amendments to IFRS 9 'Financial Instruments'
The Directors have considered the implications of the amendments to IFRS 9 and are of the opinion the Company's investments are already measured at fair value. Therefore, there has been no impact on the current and comparative financial statements for this accounting standard.
IFRS 16 'Leases'
The Directors have considered the implications to IFRS 16 and are of the opinion there is no impact to the Company as it does not have leases. Therefore, there has been no impact on the current and comparative financial statements for this accounting standard.
q) Accounting standards not yet effective
The IASB and International Financial Reporting Interpretations Committee ("IFRIC") have issued and endorsed the following standards and interpretations, applicable to the Company, which are not yet effective for the period ended 31 December 2019 and have therefore not been applied in preparing these financial statements.
Amendment to IFRS 3 'Business Combinations' - aims to resolve the difficulties that arise when an entity determines whether it has acquired a business or a group of assets, and is effective for reporting periods beginning on or after 1 January 2020.
The Directors do not expect that the adoption of the standards and interpretations will have a material impact on the financial statements.
Other future development includes the IASB undertaking a comprehensive review of existing IFRSs. The Company will consider the financial impact of these new standards as they are finalised.
3. INCOME
Year ended Year ended
31 December 31 December
2019 2018
$000 $000
------------------------------------------- ------------ ------------
Income from investments
US unfranked investment income from
BioPharma III 844 9,045
US floating interest investment income
from BPCR Ongdapa 7,429 988
US fixed interest investment income 27,148 29,421
US floating interest investment income 38,696 44,724
US make-whole interest investment income* 36,102 -
Prepayment premium** 9,660 -
Additional considerations received*** 9,056 7,913
------------------------------------------- ------------ ------------
128,935 92,091
Other income
Interest from liquidity/money market
funds 10,525 4,198
Interest income from US treasury bonds 2,856 -
Fixed term deposit interest - 357
Other interest 22 27
------------------------------------------- ------------ ------------
13,403 4,582
------------------------------------------- ------------ ------------
Total income 142,338 96,673
------------------------------------------- ------------ ------------
* In 2019 the Company's senior secured term loan to Tesaro included make whole interest investment income of $36,102,000, which was paid upon the loan repayment and recognised as income in the year.
** In 2019 the Company's senior secured term loan to Tesaro included a prepayment premium of $9,660,000, which was paid upon the loan repayment and recognised as income in the year.
*** In 2019 the Company's senior secured term loan to BioDelivery Services, the tranche A notes to OptiNose US, Epizyme, Akebia, Global Blood Therapeutics, and Sarepta Therapeutics included additional consideration in the form of structuring fees of $1,200,000, $1,856,000, $700,000, $1,000,000, $1,237,500 and $3,062,500 respectively, which was paid upon the completion of the transaction and recognised as income in the year.
In 2018 the Company's senior secured loan to Sebela, the second tranche of its senior secured loan to Tesaro and its senior secured loan to Amicus included additional consideration in the form of structuring income of $2,913,000, $2,000,000 and $3,000,000 respectively, which were paid upon the completion of the transaction or funding of each tranche, and are recognised as income in the year.
4. FEES AND EXPENSES
EXPENSES
Year ended 31 December 2019 Period ended 31 December 2018
-------------------------------- ----------------------------------
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
------------------------------------ ---------- ---------- -------- ----------- ---------- ---------
Management fee (Note 4a) 14,023 - 14,023 10,765 - 10,765
------------------------------------ ---------- ---------- -------- ----------- ---------- ---------
Performance fee (Note 4b) 13,570 - 13,570 7,794 - 7,794
------------------------------------ ---------- ---------- -------- ----------- ---------- ---------
Directors' fees (Note 4c) 395 - 395 330 - 330
------------------------------------ ---------- ---------- -------- ----------- ---------- ---------
Other expenses
Company Secretarial fee 88 - 88 85 - 85
Administration fee 126 - 126 121 - 121
Legal & professional fees (867) 48 (819) 2,825 192 3,017
Public relations fees 204 - 204 245 - 245
Auditor's remuneration - statutory
audit 339 - 339 357 - 357
Auditor's remuneration - other
audit related services - interim
review 50 - 50 39 - 39
Auditor's remuneration - reporting
accounting work 129 - 129 - - -
Other expenses 460 - 460 486 - 486
------------------------------------ ---------- ---------- -------- ----------- ---------- ---------
529 48 577 4,158 192 4,350
------------------------------------ ---------- ---------- -------- ----------- ---------- ---------
Total expenses 28,517 48 28,565 23,047 192 23,239
------------------------------------ ---------- ---------- -------- ----------- ---------- ---------
For the year ended 31 December 2019, the Auditor was also paid $129,000 for services performed in connection with reporting accounting work. There were no similar costs incurred in 2018.
For the year ended 31 December 2018, the Auditor was also paid $352,000 for services performed in connection with the C Share issue and conversion and additional share issue. There were no similar costs incurred in 2019. This amount was not included within the Auditor's remuneration figures above, as it was recognised as part of the C Share issue costs within the C share figure within the Condensed Statement of Financial Position.
The negative balance of legal fees in the current year relates to the reversal of an accrual for legal work carried out in relation to a potential revolving credit facility. Following a negotiation of the fee subsequent to the year end, the amount paid in respect of the services was revised down from $1,658,000 to $500,000.
a) Investment management fee
With effect from the Initial Admission, the Investment Manager is entitled to a management fee ("Management Fee") calculated on the following basis: 1/12 of 1 per cent. of the NAV on the last business day of the month in respect of which the Management Fee is to be paid (calculated before deducting any accrued Management Fee in respect of such month) minus 1/12 of $100,000.
The Management Fee payable in respect of any quarter will be reduced by an amount equal to the Company's pro rata share of any transaction fees, topping fees, break-up fees, investment banking fees, closing fees, consulting fees or other similar fees which the Investment Manager (or an affiliate) receives in connection with transactions involving investments of the Company ("Transaction Fees"). The Company's pro rata share of any Transaction Fees will be in proportion to the Company's economic interest in the investment(s) to which such Transaction Fees relate.
b) Performance fee
Period from IPO in March 2017 to 19 September 2018
Subject to: (i) the NAV attributable to the Ordinary Shares as at the end of a performance period representing a minimum of 6 per cent. annualised rate of return annualised on the Company's IPO gross proceeds (adjusted for dividends, share issues and buybacks as appropriate), (ii) the total return on the NAV attributable to the Ordinary Shares (adjusted for dividends, share issues and buybacks as appropriate) exceeding 6 per cent. over such performance period, and (iii) a high watermark, the Investment Manager will be entitled to receive a performance fee equal to the lesser of: (a) 50 per cent of the total return above 6 per cent; and (b) 10 per cent. of the total return over such performance period provided always that the amount of any performance fee payable to the Investment Manager will be reduced to the extent necessary to ensure that after account is taken of such fee, condition (iii) above remains satisfied.
Where the Investment Manager is not entitled to a performance fee solely because condition (i) has not been satisfied, such fee will be deferred and paid in a subsequent performance period in which such condition is satisifed. Where condition (i) is satisfied in a performance period but the payment of a performance fee (or any deferred performance fee from previous performance periods) in full would result in that condition failing, the Investment Manger shall be entitled to such a portion of such fee that does not result in the failure of the condition (i) above and the balance would be deferred to a future performance period.
Any performance fee (whether deferred or otherwise) shall be paid as soon as practicable after the end of the relevant performance period and, in any event, within 15 business days of the publication of the Company's audited annual financial statements relating to such period.
Effective from 19 September 2018
The Board of Directors approved an amendment, effective 19 September 2018, to the performance fee provisions. The amendment was to provide that where the payment of performance fee (or any deferred performance fee from previous performance periods) in full would result in the failure of condition (i) above, the Investment Manager shall only be entitled to 50 per cent. of such fee that does not result in the failure of condition (i) with the balance being deferred to a future performance period.
If, during the last month of a performance period, the Shares have, on average, traded at a discount of 1 per cent. or more to the NAV per Share (calculated by comparing the middle market quotation of the Shares at the end of each business day in the month to the prevailing published NAV per Share (exclusive of any dividend declared) as at the end of such business day and averaging this comparative figure over the month), the Investment Manager shall (or shall procure that its Associate does) apply 50 per cent. of any Performance Fee paid by the Company to the Investment Manager (or its Associate) in respect of that performance period (net of all taxes and charges applicable to such portion of the Performance Fee) to make market acquisitions of Shares (the "Performance Shares") as soon as practicable following the payment of the Performance Fee by the Company to the Investment Manager (or its Associate) and at least until such time as the Shares have, on average, traded at a discount of less than 1 per cent. to the NAV per Share over a period of five business days (calculated by comparing the middle market quotation of the Shares at the end of each such business day to the prevailing published NAV per Share (exclusive of any dividend declared) and averaging this comparative figure over the period of five business days). The Investment Manager's obligation:
1) shall not apply to the extent that the acquisition of the Performance Shares would require the Investment Manager to make a mandatory bid under Rule 9 of the Takeover Code; and
2) shall expire at the end of the performance period which immediately follows the performance period to which the obligation relates.
During the year to 31 December 2019, the Performance Fee accrued was $13,569,601 (2018: $7,793,940). The Performance Fee payable as at 31 December 2019 was $21,363,541 (2018: $7,794,940 deferred).
The Performance Fee for a performance period shall be paid as soon as practicable after the end of the relevant performance period and, in any event, within three calendar months of the end of such performance period.
c) Directors
Each of the Directors is entitled to receive a fee from the Company at such rate as may be determined in accordance with the Articles. The Directors' remuneration is $70,000 per annum for each Director other than:
-- the Chairman, who will receive an additional $30,000 per annum; and
-- the chairman of the Audit Committee, who will receive an additional $15,000 per annum.
A breakdown of Directors' fees is provided in the Directors' Remuneration Report in the full Annual Report.
d) Finance costs
Year ended Year ended
31 December 2019 31 December 2018
$000 $000
--------------- ----------------- -----------------
Interest paid - 3
--------------- ----------------- -----------------
- 3
--------------- ----------------- -----------------
Following the conversion of the C Shares, the amortisation of the C Share liability as at the conversion date, 30 September 2018, is shown as finance costs within the Statement of Comprehensive Income; the total of this amount is shown in Note 13.
5. TAXATION
It is the intention of the Directors to conduct the affairs of the Company so as to satisfy the conditions for approval of the Company by HMRC as an investment trust under Section 1158 of the Corporation Tax Act 2010 (as amended) and pursuant to regulations made under Section 1159 of the Corporation Tax Act 2010. As an investment trust, the Company is exempt from corporation tax on capital gains.
The current taxation charge for the year is different from the standard rate of corporation tax in the UK of 19 per cent; the effective tax rate was 0 per cent. The differences are explained below.
Year ended 31 December 2019 Year ended 31 December 2018
-------------------------------- --------------------------------
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
--------------------------------------- ---------- --------- --------- ---------- --------- ---------
Total return on ordinary activities
before taxation 113,821 8,507 122,328 69,946 200 70,146
--------------------------------------- ---------- --------- --------- ---------- --------- ---------
Theoretical tax at UK Corporation
tax rate of 19% (2018:19.00%)* 21,626 1,616 23,242 13,290 38 13,328
Effects of:
Capital items that are not taxable - (1,616) (1,616) - (38) (38)
Disallowed expenses - - - 699 - 699
Tax deductible interest distributions (21,626) - (21,626) (13,989) - (13,989)
Total tax charge - - - - - -
--------------------------------------- ---------- --------- --------- ---------- --------- ---------
* The theoretical tax rate is calculated using a blended tax rate over the year.
At 31 December 2019, the Company had no unprovided deferred tax liabilities. At that date, based on current estimates and including the accumulation of net allowable losses, the Company had no unrelieved losses.
Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Company meets (and intends to continue for the foreseeable future to meet) the conditions for approval as an Investment Trust company.
6. DIVIDS
Dividend paid during the year under review:
Year ended 31 December Year ended 31 December 2018
2019
--------------------------- -----------------------------------
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
---------------------------------------------- -------- -------- ------- ----------- -------- ------------
In respect of the current year:
First interim dividend $0.0175 (2018:
$0.0134) per Ordinary Share 24,044 - 24,044 12,306 - 12,306
Second interim dividend of $0.0175 (2018:
$0.0175) per Ordinary Share 24,044 - 24,044 15,999 - 15,999
Third interim dividend of $0.0175 (2018:
$0.0175) per Ordinary Share 24,044 - 24,044 18,837 - 18,837
In respect of the previous year ended
31 December 2018:
Fourth interim dividend of $0.0175 per
Ordinary Share 22,804 1,240 24,044 - - -
Second special dividend of $0.00177441
per Ordinary Share - 2,438 2,438 - - -
In respect of the previous period ended
31 December 2017:
Second interim dividend of $0.01 per
Ordinary Share - - - 7,572 47 7,619
Third interim dividend of $0.01 per Ordinary
Share - - - 9,143 - 9,143
Special dividend of $0.011 per Ordinary
Share - - - 10,136 - 10,136
---------------------------------------------- -------- -------- ------- ----------- -------- -------
94,936 3,678 98,614 73,993 47 74,040
---------------------------------------------- -------- -------- ------- ----------- -------- -------
Set out below are the interim dividends paid or proposed on Ordinary Shares in respect of the financial year, which is the basis on which the requirements of Section 1159 of the Corporation Tax Act 2010 are considered.
Year ended 31 December Year ended 31 December
2019 2018
--------------------------- ---------------------------
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
------------------------------------------------- -------- -------- ------- -------- -------- -------
First interim dividend of $0.0175 (2018:
$0.0134) per Ordinary Share 24,044 - 24,044 12,306 - 12,306
Second interim dividend of $0.0175 (2018:
$0.0175) per Ordinary Share 24,044 - 24,044 15,999 - 15,999
Third interim dividend of $0.0175 (2018:
$0.0175) per Ordinary Share 24,044 - 24,044 18,837 - 18,837
Fourth interim dividend of $0.0175 (2018:
$0.0175) per Ordinary Share - - - 22,804 1,240 24,044
Special dividend of $0.0128 (2018: $0.00177441)
per Ordinary Share - - - - 2,438 2,438
------------------------------------------------- -------- -------- ------- -------- -------- -------
72,132 - 72,132 69,946 3,678 73,624
------------------------------------------------- -------- -------- ------- -------- -------- -------
On 20 February 2020, the Board approved a fourth interim dividend, for the year ended 31 December 2019, of $0.0175 per Ordinary Share and a special dividend of $0.0128 per Ordinary Share, both payable on 27 March 2020. In accordance with IFRS, these dividends have not been included as a liability in these financial statements.
7. INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS
As at As at
31 December 2019 31 December 2018
$000 $000
-------------------------------------------- ----------------- -----------------
Investment portfolio summary
Listed investments at fair value through 16,980 -
profit and loss
Listed fixed interest investments at fair 19,656 -
value through profit and loss
Unlisted investments at fair value through
profit and loss - 7,645
Unlisted fixed interest investment at fair
value through profit and loss 495,525 274,500
Unlisted floating interest investments
at fair value through profit and loss 583,966 725,120
-------------------------------------------- ----------------- -----------------
Closing fair value at the end of the year 1,116,127 1,007,265
-------------------------------------------- ----------------- -----------------
Year ended 31 December 2019
Unlisted Unlisted
Listed fixed fixed floating
Listed Interest Unlisted interest interest
Investments Investments investments investments investments Total
$000 $000 $000 $000 $000 $000
----------------------------------- ------------ ------------- ------------ ------------ ------------ ----------
Investment portfolio summary
Opening cost at beginning
of year - - 6,805 274,500 725,320 1,006,625
Opening unrealised
appreciation/(depreciation)
at beginning of year - - 840 - (200) 640
----------------------------------- ------------ ------------- ------------ ------------ ------------ ----------
Opening fair value at beginning
of year - - 7,645 274,500 725,120 1,007,265
Movements in the year:
Purchases at cost 25,490 43,292 - 220,238 239,436 528,456
Redemption and sales proceeds (15,696) (25,270) (6,805) - (380,390) (428,161)
Movement in unrealised
appreciation/(depreciation) 3,436 (294) (840) 787 (200) 2,889
Realised gain on sale of
investments 3,750 1,928 - - - 5,678
----------------------------------- ------------ ------------- ------------ ------------ ------------ ----------
Closing fair value at the
end of the year 16,980 19,656 - 495,525 583,966 1,116,127
----------------------------------- ------------ ------------- ------------ ------------ ------------ ----------
Closing cost at end of year 13,544 19,950 - 494,738 584,366 1,112,598
Closing unrealised
appreciation/(depreciation)
at end of year 3,436 (294) - 787 (400) 3,529
----------------------------------- ------------ ------------- ------------ ------------ ------------ ----------
Closing fair value at the
end of the year 16,980 19,656 - 495,525 583,966 1,116,127
----------------------------------- ------------ ------------- ------------ ------------ ------------ ----------
Year ended 31 December 2018
------------ -------------
Unlisted Unlisted
Listed fixed fixed floating
Listed interest Unlisted interest Interest
investments investment Investments investments investments Total
$000 $000 $000 $000 $000 $000
----------------------------------- ------------ ------------- ------------ ------------ ------------ ----------
Investment portfolio summary
Opening cost at beginning
of year - - 123,487 224,151 222,000 569,638
Opening unrealised depreciation
at beginning of year - - (8) - - (8)
----------------------------------- ------------ ------------- ------------ ------------ ------------ ----------
Opening fair value at beginning
of year - - 123,479 224,151 222,000 569,630
Movements in the year:
Purchases at cost - - - 150,000 508,788 658,788
Redemption proceeds - - (116,682) (99,651) (5,468) (221,801)
Movement in unrealised
appreciation/(depreciation) - - 848 - (200) 648
------------ ------------ ------------ ----------
Closing fair value at the
end of the year - - 7,645 274,500 725,120 1,007,265
----------------------------------- ------------ ------------- ------------ ------------ ------------ ----------
Closing cost at end of year - - 6,805 274,500 725,320 1,006,625
Closing unrealised
appreciation/(depreciation)
at end of year - - 840 - (200) 640
----------------------------------- ------------ ------------- ------------ ------------ ------------ ----------
Closing fair value at the
end of the year - - 7,645 274,500 725,120 1,007,265
----------------------------------- ------------ ------------- ------------ ------------ ------------ ----------
Analysis of investment gains
Year ended Year ended
31 December 2019 31 December
2018
$000 $000
--------------------------------------- ----------------- ------------
Realised gains on sale of investments 5,678 -
Movement in unrealised appreciation 2,889 648
8,567 648
--------------------------------------- ----------------- ------------
Transaction costs, (incurred at the point of the transaction) incidental to the acquisition of investments totalled $nil (2018: $nil) for the year. In addition, legal fees incidental to the acquisition of investments totalled $48,000 (2018: $192,000) as disclosed in Note 4, have been reflected in the capital column in the Statement of Comprehensive Income since they are capital in nature.
The Company is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy consists of the following three levels:
-- Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
-- Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The level of the fair value hierarchy, within which the fair value measurement is categorised, is determined on the basis of the lowest level input that is significant to the fair value of the investment.
Year ended 31 December 2019
----------------------------------------
Level 1 Level Level Total
2 3
$000 $000 $000 $000
----------------------------------- -------- ------ ---------- ----------
Investment portfolio summary
Listed investments at fair
value through profit and loss 16,980 - - 16,980
Listed fixed interest investments
at fair value through profit
and loss 19,656 - - 19,656
Unlisted investments at fair
value through profit and loss - - - -
Unlisted fixed interest at
fair value through profit
and loss - 2,025 493,500 495,525
Unlisted floating interest
investments at fair value
through profit and loss - - 583,966 583,966
----------------------------------- -------- ------ ---------- ----------
36,636 2,025 1,077,466 1,116,127
Liquidity/money market funds 291,025 - - 291,025
----------------------------------- -------- ------ ---------- ----------
Total 327,661 2,025 1,077,466 1,407,152
----------------------------------- -------- ------ ---------- ----------
Year ended 31 December 2018
----------------------------------------
Level 1 Level Level 3 Total
2
$000 $000 $000 $000
------------------------- -------- ------ ---------- ----------
Investment portfolio
summary
Listed investments
at fair value through
profit and loss - - - -
Listed fixed interest
at fair value through
profit and loss - - - -
Unlisted investments
at fair value through
profit and loss - - 7,645 7,645
Unlisted fixed interest
investment at fair
value through profit
and loss - - 274,500 274,500
Unlisted floating
interest investments
at fair value through
profit and loss - - 725,120 725,120
------------------------- -------- ------ ---------- ----------
- - 1,007,265 1,007,265
Liquidity/money market
funds 359,808 - - 359,808
------------------------- -------- ------ ---------- ----------
Total 359,808 - 1,007,265 1,367,073
------------------------- -------- ------ ---------- ----------
Level 3 financial assets at fair value through profit or loss
A reconciliation of fair value measurements in Level 3 is set out below.
Year ended 31 December 2019
Unlisted Unlisted floating
fixed
Unlisted interest interest
investments investments investments Total
$000 $000 $000 $000
--------------------------------- ------------ ------------ ------------------ ----------
Opening balance 7,645 274,500 725,120 1,007,265
Purchases - 219,000 239,436 458,436
Redemptions* (6,805) - (380,390) (387,195)
Change in unrealised
(depreciation) / appreciation/ (840) - (200) (1,040)
Closing balance at
31 December 2019 - 493,500 583,966 1,077,466
--------------------------------- ------------ ------------ ------------------ ----------
Year ended 31 December 2018
Unlisted Unlisted floating
fixed
Unlisted interest interest
investments investments investments Total
$000 $000 $000 $000
------------------------------ ------------ ------------ ------------------ ----------
Opening balance 123,479 224,151 222,000 569,630
Purchases - 150,000 508,788 658,788
Redemptions* (116,682) (99,651) (5,468) (221,801)
Change in unrealised
appreciation/(depreciation) 848 - (200) 648
------------------------------ ------------ ------------ ------------------ ----------
Closing balance at
31 December 2018 7,645 274,500 725,120 1,007,265
------------------------------ ------------ ------------ ------------------ ----------
* Redemptions are the proceeds received from the repayment of investments.
There were no transfers between levels during the year.
Valuation techniques
Unrealised gains and losses recorded on Level 1 financial instruments are reported in net gains on investments at fair value on the Statement of Comprehensive Income. The fund administrator utilises quoted prices in active markets that they have access to and the Investment Manager verifies the quoted prices on Bloomberg.
Unrealised gains and losses recorded on Level 2 and 3 financial instruments are reported in net gains on investments at fair value on the Statement of Comprehensive Income. Level 2 and level 3 financial instruments are fair valued using inputs that reflect management's best estimate of what market participants would use in pricing the assets or liabilities at the measurement date. Consideration is given to the risk inherent in the valuation techniques and the risk inherent in the inputs of the model.
Level 3 financial instruments are fair valued using a discounted cash flow methodology. For capped royalty investments, discount rates are applied to the consensus forecasts or the manager's forecast for sales of the underlying products to determine fair value. The significant unobservable input used in the fair value measurement of the Company's level 3 investments is the discount rate used to discount future cash flows from borrowers. Significant increases (decreases) in the discount rate would result in a significantly lower (higher) fair value measurement. The Investment Manager believes 10 per cent. is an appropriate threshold for determining a reasonably possible change in fair value.
As at 31 December 2019 As at 31 December 2018
---------------- -------------------------------------------------- ------------- ------------- --------------------------------------------------- ------------- -------------
Fair
value Fair
at Level Fair value
3 value at Level
financial Fair value sensitivity 3 financial Fair value Fair value
assets at sensitivity to a assets sensitivity sensitivity
fair to a 100bps 100bps at fair to 100bps to 100bps
value decrease increase value decrease increase
through in the in the through in the in the
profit or discount discount profit discount discount
loss Valuation Unobservable Discount rate rate or loss Valuation Unobservable Discount rate rate
Assets $000 technique input rate $000 $000 $000 technique input rate $000 $000
---------------- ---------- ----------- ------------- ---------- ------------- ------------- ------------ ----------- ------------- --------- ------------- -------------
Discounted Discount
Akebia 40,000 cash flow rate 10.9% 41,103 38,941 - - - - - -
Discounted
Discounted Discount cash Discount
Amicus 150,000 cash flow rate 11.3% 153,937 146,211 150,000 flow rate 11.1% 154,883 145,337
Discounted Discount
BDSI 60,000 cash flow rate 11.5% 61,670 58,398 - - - - - -
Discounted
Discounted Discount cash Discount
BMS 149,896 cash flow rate 10.4% 154,172 145,803 64,409 flow rate 8.1% 69,483 59,606
---------------- ---------- ----------- ------------- ---------- ------------- ------------- ------------ ----------- ------------- --------- ------------- -------------
Discounted Discount
Epizyme 12,500 cash flow rate 10.7% 12,888 12,129 - - - - - -
Global Blood Discounted Discount
Therapeutics 41,250 cash flow rate 9.9% 42,705 39,865 - - - - - -
Discounted
Lexicon Discounted Discount cash Discount
Pharmaceutical 124,500 cash flow rate 10.4% 127,451 121,649 124,500 flow rate 10.1% 128,336 120,826
Discounted
Discounted Discount cash Discount
Novocure 150,000 cash flow rate 10.4% 153,433 146,681 150,000 flow rate 10.6% 154,486 145,699
Discounted Discount
OptiNose US 44,000 cash flow rate 12.4% 45,174 42,871 - - - - - -
Sarepta Discounted Discount
Therapeutics 175,000 cash flow rate 10.1% 180,112 170,094 - - - - - -
Discounted
Discounted Discount cash Discount
Sebela 130,320 cash flow rate 12.6% 131,630 128,728 188,711 flow rate 11.7% 191,900 185,622
Discounted
cash Discount
Tesaro - - - - - - 322,000 flow rate 11.4% 331,488 312,943
Limited
partnership
interest in
BioPharma III* - - - - - - 7,645 n/a n/a n/a n/a n/a
---------------- ---------- ----------- ------------- ---------- ------------- ------------- ------------ ----------- ------------- --------- ------------- -------------
* The BioPharma III fair value balance as at 31 December 2018 represents a receivable. BioPharma III made a distribution for $7,645,000 on 31 January 2019. For this reason, no valuation technique is applicable.
The discount rate at each reporting date is estimated with consideration to the underlying sales projections and analysis of the credit worthiness of the borrowers. Estimates of future product sales are determined through models driven by several factors that include the potential size of the market, the product's market share over time, and the price for the product. In determining the discount rates, the Investment Manager also gives consideration to market rates, including risk free rates and corporate borrowing rates.
8. TRADE AND OTHER RECEIVABLES
As at As at
31 December 2019 31 December
2018
$000 $000
---------------------------------------- ----------------- ------------
Listed fixed interest income 26 -
receivable
Unlisted fixed interest income
receivable 3,061 2,864
Unlisted floating interest income
receivable 3,938 17,079
Interest accrued on liquidity/money
market funds 429 694
US floating interest income receivable
from BPCR Ongdapa 8,417 -
Share issue cost receivable - 466
Other debtors 335 345
---------------------------------------- ----------------- ------------
16,206 21,448
---------------------------------------- ----------------- ------------
Non-current assets
US floating interest income receivable
from BPCR Ongdapa - 988
---------------------------------------- ----------------- ------------
16,206 22,436
---------------------------------------- ----------------- ------------
9. CASH AND CASH EQUIVALENTS
As at As at
31 December 2019 31 December
2018
$000 $000
------------------------------ ----------------- ------------
Cash at bank 5,613 3,764
Liquidity/money market funds 291,025 359,808
------------------------------ ----------------- ------------
296,638 363,572
------------------------------ ----------------- ------------
10. TRADE AND OTHER PAYABLES
As at As at
31 December 2019 31 December
2018
Current liabilities $000 $000
-------------------------- ----------------- ------------
Performance fee payable 20,633 -
Management fees accrual 3,496 3,194
Share issue costs - 1
C Share conversion costs - 22
Accruals 375 2,240
24,504 5,457
-------------------------- ----------------- ------------
Non-current liabilities
Deferred performance fee 731 7,794
-------------------------- ----------------- ------------
Total 25,235 13,251
-------------------------- ----------------- ------------
11. RETURN PER ORDINARY SHARE
Revenue return per Ordinary Share is based on the net revenue after taxation of $113,821,000 (2018: $69,946,000) and 1,373,932,067 (2018: 989,147,473) Ordinary Shares, being the weighted average number of Ordinary shares for the year.
Capital return per Ordinary Share is based on net capital gains for the period of $8,507,000 (2018: $200,000) and on 1,373,932,067 (2018: 989,147,473) Ordinary Shares, being the weighted average number of Ordinary Shares for the year.
There is no dilution effect and therefore there is no difference between the diluted total net assets per Ordinary Share and the basic total net assets per Ordinary Share.
12. NET ASSET VALUE PER ORDINARY SHARE
The basic total NAV per Ordinary Share of $1.0217 (2018: $1.0044)is based on the net assets attributable to equity shareholders at 31 December 2019 of $1,403,736,000 (2018: $1,380,022,000) and Ordinary Shares of 1,373,932,067 (2018: 1,373,932,067), being the number of Ordinary Shares in issue at 31 December 2019 and 31 December 2018.
There is no dilution effect and therefore no difference between the diluted total net assets per Ordinary Share and the basic total net assets per Ordinary Share.
13. C SHARES
Year ended Year ended
----------------------------------------
31 December 31 December
----------------------------------------
2019 2018
$000 $000
---------------------------------------- ------------ ------------
Balance at beginning of the year - -
Gross proceeds of C Share issue - 163,782
C Share issue costs - (3,275)
Amortisation of C Share liability* - 3,895
Balance of C Share liability converted
to Ordinary Shares - (164,402)
---------------------------------------- ------------ ------------
Balance at end of the year - -
---------------------------------------- ------------ ------------
* The amortisation of C Share liability represents the net return from the C Share, per the Statement of Comprehensive Income.
On 16 April 2018, the Company issued 163,782,307 C shares raising gross proceeds of $163,782,000. These C shares were admitted to the Official List of TISE and to trading on the Specialist Fund Segment of the LSE on 16 April 2018.
For Shareholder resolutions in respect of amendments to the Articles or in respect of a winding up of the Company, each class of Shares will vote as a separate class. For all other resolutions, the holders of Ordinary Shares and each class of C Shares shall vote as one class.
Under IAS 32 'Financial Instruments: Presentation', these C Shares met the definition of a financial liability rather than equity instrument and were presented in the financial statements as a liability of the Company carried at amortised cost.
On 29 October 2018, the C Shares were converted to Ordinary Shares on the basis of a conversion ratio of 0.98984 Ordinary Shares for every C Share which gave a conversion rate of 989 Ordinary Shares for every 1,000 C Shares held.
The table below gives a summary of the movements in net assets of the C Share pool up to the date of conversion:
Period ended
30 September
2018
-------------
C share
pool
$000
Balance at beginning of
the year -
Gross proceeds of C share
issue 163,782
C share issue costs (3,275)
Net income 4,669
Expenses (995)
Net gains on investments
at fair value 196
Currency exchange gains 25
Value of C shares on conversion
date 164,402
--------------------------------- -------------
Represented by:
As at
30 September 2018
C share
pool
$000
Investment at fair value
through profit or loss 148,315
Trade and other receivables 1,103
Cash and cash equivalents 15,621
Trade and other payables (637)
Value of C shares on conversion 164,402
--------------------------------- ------------------
14. SHARE CAPITAL
Year ended 31 December Period ended 31 December
2019 2018
-------------------------- ---------------------------
Number of
Number of shares $000 shares $000
---------------------------- ----------------- ------- ----------------- --------
Issued and fully paid:
Ordinary Shares of $0.01:
Balance at beginning of
the year 1,373,932,067 13,739 914,252,831 9,143
Ordinary Shares issued
on conversion of C Shares
- 29 October 2018 - - 162,118,260 1,621
Ordinary Share issue -
5 November 2018 - - 297,560,976 2,975
Balance at end of the
year 1,373,932,067 13,739 1,373,932,067 13,739
---------------------------- ----------------- ------- ----------------- --------
Total voting rights at 31 December 2019 were 1,373,932,067 (2018: 1,373,932,067). For shareholder resolutions in respect of amendments to the Articles or in respect of a winding up of the Company, each class of shares will vote as a separate class. For all other resolutions, the holders of ordinary shares and each class of C shares shall vote as one class.
On 29 October 2018, 162,118,260 Ordinary Shares were issued following the conversion of the C Shares for a consideration of $164,402,000 representing the value of the C Share asset pool, the balance of C Shares were redeemed.
On 5 November 2018, a further issue of 297,560,976 Ordinary Shares took place, raising gross proceeds of $305,000,000.
15. SUBSIDIARY
The Company formed a wholly-owned subsidiary, BPCR Ongdapa Limited ("BPCR Ongdapa"), incorporated in Ireland on 5 October 2017 for the purpose of entering into a purchase, sale and assignment agreement with a wholly-owned subsidiary of Royalty Pharma for the purchase of a 50 per cent. interest in a stream of payments (the "Purchased payments") acquired by Royalty Pharma from Bristol-Myers Squibb ("BMS"). In accordance with IFRS 10, the Company is exempt from consolidating a controlled investee as an investment trust. The Company's investment in BPCR Ongdapa is recognised at fair value through profit and loss. The registered address for BPCR Ongdapa is BPCR Ongdapa Limited, 2 Grand Canal Square, Grand Canal Harbour, Dublin, Ireland. The aggregate amount of its capital reserves as at 31 December 2019 is $1 (2018 $1) and the profit and loss for the year ended 31 December 2019 is nil (2018: nil).
16. RECONCILIATION OF TOTAL RETURN FOR THE YEAR BEFORE TAXATION TO CASH GENERATED FROM OPERATIONS
Year ended Year ended
31 December 31 December
2019 2018
--------------------------------------
$000 $000
-------------------------------------- ------------ ------------
Total return for the year before
taxation 122,328 70,146
Capital gains (8,555) (610)
Decrease/(increase) in trade
receivables* 5,764 (16,931)
Increase in trade payables* 11,983 10,638
Finance costs - C Share amortisation - 3,895
-------------------------------------- ------------ ------------
Cash generated from operations 131,520 67,138
-------------------------------------- ------------ ------------
* For the year ended 31 December 2019, the increase does not differ from trade and other payables (2018: difference due to $1,000 of shares issue costs forming part of financing activities). For the year ended 31 December 2019, the decrease does not differ from trade and other receivables (2018: difference due to $466,000 of share issue costs forming part of financing activities).
Analysis of net cash and net debt
At At
1 January Exchange 31 December
2019 Cash flow movement 2018
Net cash $000 $000 $000 $000
--------------------------- ---------- ---------- --------- ------------
Cash and cash equivalents 363,572 (66,922) (12) 296,638
--------------------------- ---------- ---------- --------- ------------
At At
1 January Exchange 31 December
2018 Cash flow movement 2017
Net cash $000 $000 $000 $000
--------------------------- ---------- ---------- --------- ------------
Cash and cash equivalents 350,822 12,788 (38) 363,572
--------------------------- ---------- ---------- --------- ------------
There is no debt in the Company and so no debt table is shown.
17. FINANCIAL INSTRUMENTS
The Company's financial instruments include its investment portfolio, cash balances, trade receivables and trade payables that arise directly from its operations. Adherence to the Company's investment policy is key in managing risk. Refer to the Strategic Overview above for a full description of the Company's investment objective and policy.
The Investment Manager monitors the financial risks affecting the Company on an ongoing basis and the Directors regularly receive financial information which is used to identify and monitor risk. All risks are actively reviewed and monitored by the Board. Details of the Company's principal risks can be found in the Strategic Report above.
The main risks arising from the Company's financial instruments are:
i) market risk, including price risk, currency risk and interest rate risk;
ii) liquidity risk; and
iii) credit risk.
(i) Market risk
Market risk is the risk of loss arising from movements in observable market variables. The fair value of future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. The Investment Manager assesses the exposure to market risk when making each investment decision and these risks are monitored by the Investment Manager on a regular basis and the Board at quarterly meetings with the Investment Manager.
Market price risk
The Company is exposed to price risk arising from its investments whose future prices are uncertain. The Company's exposure to price risk comprises movements in the value of the Company's investments. See note 7 above for investments that fall into Level 3 of the fair value hierarchy and refer to the description of valuation policies in Note 2(d). The nature of the Company's investments, with a high proportion of the portfolio invested in unlisted debt instruments, means that the investments are valued by the Company after consideration of the most recent available information from the underlying investments. The Company's portfolio is diversified among counterparties and by the sectors in which the underlying companies operate, minimising the impact of any negative industry-specific trends.
The table below analyses the effect of a 10 per cent. change in the fair value of investments. The Investment Manager believes 10 per cent. is the appropriate threshold for determining whether a material change in market value has occurred.
As at As at
31 December 2019 31 December 2018
-------------------------- -----------------------
10 per
10 per cent. cent.
Increase/ Increase/
decrease decrease
in in
market
Fair value market value Fair value value
Asset $000 $000 $000 $000
--------------------------- ----------- ------------- ----------- ----------
Akebia, Inc. 40,000 4,000 - -
Amicus Senior Secured
Loan 150,000 15,000 150,000 15,000
BioPharma III - - 7,645 765
Biodelivery Sciences
International Equity 16,979 1,698 - -
Biodelivery Sciences
International Loan 60,000 6,000 - -
BMS Purchased Payments
(BPCR Ongdapa) 149,896 14,990 64,409 6,441
--------------------------- ----------- -------------
Convertible bonds 19,656 1,966 - -
--------------------------- ----------- -------------
Epizyme 12,500 1,250 - -
--------------------------- ----------- -------------
Global Blood Therapeutics 41,250 4,125 - -
--------------------------- ----------- -------------
Lexicon Senior Secured
Loan 124,500 12,450 124,500 12,450
--------------------------- ----------- ------------- ----------- ----------
Novocure Senior Secured
Loan 150,000 15,000 150,000 15,000
----------- ----------
OptiNose US 44,000 4,400 - -
----------- ----------
OptiNose USwarrants 2,026 203 - -
Sebela Senior Secured
Loan 130,320 13,032 188,711 18,871
Sarepta Therapeutics 175,000 17,500 - -
Tesaro Senior Secured
Loan - - 322,000 32,200
Total 1,116,127 111,614 1,007,265 100,727
--------------------------- ----------- ------------- ----------- ----------
The Board manages the risks inherent in the investment portfolio by ensuring full and timely reporting of relevant information from the Investment Manager. Investment performance and exposure are reviewed at each Board meeting.
Currency Risk
Currency risk is the risk that fair values of future cash flows of a financial instrument fluctuate because of changes in foreign exchange rates.
At 31 December 2019, the Company held cash balances in GBP of GBPnil ($nil) (2018: GBP245,000, $312,000) and in Euro of EUR3,000 ($4,000) (2018: EUR1,000 ($2,000).
The currency exposures (including non-financial assets) of the Company as at 31 December 2019:
Other net
assets/
Cash Investments (liabilities) Total
$000 $000 $000 $000
----------- -------- ------------ -------------- ----------
Sterling - - - -
Euro 4 - - 4
US dollar 296,634 1,116,127 (9,230) 1,403,531
----------- -------- ------------ -------------- ----------
296,638 1,116,127 (9,230) 1,403,535
----------- -------- ------------ -------------- ----------
The currency exposures (including non-financial assets) of the Company as at 31 December 2018:
Other net
assets/
Cash Investments (liabilities) Total
$000 $000 $000 $000
----------- -------- ------------ -------------- ----------
Sterling 312 - (52) 260
Euro 2 - - 2
US dollar 363,258 1,007,265 9,237 1,379,760
----------- -------- ------------ -------------- ----------
363,572 1,007,265 9,185 1,380,022
----------- -------- ------------ -------------- ----------
A 10 per cent. increase in the Sterling exchange rate would have increased net assets by $nil (2018: $10,000 increase). A 10 per cent. decrease would have decreased net assets by the same amount (2018: decreased by the same amount).
Interest rate risk
Interest rate risk is the risk that fair value of future flows of a financial instrument will fluctuate because of changes in market interest rates. Interest rate movements may potentially affect future cash flows from:
-- investments in floating rate securities and unquoted loans and purchased payments; and
-- the level of income receivable on cash deposits and liquidity funds.
The Lexicon, Novocure, OptiNose US, Sarepta Therapeutics and the convertible bond have a fixed interest rate and therefore are not subject to interest rate risk. At 31 December 2019, the Lexicon, Novocure, OptiNose US, Sarepta Therapeutics and convertible bond represented, 8.87 per cent., 10.69 per cent., 3.13 per cent., 12.47 per cent. and 1.40 per cent. of the Company's net assets, respectively (2018: 9.02 per cent., 10.87 per cent., nil per cent., nil per cent. and nil per cent).
The Tesaro, Sebela, Epizyme, Akebia, Amicus and GBT loans, BMS Purchased Payments and cash and cash equivalents, including investments in liquidity funds, have a floating rate of interest. At 31 December 2019, these represented nil per cent., 9.29 per cent., 0.89 per cent., 2.85 per cent., 9.29 per cent., 10.69 per cent., 2.94 per cent., 10.68 per cent. and 21.14 per cent. of the Company's net assets, respectively (2018: 23.33 per cent., 13.67 per cent, nil per cent., nil per cent., 10.87 per cent., nil per cent., 4.67 per cent, and 26.35 per cent.).
A 100 basis point increase or decrease in interest rates associated with the limited partnership interest in BioPharma III would not have materially impacted net income for the year ended 31 December 2018 (2018: not material).
(ii) Liquidity risk
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. At 31 December 2019, the Company had cash and cash equivalents, including investments in liquidity funds with balances of $296,638,000 (2018: $363,572,000) and maximum unfunded commitments of $319,386,000 (2018: $75,591,000 - $95,591,000).
The Company maintains sufficient liquid investments through its cash and cash equivalents to pay accounts payable, accrued expenses and ongoing expenses of the Company. Liquidity risk is manageable through a number of options, including the Company's ability to issue debt and/or equity and by selling all or a portion of an investment in the secondary market.
(iii) Credit risk
This is the risk the Company's trade and other receivables will not meet their obligations to the Company. While the Company will often seek to be a secured lender for each debt asset, there is no guarantee that the relevant borrower will repay the loan or that the collateral will be sufficient to satisfy the amount owed. All of the Company's investments are senior secured investments as detailed in the Investment Manager's Report above.
When the Investment Manager makes an investment, the creditworthiness of the counterparty is taken into account so as to minimise the risk to the Company of default. Creditworthiness is assessed on an ongoing basis and changes to counterparty's risk profile are monitored by the Investment Manager on a regular basis, and discussed with the Board at quarterly meetings.
The Company's maximum exposure to credit risk at any given time is the fair value of its investment portfolio and the non-current accrued income from its subsidiary. At 31 December 2019, the Company's maximum exposure to credit risk was $1,124,544,000 (2018: $1,008,253,000). The Company's concentration of credit risk by counterparty can be found in the Investment Manager's Report above.
Capital management
The Company's primary objectives in relation to the management of capital are:
-- to ensure its ability to continue as a going concern;
-- to ensure that the Company conducts its affairs to enable it to continue to meet the criteria to qualify as an investment trust; and
-- to maximise the long-term shareholder returns in the form of sustainable income distributions through an appropriate balance of equity capital and debt.
The Company is subject to externally imposed capital requirements:
-- as a public company, the Company has a minimum share capital of GBP50,000;
The Company has complied with all the above requirements during this financial year.
18. RELATED PARTY TRANSACTIONS
The amount incurred in respect of management fees during the year ended 31 December 2019 was $14,023,000 (2018: $10,765,000), of which $3,496,000 was outstanding at 31 December 2019 (2018: $3,194,000). The amount due to the Investment Manager for performance fees at 31 December 2019 was $21,364,000 (2018: $7,794,000), all of which was outstanding at 31 December 2019 (2018: $7,794,000).
The amount incurred in respect of Director's fees during the year ended 31 December 2019 was $395,000 (2018: $330,000) of which $nil was outstanding at 31 December 2019 (2018: $nil).
The Shared Services Agreement was entered into by and between RP Management, LLC, an affiliate of Pharmakon Advisors, L.P., and the Investment Manager on 30 November 2016 and deemed effective as of 1 January 2016. Under the terms of the Shared Services Agreement, the Investment Manager will have access to the expertise of certain Royalty Pharma employees, including its research, legal and compliance, and finance teams.
On 18 December 2019, the Company and BioPharma V entered into a definitive senior secured term loan agreement with Global Blood Therapeutics (Nasdaq: GBT) alongside BioPharma-V. The Company will invest up to $82,500,000 ($41,250,000 in the first tranche and up to an additional ($41,250,000 by 31 December 2020) and BioPharma V will invest an additional $67,500,000. The loan will mature in December 2025 and will bear interest at three-month LIBOR plus 7.00 per cent. per annum subject to a 2.00 per cent. floor along with a one-time additional consideration of 1.50 per cent. of the total loan amount payable upon funding and an additional 2.00 per cent. payable upon the repayment of the loan. The Company funded the first tranche on 20 December 2019. In 2019, the Company recorded interest of $113,438 (2018: $nil). The outstanding balance as at 31 December 2019 was $41,250,000 (2018: $nil).
On 13 December 2019, the Company and BioPharma V entered into a definitive senior secured term loan agreement with Sarepta Therapeutics (Nasdaq: SRPT). The Company will invest up to $350,000,000 in two tranches ($175,000,000 in the first tranche and up to an additional $175,000,000 by 31 December 2020) and BioPharma V will invest up to an additional $150,000,000. The loan will mature in December 2023 and will bear interest at 8.50 per cent. per annum along with a one-time additional consideration of 1.75 per cent. of the total loan amount payable upon funding and an additional 2.00 per cent. payable upon the repayment of the loan. In 2019, the Company recorded interest of $495,833. The Company funded the first tranche on 20 December 2019 (2018: $nil). The outstanding balance as at 31 December 2019 was $175,000,000 (2018: $nil).
On 11 November 2019, the Company and BioPharma V entered into a definitive senior secured term loan agreement for up to $100,000,000 with Akebia (Nasdaq: AKBA). The Company's share of the transaction will be up to $50,000,000 and the Company initially invested $40,000,000 on 25 November 2019. The loan will mature in November 2024 and will bear interest at LIBOR plus 7.50 per cent. per annum along with a one-time additional consideration of 2.00 per cent. of the total loan amount. In 2019, the Company recorded interest of $390,556 (2018: $nil). The outstanding balance as at 31 December 2019 was $40,000,000 (2018: $nil).
On 4 November 2019, the Company and BioPharma V entered into a definitive senior secured term loan agreement for up to $70,000,000 with Epizyme (Nasdaq: EPZM). The Company's share of the transaction will be up to $35,000,000 and the Company initially invested $12,500,000 on 18 November 2019. The loan will mature in November 2024 and will bear interest at LIBOR plus 7.75 per cent. per annum along with a one-time additional consideration of 2.00 per cent. of the total loan amount. On 4 November 2019, Royalty Pharma, an affiliate of Pharmakon Advisors, announced an agreement to purchase future royalties on tazemetostat net sales outside of Japan owned by Eisai Co. for $330,000,000 and a separate $100,000,000 equity investment directly in Epizyme Pablo Legorreta, a principal of Pharmakon and RP management was named to the Epizyme board of directors. In 2019, the Company recorded interest of $148,958 (2018: $nil). The outstanding balance as at 31 December 2019 was $12,500,000 (2018: $nil).
On 12 September 2019, the Company and BioPharma V entered into a definitive senior secured note purchase agreement for the issuance and sale of senior secured notes in an aggregate original principal amount of up to $150,000,000 by OptiNose US, OptiNose US is a wholly-owned subsidiary of OptiNose (Nasdaq: OPTN), a commercial-stage specialty pharmaceutical company. The Company's share of the transaction will be up to $82,500,000 and the Company will initially invest $44,000,000. Senior secured notes in an aggregate original principal amount of up to $150,000,000 will be issued and sold in up to four tranches, each maturing in September 2024 and bearing interest at 10.75 percent per annum along with a one-time additional consideration of 0.75 percent of the aggregate original principal amount of senior secured notes which the Company and BioPharma V are committed to purchase under the facility and approximately 800,000 warrants exercisable into common stock of OptiNose. The Company funded $44,000,000 of the first tranche on 12 September 2019. Senior secured notes in an aggregate original principal amount of $30,000,000 will be issued, sold and purchased by February 2020, subject to the achievement of a certain sales milestone. Two additional tranches of senior secure notes, in an aggregate original principal amount of $20,000,000 each, will be available for issuance and sale at OptiNose's option, subject to the achievement of certain sales milestones, prior to August 2020 and February 2021. In 2019, the Company recorded interest of $1,458,417 (2018: $nil). The outstanding balance as at 31 December 2019 was $44,000,000 (2018: $nil).
On 7 February 2018, the Company entered into senior secured term loan agreement for $150,000,000 with Novocure Limited (NASDAQ: NVCR) ("Novocure"). The $150,000,000 loan will mature in February 2023 and bears interest at 9.0 per cent. per annum. Novocure used $100,000,000 of the net proceeds to entirely prepay the $100,000,000, 10.0 per cent. coupon loan made by BioPharma III Holdings,
LP ("BioPharma III") in 2015 that was scheduled to mature in 2020. The Company is a limited partner in BioPharma III and therefore received a distribution of approximately $46,000,000 from BioPharma III as a result of the prepayment from Novocure. In 2019, the Company recorded interest of $13,688,000 (2018: $12,263,000). The outstanding balance as at 31 December 2019 was $150,000,000 (2018: $150,000,000).
On 8 December 2017, the Company's wholly-owned subsidiary BPCR Ongdapa entered into a purchase, sale and assignment agreement with RPI Acquisitions (Ireland) Limited ("RPI Acquisitions"), an affiliate of Royalty Pharma, for the purchase of a 50 per cent. interest in a stream of Purchased Payments acquired by RPI Acquisitions from Bristol-Myers Squibb through a purchase agreement dated 14 November 2017. As a result of the arrangements, RPI's subsidiary and the Company's subsidiary are each entitled to the benefit of 50 per cent. of the Purchased Payments under identical economic terms. The Purchased Payments are linked to tiered worldwide sales of Onglyza and Farxiga, diabetes agents marketed by AstraZeneca, and related products. The Company is expected to fund $140,000,000 to $160,000,000 between 2018 and 2020, determined by product sales and will receive payments from 2020 through 2025 estimated to yield a return in the high single-digits per annum. The Company advanced $85,687,000 to RPI Acquisitions in 2019 (2018: $64,409,000) for the Purchased Payments. In 2019, the Company recorded interest of $8,417,000 (2018: $988,000).
On 4 December 2017, the Company and BioPharma Credit Investments IV, S.àr.L. ("BioPharma IV"), a fund managed by the Investment Manager, entered into a definitive term loan agreement for up to $200,000,000 with Lexicon Pharmaceuticals (NASDAQ: LXRX), a fully integrated biopharmaceutical company ("Lexicon"). The loan is secured by substantially all of Lexicon's assets, including its rights to Xermelo(R) and sotagliflozin. The $200,000,000 loan will be available in two tranches, each maturing in December 2022 and bearing interest at 9.0 per cent. per annum. The first $150,000,000 was available immediately and an additional tranche of $50,000,000 was available for draw by March 2019 at Lexicon's option if net Xermelo sales were greater than $25,000,000 in the preceding quarter. The Company funded $124,500,000 of the first tranche on 18 December 2017 and Lexicon has not drawn the second tranche. In 2019, the Company recorded interest of $11,361,000 (2018: $11,361,000). The outstanding balance as at 31 December 2019 was $124,500,000 (2018: $124,500,000).
On 21 November 2017, the Company and BioPharma IV entered into a definitive loan agreement for up to $500,000,000 with Tesaro (NASDAQ: TSRO), an oncology focused biopharmaceutical company ("Tesaro"). Under the terms of the transaction, the Company funded $222,000,000 of the $300,000,000 first tranche on 6 December 2017 and committed to invest up to $148,000,000 of the $200,000,000 second tranche by 20 December 2018 at Tesaro's option with BioPharma IV committing to invest up to $130,000,000 in parallel with the Company acting as collateral agent. The Company funded $100,000,000 of the second tranche on 29 June 2018 and assigned its remaining $48,000,000 commitment to other investors. The loan has a term of seven periods and is secured by Tesaro's U.S. rights to ZEJULA(R) and VARUBI(R). The first $300,000,000 tranche bears interest at LIBOR plus 8 per cent. and the second tranche bears interest at LIBOR plus 7.5 per cent. The LIBOR rate is subject to a floor of 1 per cent. and certain caps. Each tranche of the loan is interest-only for the first two periods, amortises over the remaining term, and can be prepaid at Tesaro's discretion, at any time, subject to prepayment fees. In the period to 30 June 2019, the Company recorded interest of $2,191,000 (2018: $11,194,000). Following its acquisition by GlaxoSmithKline, Tesaro repaid the $500,000,000 loan on 23 January 2019. The Company received a payment of $369,953,000 on its $322,000,000 share of the loan, including the make-whole and prepayment premium totalling $45,762,000. The outstanding balance as at 30 June 2019 was $nil (2018: $322,000,000).
On 27 March 2017, the Company acquired a limited partnership interest in BioPharma III for $153,482,000. In 2019, the Company recorded $nil (2018: $9,045,000 of investment income and repayments of $nil (2018: $116,682,000). The Company also recorded net gain on investments at fair value of $nil (2018: $848,000). On 31 January 2019 the limited partnership interest in BioPharma III was disposed of in full at cost of $6,804,967. The outstanding balance as at 31 December 2019 was $nil (2018: $7,645,000).
BioPharma III, BioPharma IV, and RPI Acquisitions are related entities of the Company due to a principal of the Investment Manager having significant influence over each of these entities.
19. CONTINGENCIES, GUARANTEES AND FINANCIAL COMMITMENTS
At 31 December 2019, there were outstanding commitments of up to $319,386,000 (2018: $75,591,000 - $95,591,000) in respect of investments (see Note 18 for further details).
20. SUBSEQUENT EVENTS
On 30 January 2020, the Company sold $11 million face value of convertible notes held in the portfolio at a price of 98 cents.
On 7 February 2020, the Company and BioPharma V entered into a definitive senior secured term loan agreement with Collegium Pharmaceutical (Nasdaq: COLL). The Company will invest $165,000,000 and BioPharma-V will invest an additional $35,000,000. The loan will mature in January 2024 and will bear interest at three-month LIBOR plus 7.50 per cent. per annum subject to a 2.00 per cent. floor along with a one-time additional consideration of 2.50 per cent. of the loan amount payable upon funding. The Company funded the term loan on 13 February 2020.
On 11 February 2020, the Company, along with BioPharma V, received a notice of issuance from OptiNose US to request the second tranche of $30,000,000 of senior secured notes as the achievement of certain sales milestones was met. The Company's share of the second tranche was $16,500,000 and the Company funded on 13 February 2020.
On 20 February 2020, the Board approved a fourth interim dividend, for the year ended 31 December 2019, of $0.0175 per Ordinary Share and a special dividend of $0.0128 per Ordinary Share, both payable on 27 March 2020.
On 20 February 2020, the Company made the final purchased payment to RPI Acquisitions for $12,136,000 related to the agreement dated 14 November 2017.
GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES (APM)
Net Income per Ordinary Share
Net income per share is the net revenue for the year divided by the number of ordinary shares outstanding.
NAV per Ordinary Share
Net Asset Value (NAV) is the value of total assets less liabilities. The NAV per share is calculated by dividing this amount by the number of ordinary shares outstanding.
Premium (discount) to NAV per Ordinary Share
As stock markets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and it is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, it is said to be trading at a premium.
Return per Ordinary Share
Revenue return per Ordinary share is based on the net revenue after taxation divided by the weighted average number of Ordinary Shares for the year.
Capital return per Ordinary Share is based on net capital gains divided by weighted average number of Ordinary Shares for the year.
Ongoing charges
Ongoing charges are the Company's expenses expressed (excluding and including performance fee) as a percentage of its average monthly net assets and follows the AIC recommended methodology. Ongoing charges are different to total expenses as not all expenses are considered to be operational and recurring.
CORPORATE INFORMATION
Directors
Jeremy Sillem (Chairman)
Harry Hyman (Senior Independent Director)
Colin Bond
Duncan Budge
Stephanie Léouzon
Investment Manager and AIFM
Pharmakon Advisors L.P.
110 East 59th Street #3300
New York, NY 10022
USA
Administrator
Link Alternative Fund Administrators Limited
Beaufort House
51 New North Road
Exeter
EX4 4EP
Company Secretary and Registered Office
Link Company Matters Limited
Beaufort House
51 New North Road
Exeter
EX4 4EP
Tel: 01392 477500
Company Website
www.bpcruk.com
Financial and Strategic Communications
Buchanan Communications Limited
107 Cheapside
London
EC2V 6DN
Independent Auditor
PricewaterhouseCoopers LLP
7 More London Riverside
London
SE1 2RT
Joint Brokers
J.P. Morgan Cazenove
25 Bank Street
London
E14 5JP
Goldman Sachs International
Peterborough Court
133 Fleet Street
London
EC4A 2BB
Legal Adviser
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London
EC2A 2EG
Registrar
Link Market Services Limited
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
TISE Sponsor
Carey Commercial Limited
1st and 2nd Floors
Elizabeth House
Les Ruettes Brayes
St Peter Port
Guernsey
GY1 1EW
Custodian
Bank of New York Mellon
One Canada Square
London
E14 5AL
National Storage Mechanism
A copy of the full Annual Report and Financial Statements will shortly be submitted to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at:
www.morningstar.co.uk/uk/NSM
END
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.
LEI: 213800AV55PYXAS7SY24
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR GPUACWUPUGWU
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March 10, 2020 10:00 ET (14:00 GMT)
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