ANNUAL REPORT AND
FINANCIAL STATEMENTS
For the year ended 31 December 2021
B
IO
P
HARMA
CREDIT PLC
BioPharma Credit PLC Annual Report 2021
BIOPHARMA CREDIT PLC
FINANCIAL STATEMENTS
Statement of Comprehensive Income 55
Statement of Changes in Equity 56
Statement of Financial Position 57
Cash Flow Statement 58
Notes to the Financial Statements 59
ADDITIONAL INFORMATION
Glossary of Terms and Alternative Performance
Measures (APM) 83
Corporate Information 84
Shareholder Information 85
STRATEGIC REPORT
Performance Highlights 01
At a glance 02
Chairman’s statement 04
Investment Manager’s report 06
ESG Programme and Sustainability 15
Strategic overview 18
GOVERNANCE
Board of Directors 32
Directors’ Report 33
Corporate Governance Statement 36
Audit and Risk Committee Report 41
Remuneration Report 43
Remuneration Policy 47
Statement of Directors’ Responsibilities 48
Independent Auditors’ Report 49
BioPharma Credit PLC
BioPharma Credit PLC provides investors with the opportunity to
gain exposure to the fast-growing life sciences industry.
Our diversified portfolio is primarily secured by cash flows
derived from sales of approved life sciences products.
1
Performance highlights
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
As at 31December 2021
Share Performance of the Company
2
60.0
70.0
80.0
90.0
100.0
110.0
120.0
130.0
140.0
150.0
Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20 Mar-21 Sep-21
BPCR AIC Investment Trust Debt sector index
2021 2020
Share price ($) 0.9680 0.9960
Net income per share ($) 0.0618 0.0732
NAV per Share ($) 0.9926 1.0037
Discount to NAV per share (%) 2.5 0.8
Shares in issue (m) 1,373.9 1,373.9
Net assets ($m) 1,363.7 1,378.9
Target Dividend
7 cents per annum
Dividend declared (Cents) 7.0 7. 3
Leverage (%) 0 0
This section includes Alternative Performance Measures (APMs). Refer to the glossary on page 83.
1 Net income in 2020 included $20,484,000 relating to the change in fair value of the Company’s subsidiary, BPCR Limited Partnership (“BPCR LP”). This change in fair value of
$20,484,000 is equal to the undistributed net income earned by BPCR LP in the year, reflecting changes in the fair value of and income earned on the investment it holds and gave
rise to an unrealised gain in the Company in 2020.
In 2021, the undistributed net income earned by BPCR LP in 2020 was received by the Company and was recognised in Investment income in the Statement of Comprehensive Income
and as a corresponding unrealised loss in the fair value of the investment. If this had been included in the year in which the income was received, 2021 Investment income would have
been $107,148,000 (2020: $121,029,000).
In 2021, undistributed investment income earned by BPCR LP was booked as a receivable of the Company ($9,593,000) and did not result in a change in fair value. The Company will
continue with this treatment prospectively. Details of this investment are set out in the accounting policy for income (Note 2F) and Note 7, investment at fair value through profit or loss
.
2 Share Performance of the Company and its subsidiaries versus AIC Investment Trust Debt sector index.
2
At a glance
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
INVESTMENT %
The $2,500 million invested by the Company and its
subsidiaries since IPO, on 27 March 2017, has been primarily
deployed in senior secured loans.
• • Senior secured corporate loans
•• Senior secured royalty loans
•• Unsecured convertible bonds
•• Equity
ASSETS %
The $1,377 million in assets as of 31 December 2021
continues to be dominated by senior secured
loans and cash.
• • Senior secured corporate loans
•• Senior secured royalty loans
•• Cash
•• Equity
Our primary objective is to continue to generate predictable
income for shareholders.
The Company holds a majority of its investments through its
financing subsidiary, BPCR Limited Partnership.
83%
14 %
2% 1%
77%
10%
12 % 1%
2021 INVESTMENTS
Funded in 2021
$m
Previously funded
$m
Total investment
$m
LumiraDx 150.0 0.0 15 0 .0
GBT 50.0 83.0 133 .0
Evolus 38.0 0.0 38.0
Total
238.0 83.0 321. 0
REPAYMENTS MADE IN 2021
Investment
Investment
Amount
$m
Prepayment
Date Gross IRR
Sebela 19 4 .2 30/6/21 11.2%
3
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
INVESTMENT
As at
31Dec 2021
$m
As at
31Dec 2020
$m
Cash and cash equivalents 174* 250*
Sebela senior secured loan – 92
BMS purchased payments 137 160
BioDelivery Sciences senior secured loan 60 80
BioDelivery Sciences equity 8 11
Optinose senior secured note, shares and warrants 72 72
Epizyme senior secured loan 110 110
Akebia senior secured loan 50 50
Sarepta Therapeutics senior secured loan 350 350
Global Blood Therapeutics senior secured loan 133 83
Collegium Therapeutics senior secured loan 93 134
LumiraDx senior secured loan and warrants 152 –
Evolus senior secured loan 38 –
Other net liabilities (13) (13)
Total net assets 1,364 1,379
INVESTMENT TYPE
Percentage as at
31 Dec 2021
Percentage as at
31 Dec 2020
Cash and cash equivalents 12.8% 18.1%
Sebela senior secured loan 0.0% 6.7%
BMS purchased payments 10.1% 11.6%
BioDelivery Sciences senior secured loan 4.4% 5.8%
BioDelivery Sciences equity 0.6% 0.8%
Optinose senior secured note, shares and warrants 5.3% 5.2%
Epizyme senior secured loan 8.1% 8.0%
Akebia senior secured loan 3.7% 3.6%
Sarepta Therapeutics senior secured loan 25.7% 25.4%
Global Blood Therapeutics senior secured 9.7% 6.0%
Collegium Therapeutics senior secured loan 6.8% 9.7%
LumiraDx senior secured loan and warrants 11.2% –
Evolus senior secured loan 2.7% –
Other net liabilities -1.1% -0.9%
Total net assets 100.0% 100.0%
* Includes cash at the Company and its subsidiaries.
At a glance continued
We will seek to achieve this by continuing to build a high-quality
portfolio of investments primarily secured by rights and cash
flows derived from sales of approved life sciences products.
4
Chairman’s statement
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
During 2021, the Company announced three investments
totalling $263 million of which $238 million was funded
through its financing subsidiary, BPCR Limited Partnership.
INTRODUCTION
The Company’s portfolio and pipeline have proved resilient in
unprecedented times. 2021 was the Company’s fourth full year of
operations and the Company reached its fifth anniversary in March
2022, reporting consistent returns.
INVESTMENTS
Over the course of 2021, the Company and its subsidiaries invested
$238 million, comprised of $150 million and $38 million for the new
LumiraDx and Evolus loans, respectively, and $50 million as part of
the amendment and upsizing of the Global Blood Therapeutics loan.
The portfolio diversification increased during 2021 and into 2022.
The Company, including assets and liabilities from its financing
subsidiary, BPCR Limited Partnership, ended the year with total net
assets of $1,364 million, comprising $1,203 million of investments,
$174 million of cash less $13 million of other net liabilities. The post
balance sheet deployment of $463 million has further reduced the
negative impact of cash drag.
The Company and its subsidiaries saw $156 million increased
liquidity due to the early repayment of the remaining principal
balance of the Sebela loan and the scheduled amortisation payments
from the Collegium loan and the BMS purchased payments.
DEBT FACILITY
On 10 September 2021, the Company was able to negotiate and
amend the revolving credit facility that was originated with JPMorgan
Chase Bank in 2020. The key terms to the amendment include a
reduction in the committed Revolving Credit Facility (“RCF”) from
$200 million to $50 million together with changes in the accordion
feature allowing for an increase in the RCF to $100 million and up to
$200 million in term loans, extension of the maturity date, and more
favorable terms to the interest rates.
ADMISSION TO PREMIUM SEGMENT OF MAIN
MARKET
On 10 September 2021, the Company convened a General
Meeting in which shareholders approved its proposed admission to
trade on the premium segment of the main market of the London Stock
Exchange (the “Admission”). The Company believes that the benefits
associated with the Admission include potential index inclusion,
greater access to capital, potential increased liquidity and expanded
analyst coverage. In connection to the Admission, new Articles of
Association suitable for a company whose shares are admitted to
trading on the Premium Segment were approved by shareholders at
that General Meeting.
SHAREHOLDER RETURNS
The Company reported net income of return on ordinary activities
after finance costs and before taxation for 2021 of $85 million, down
from the $89 million reported during 2020, which included $20.5
million relating to the change in fair value of its subsidiary, BPCR
Limited Partnership.
On 31 December 2021, the Company’s Ordinary Shares closed
at 96.8 cents, below the closing price on 31 December 2020 of
99.6 cents. Net Asset Value (“NAV”) per Ordinary Share decreased
over the same timeframe by 1.11 cents from 100.37 cents to 99.26
cents. The Company made four dividend payments over the year
totaling 7.29 cents per share, referencing net income for the four
quarters ending 30 September 2021. 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.
Total dividends from 2021 results reached 7.0 cents per share.
Management expects the 2022 dividends to be covered from profits.
COVID19
The COVID-19 pandemic is continuing to affect the movement of
people and disrupt business operations. The Board continues to hold
its meetings online and Pharmakon and the Company’s third-party
service providers have well established virtual working arrangements
that have not impacted operations. Our investment manager believes
that, while the COVID-19 pandemic has temporarily affected the
sales of some of the Company’s borrowers, it has not had a material
impact on the credit quality of the Company’s loans. We will continue
to monitor the situation and will inform shareholders of any material
changes to this assessment.
Harry Hyman
Chairman
5
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Chairman’s statement continued
OUTLOOK
The Company started 2022 strongly having announced
3transactions that represent $525 million in commitments to be
funded this year. On 5 January 2022, the Company entered into
a definitive senior secured term loan with Coherus Inc. investing up
to $150 million and funded the first tranche of $50 million on 5
January 2022. On 14February 2022, the Company committed to
invest $325 million in a new senior secured term loan with Collegium
Pharmaceutical, Inc. On 8 March 2022, the Company entered into a
definitive senior secured term loan with UroGen Pharma Inc. investing
up to $50 million and funded the first tranche of $37.5 million on
16 March 2022. The Investment Manager continues to develop a
pipeline of additional potential investments and, as a consequence,
we expect to be evaluating a number of potential alternatives to
fund future growth and further diversify our portfolio. On behalf of
the Board, I should like to express our thanks to Pharmakon for their
continued achievements on behalf of the Company in 2021 and to
our shareholders for their continued support.
Harry Hyman
Chairman
21 March 2022
BPCR annualized dividends per share in US$
$0.00
$0.01
$0.02
$0.03
$0.04
$0.05
$0.06
$0.07
$0.08
$0.09
2017 2018 2019 2020 2021
Ordinary Special
6
Investment Manager’s report
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Strong investment portfolio leading us into 2022
Pharmakon is pleased to present an update on the Company’s
portfolio and investment outlook. The Company’s existing portfolio
investments continue to perform well.
Pharmakon’s engagement during 2021 with potential counterparties
resulted in the execution of new and follow on investments totaling
$238million. During the year, the Company announced the
repayment of the outstanding portion of the Sebela loan, with
payments during 2021 totaling $97 million, including a prepayment
premium totaling $1.5 million.
EVOLUS
On 14 December 2021, the
Company and BioPharma Credit
Investments-V, a private fund
also investing in life sciences
debt managed by Pharmakon
Advisors, entered into a definitive
senior secured loan agreement
for up to $125 million with
Evolus Inc (Nasdaq: EOLS), a
biopharmaceutical company that
develops, produces, and markets
clinical neurotoxins for the treatment
of aesthetics (“Evolus”).
The Company funded $38 million of the
first tranche of $75million on 29 December
2021. The remaining $50 million may be
drawn by 31December 2022.
The loan will mature in December 2027
and will bear interest at 3-month LIBOR
plus 8.50per cent. per annum subject to a
1.00per cent. floor along with a one-time
additional consideration of 2.25per cent. of
the total loan amount payable upon funding
of the first tranche.
Evolus currently markets Jeuveau®
(prabotulinumtoxinA-xvfs), the first and only
neurotoxin dedicated exclusively to aesthetics.
Investment type Secured loan
Date Invested 14/12/2021
Maturity 12/2027
Total loan amount $125m
Company commitment $75m
Realised IRR's of Past Pharmakon Transactions
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Feb-08 Jul-09 Nov-10 Apr-12 Aug13 Dec-14 May-16 Feb-19Sep-17 Jun-20
Realised IRR
Funding Date
BPCR investments
Pharmakon/non-BPCR investments
Below is an update on the Company and its subsidiaries portfolio.
7
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Investment Manager’s report continued
LUMIRADX
On 24 March 2021, the Company
and BioPharma-V entered into
a definitive senior secured loan
agreement for $300 million with
LumiraDx Investment Limited
and LumiraDx Group Limited
(collectively “LumiraDx”).
The Company and its subsidiaries funded
$150 million of the $300 million loan on
29March 2021.
The loan will mature in March 2024 and will
bear interest at 8.00 per cent. per annum
along with an additional consideration of
2.50 per cent. of the loan amount paid
upon funding and an additional 1.50 per
cent. of the loan payable at maturity. On
28 September 2021, LumiraDx became
a publicly traded company via a SPAC
transaction with CA Healthcare Acquisition
Corp. and began trading on NASDAQ
under the ticker LMDX. The Company and
BioPharma-V each received 742,924
warrants exercisable into common stock of
LumiraDx under the terms of the transaction.
The warrants were valued at $2,068,225
as at 31 December 2021 with a LumiraDx
closing stock price of $8.91 and a strike price
of $10.00.
LumiraDx is a UK based, next-generation
Point of Care, or POC, diagnostic company
addressing the current limitations of legacy
POC systems by bringing performance
comparable to a central lab to the POC in
minutes, on a single instrument for a broad
menu of tests with a low cost of ownership. To
date, LumiraDx has developed and launched
four diagnostic tests for use with its platform:
a SARS-CoV-2 (“COVID-19”) antigen test
commercially available under an Emergency
Use Authorization in the United States, and
a Conformité Européenne (CE) Mark in
the European Economic Area, as well as a
SARS-CoV-2 antibody test, an International
Normalized Ratio, or INR, test, and a D-Dimer
test, all of which are CE Marked.
LumiraDx has also used its technology to
develop two rapid COVID-19 reagent
testing kits for use on open molecular systems,
LumiraDx SARS-CoV-2 RNA STAR and SARS-
CoV-2 RNA STAR Complete, both of which
obtained Emergency Use Authorization by
the FDA.
Investment type Secured loan
Date Invested 29/03/2021
Maturity 03/2024
Total loan amount $300m
Company commitment $150m
COLLEGIUM
On 7 February 2020, the Company
and BioPharma-V entered into
a definitive senior secured term
loan agreement for $200 million
with Collegium Pharmaceutical,
Inc. (Nasdaq: COLL), a
biopharmaceutical company focused
on developing and commercialising
new medicines for responsible pain
management (“Collegium”).
The Company and its subsidiaries funded
$165 million of the $200 million loan on
13February 2020.
The loan will mature in February 2024
and bears interest at three-month LIBOR
plus 7.50per cent. per annum subject to a
2.00per cent. LIBOR floor with a one-time
additional consideration of 2.50per cent.
of the loan amount paid upon funding. The
loan amortises quarterly and had a remaining
balance of $93million as of 31December
2021.
On 14 February 2022, the Company along
with BioPharmaV, provided Collegium with a
commitment to enter into a new senior secured
term loan agreement for $650 million.
Proceeds from the new loan will be used to
fund Collegium’s proposed acquisition of
BDSI as well as repay the outstanding debt
of Collegium and BDSI. Under the terms of
the new loan, the Company will invest $325
million in a single drawing. The fouryear
loan will have $100 million in amortization
payments during the first year and the
remaining $550 million balance will amortize
in equal quarterly installments. The loan will
bear interest at 3month LIBOR plus 7.50
per cent. per annum subject to a 1.20 per
cent. floor along with a onetime additional
consideration of 2.00 per cent. of the loan
amount payable at signing and 1.00 per cent.
of the loan amount payable at funding. Refer
to note 19 subsequent events.
Collegium currently markets Xtampza® ER,
an abuse-deterrent, extended- release, oral
formulation of oxycodone and Nucynta®
(tapentadol), a centrally acting synthetic
analgesic.
Investment type Secured loan
Date Invested 07/02/2020
Maturity 02/2024
Total loan amount $200m
Company commitment $165m
8
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Investment Manager’s report continued
SAREPTA
On 13 December 2019, the Company
and BioPharma-V entered into a
definitive senior secured term loan
agreement for up to $500million
with Sarepta Therapeutics
(Nasdaq: SRPT), a fully integrated
biopharmaceutical company focused
on precision genetic medicine
(“Sarepta”).
On 24 September 2020 the Sarepta loan
agreement was amended and the loan
amount was increased to $550million.
Sarepta drew down the first $250million
tranche at closing and an additional
$300million on 2 November 2020.
The Company and its subsidiaries funded
$175 million of each tranche for a total
investment of $350 million. The first tranche
will mature in December 2023 and the
second tranche in December 2024. The
loan bears interest at 8.5 per cent. per
annum along with a one-time additional
consideration of 1.75 per cent. of the first
tranche and 2.95 per cent. of the second
tranche paid upon funding and an additional
2 per cent. payable upon the repayment of
the loan.
Sarepta currently markets Exondys 51
(eteplirsen), Vyondys 53 (golodirsen) and
Amondys (casimersen) in the US for the
treatment of Duchenne muscular dystrophy
(DMD).
Investment type Secured loan
Date Invested 13/12/2019
Maturity 12/2024
Total loan amount $550m
Company commitment $350m
GLOBAL BLOOD THERAPEUTICS (“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.
GBT drew down $75 million at closing and
an additional $75 million on 20 November
2020. On 14 December 2021 the loan
agreement was amended and restated.
The amendment increased the aggregate
principal amount of the loan to $250 million
through a $100 million third tranche, which
was drawn on 22 December 2021.
The Company and its subsidiaries funded
$133 million across all three tranches.
The loan will mature in December 2027
and bears interest at three-month LIBOR
plus 7.00per cent. per annum subject to a
2.00per cent. floor along with a one-time
additional consideration of 1.50per cent. of
the total loan amount paid upon funding and
an additional 2.00per cent. payable upon
the repayment of the loan. The third tranche
also incurred additional consideration of
1.50per cent. at the time of funding. As a part
of the amendment in 2021, the Company and
its subsidiaries received a one-time fee equal
to 1.25 per cent. of the first two tranches and
the three-year make-whole period was reset
to December 2021, expiring in December
2024 instead of December 2022 under the
original terms.
GBT manufactures and sells Oxbryta
TM
(voxelotor) for the treatment of sickle cell
disease in adults and paediatric patients
12years of age and older.
Investment type Secured loan
Date Invested 17/12/2019
Maturity 12/2027
Total loan amount $250m
Company commitment $133m
9
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Investment Manager’s report continued
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
(“Akebia”).
Akebia drew down $80 million at closing and
an additional $20 million on 10 December
2020.
The Company and its subsidiaries funded
$40million of the $80 million first tranche and
$10million of the second tranche.
The loan will mature in November 2024 and
bears 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 paid upon funding.
Akebia currently markets Auryxia® (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 Secured loan
Date Invested 25/11/2019
Maturity 12/2024
Total loan amount $100m
Company commitment $50m
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 for cancer.
On 3 November 2020 the Epizyme loan
agreement was amended and the loan
amount was increased to $220 million.
Epizyme drew down $25 million at closing
and an additional $195 million during 2020.
The Company and its subsidiaries funded a
total of $110 million of the Epizyme loan.
The loan will mature in November 2024 and
bears 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 paid upon funding. Epizyme’s
lead product, TAZVERIK (tazemetostat), is
a first-in-class, oral inhibitor that received
FDA approval for epithelioid sarcoma on
23January 2020 and follicular lymphoma on
18June 2020.
Investment type Secured loan
Date Invested 18/11/2019
Maturity 11/2026
Total loan amount $220m
Company commitment $110m
10
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Investment Manager’s report continued
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
(“OptiNose”).
Optinose drew a total of US$130 million in
three tranches: $80 million on 12 September
2019, $30 million on 13 February 2020 and
$20 million on 1 December 2020. There are
no additional funding commitments.
On 2 March 2021, the sales covenants in
the notes were reduced by 16 per cent. for
2021 and 3 per cent. thereafter to allow for
slower growth due to the temporary impact
of COVID 19 from reduced patient visits. The
revised covenant for 2021 of $80 million still
represents growth of 65 per cent. from 2020.
The Company and its subsidiaries funded
a total $72 million across all tranches and
were allocated 445,696 warrants. The notes
mature in September 2024 and bear interest
at 10.75 per cent. per annum along with a
one-time additional consideration of 0.75per
cent. of the aggregate original principal
amount of senior secured notes which the
Company was committed to purchase under
the facility and 810,357 warrants exercisable
into common stock of OptiNose.
On 18 November 2021, OptiNose raised
$46million in a follow-on offering at a price
of $1.60. As part of the financing, Pharmakon
re-tiered its sales covenants, amended the
amortisation and make-whole provisions, and
received 1,375,000 new three-year warrants,
with the original warrants being canceled.
The new warrants were valued at $894,066
as at 31 December 2021 with an OptiNose
closing stock price of $1.62 and a strike price
of $1.60.
OptiNose’s leading product, XHANCE®
(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
18years or older. XHANCE® utilises a novel
and proprietary exhalation delivery system
to deliver the drug high and deep into the
sinuses, targeting areas traditional intranasal
sprays are not able to reach.
Investment type Secured loan
Date Invested 12/09/2019
Maturity 09/2024
Total loan amount $130m
Company commitment $72m
11
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Investment Manager’s report continued
BIODELIVERY SCIENCES
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”). BDSI utilises its
novel and proprietary BioErodible
MucoAdhesive (BEMA®) technology
to develop and commercialize new
applications of proven therapies
aimed at addressing important
unmet medical needs. 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.
The first tranche of the loan for $60 million
was funded on 28 May 2019 and the
second $20 million tranche was funded
on 22 May 2020. The loan will mature
in May 2025 and bears interest at LIBOR
plus 7.5 per cent., along with 2 per cent.
additional consideration paid at closing.
On 23 September 2021, BDSI made an
early prepayment of $20 million, making the
outstanding loan balance $60 million as of
31 December 2021. The Company sold
46per cent of its BDSI shares during 2019 at
an average price of $6.5. BDSI shares closed
at $3.10 on 31 December 2021.
On 14 February 2022, the Company along
with BioPharmaV, provided Collegium with a
commitment to enter into a new senior secured
term loan agreement for $650 million.
Proceeds from the new loan will be used to
fund Collegium’s proposed acquisition of
BDSI as well as repay the outstanding debt of
Collegium and BDSI. Upon the closing of the
acquisition, BDSI will be required to repay the
$60 million balance together with accrued
interest and a 2.0% prepayment fee and the
Company will receive cash consideration of
$5.60 per share of BDSI.
BDSI’s leading products include BELBUCA®
(buprenorphine buccal film) and Symproic®
(naldemedine).
Investment type Secured loan
Date Invested 28/05/2019
Maturity 05/2025
Total loan amount $80m
Company commitment $105m
Equity $25m
BRISTOLMYERS SQUIBB, INC.
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
14November 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 $140million
to $165million 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.
The Company funded all of the Purchased
Payments based on sales from 1 January
2018 to 31 December 2019 for a total of
$162 million.
The Company received $25 million in
2020, consisting of $2 million in principal
and $23million in income. The Company
received $36 million in 2021, consisting of
$23 million in principal and $13million in
income.
12
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Investment Manager’s report continued
REALISED INVESTMENTS
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. Sebela is a private specialty pharmaceutical company focused on gastrointestinal medicines, dermatology, and women’s
health.
The five-year senior secured loan began amortising in the third quarter of 2018 and was due to fully mature in December 2022. The loan bore
interest at LIBOR (un-capped) plus a single digit spread and included additional consideration. The Company received its final loan payment on
30 June 2021 with payments during 2021 totaling $97 million, including a prepayment premium totaling $1.5 million. The Company earned a
11.2 per cent. internal rate of return on its Sebela investment.
MARKET ANALYSIS
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 there was substantial volatility during the
period, the BTK index decreased 4 per cent. during 2021, compared to a 13 per cent. increase during 2020. Global equity issuance by life
sciences companies in 2021 was $106 billion, a 26 per cent. decrease from the $144 billion issued in 2020. We anticipate a slowdown in
equity issuance coupled with greater appetite for fixed income as a source of capital in 2022.
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 2021 was $146 billion, a 24 per cent. decrease from the $192 billion witnessed during 2020, driven
mainly by an increase in M&A activity globally as a result of COVID-19 pandemic restrictions easing. We are encouraged by the number of
M&A opportunities that are starting to build up which should lead to a more active market in the near term.
USD LIBOR
On 5 March 2021, the Financial Conduct Authority (“FCA”), the regulatory supervisor of USD LIBOR’s administrator (“IBA”) announced in a
public statement the future cessation of the 3-month USD LIBOR tenor setting. As of that date, 30 June 2023, that all available Tenor of USD
LIBOR have either permanently or indefinitely ceased to be provided by IBA or have been announced by or on behalf of the FCA pursuant to
public statement or publication of information to be no longer representative, a replacement benchmark will be used in the absence of USD
LIBOR. If the benchmark replacement is daily simple Secured Overnight Financing Rate (“SOFR”), all interest payments will be calculated with
SOFR beginning on the effective date on a quarterly basis. The Company has six loans with coupons that reference 3-month USD LIBOR and
four have a 2.00 per cent. floor and two have a 1.00 per cent. floor. As of 31 December 2021, the 3-month LIBOR rate was 0.21 per cent.,
significantly below the floors in the six loans. The Investment Manager will continue to monitor the news on the replacement benchmark and will
take steps to update its interest payments as of the effective date.
COVID19
Despite the gradual easing of COVID-19 restrictions in 2021 following the deployment of vaccination campaigns, we continue to carefully
track and monitor the Company’s operations and its service providers, which have not experienced any technical or operational difficulties
during the pandemic. COVID-19 continues to cause major disruptions across the globe and has temporarily affected the sales of some of
the Company’s borrowers. However, we have confidence in the performance of our loans and there has not been a material impact on the
credit quality of the Company’s investments. We will continue to monitor the pandemic and will inform investors of any material changes to this
assessment.
INVESTMENT OUTLOOK
We expect our investment pipeline to grow as new products and companies enter the market in 2022. In the first quarter of 2022, the
Company invested $375 million and committed to invest an additional $100 million. On 5 January 2022, the Company entered into a senior
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STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Investment Manager’s report continued
secured term loan agreement for up to $150 million with Coherus Inc. The loan will mature in January 2027 and will bear interest at 3-month
LIBOR plus 8.25 per cent. per annum subject to a 1.00 per cent. floor along with a one-time additional consideration of 2.00 per cent. of
the total loan amount payable upon funding of the first tranche. On 14 February 2022, the Company provided Collegium Pharmaceutical,
Inc. a commitment to enter into a new senior secured term loan agreement for $325 million. Proceeds from the new loan were used to
fund Collegium’s proposed acquisition of BioDelivery Sciences International, Inc. as well as repay the outstanding debt of Collegium and
BDSI. Under the terms of the new loan, the Company invested $325 million in a single drawing. The four-year loan will have $50 million in
amortization payments during the first year and the remaining $275 million balance will amortize in equal quarterly installments. The loan will
bear interest at 3-month LIBOR plus 7.50 per cent. per annum subject to a 1.20 per cent. floor along with a one-time additional consideration
of 2.00 per cent. of the loan amount payable at signing and 1.00 per cent. of the loan amount payable at funding. Pharmakon’s extensive
network and thorough approach will continue to identify strong investment opportunities. 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 its target dividend yield to its investors.
Pedro Gonzalez de Cosio
Co-founder and CEO, Pharmakon
21 March 2022
14
Case Study
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Evolus is a publicly traded
biopharmaceutical company
that currently markets Jeuveau®
(prabotulinumtoxinA-xvfs), the first and
only neurotoxin dedicated exclusively
to aesthetics. Evolus is a performance
beauty company with a customer-
centric approach focused on delivering
breakthrough products in the self-pay
aesthetic market.
Jeuveau is a proprietary 900 kDa
purified botulinum toxin type A
formulation indicated for the temporary
improvement in the appearance of
moderate to severe glabellar lines, also
known as “frown lines,” in adults. Evolus
received the approval of Jeuveau from
the U.S. Food and Drug Administration
(the “FDA”) in February 2019. Evolus
commercially launched Jeuveau in
the United States in May 2019 and
in November 2021, announced the
initiation of a Phase II clinical trial
designed to investigate a higher strength
dose of Jeuveau in frown lines. They
plan to enroll their first patient in the
clinical trial in the first quarter of 2022.
The product was also approved by
Health Canada in August 2018
and began marketing Jeuveau in
Canada in October 2019 through
distribution partner Clarion Medical
Technologies, Inc.
In September 2019, Evolus received
approval from the European Commission
(“EC”), to market the product in all 27
European Union, or EU, member states
plus the United Kingdom, Iceland,
Norway and Liechtenstein. In January
2021, they received a positive decision
from the EC to add a 50 unit product
to the approval obtained in September
2019. Evolus launched Jeuveau in
Europe in early 2022.
Jeuveau® was designed to compete
clinically with the market leader. Results
from the Evolus TRANSPARENCY global
clinical program of more than 2,100
patients, including a head-to-head
Phase III study comparing Jeuveau® to
the market leader, provide physicians
with confidence in recommending
Jeuveau® to their patients.
Aesthetic neurotoxins are the largest
segment of the fast-growing $12billion
global aesthetics market. With its
high regulatory barriers to entry,
the economically resilient aesthetic
neurotoxin market is poised for
continued growth.
A new competitor in the aesthetic
neurotoxins space
15
ESG Programme and Sustainability
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Environmental, social and governance report
As an investment trust, the Company does not have any employees and most of its activities are performed by its service providers. The
Company utilises the services of Pharmakon Advisors as the Investment Manager to take appropriate Environment, Social and Governance
(“ESG”) principles into account in its investment decisions and in the ongoing management of the portfolio. In order to ensure the robustness
of these policies, the Board engages with the Investment Manager on ESG matters and monitors compliance of BioPharma Credit’s portfolio
companies with this policy. The Board takes its fiduciary responsibility to Shareholders seriously and engages with the Investment Manager on
corporate governance matters.
Further details on Investment Manager’s ESG and sustainability polices are set out in the sections below.
Statement from the Investment Manager
ESG has become an increasingly important topic in both the assessment of impact of investments in the future and investor assessment of
opportunities. We maintain the highest standards of integrity and trust in our role as investors and partners to the Biopharma industry. We
conduct thorough diligence and monitoring with all of our investment positions. The biopharmaceutical companies and academic and non-
profit institutions with which we work typically have well-developed and transparent ESG policies, which seek to benefit wider society through
sustainable and ethical business practices.
Investment Process
The Investment Manager is focused on providing capital to life sciences companies that develop and manufacture products responsibly
and seeks to oversee this by incorporating a thorough review of applicable environmental issues in our underwriting process. As lenders, we
commonly require that our borrowers represent and commit to continued compliance with environmental regulations and good practices such
as; (a) conducting clinical trials in accordance with current good clinical practices and good laboratory practices, as well as (b) manufacturing
their products in accordance with current good manufacturing practices.
Monitoring and engagement
The Investment Manager is focused on providing capital to life sciences companies that develop and market products that provide value to
patients and society. As lenders, we commonly require that our borrowers represent and commit to continued compliance with various health
care laws meant to protect patients and payors. These laws regulate matters such as (a) compliance with public payor programs, including
fraud and abuse laws, (b) billings to insurance companies, health maintenance organizations and other managed care plans or otherwise
relating to insurance fraud, (c) accreditation standards, (d) marketing of drugs and payments to physicians, etc.
In addition, the Investment Manager is a signatory to the New Commitment to Patients signed in January 2020 by 215 biopharmaceutical
CEOs and industry leaders who recognize that (a) “we have a moral obligation to develop the best medicines and ensure that every person
who may benefit has access to them” and (b) “that we need to ensure that we act with the highest integrity and corporate responsibility —
always putting the interests of patients first”.
Responsible investment
The Investment Manager believes that strong governance, ethical business practices and prudent risk management are critical to achieving its
goals. The Investment Manager’s Code of Ethics, an integral part of its Compliance Manual, applies to all employees, officers and principals,
serves as the foundation for high standards of integrity and ethics, the deterrence of wrongdoing and the promotion of compliance with
applicable regulations. Risk management at the Investment Manager is ultimately the responsibility of senior management who are responsible
of ensuring investments are properly diligence and meet investment guidelines. The Investment Manager is conscious that the ultimate success
of our ESG initiative will depend on periodic reviews to ensure adherence and seek ways to continuously make improvements. We believe
that all employees are stakeholders in the success of the Investment Manager’s ESG initiative and should be actively engaged in its design and
compliance.
Sustainable investing
The Technical Screening Criteria (TSC) of the EU Taxonomy Regulation (Taxonomy) were finalised only on 9 December 2021 (i.e., in respect of
the first two Taxonomy environmental objectives of climate change mitigation and climate change adaptation) or have not yet been developed
(i.e. for the other four Taxonomy environmental objectives). These detailed criteria will require the availability of multiple, specific data points
regarding each investment. During the reporting period, there was insufficient reliable, timely and verifiable data available for the Investment
Manager to be able to assess investments using the TSC.
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ESG Programme and Sustainability continued
While there may be investments held by the Company that are in economic activities that contribute to an environmental objective and
may be eligible to be assessed against the TSC, the Investment Manager was not currently in a position to describe: a) the extent to which
the investments of the Company are in economic activities that qualify as environmentally sustainable and are aligned with the Taxonomy
Regulation; b) the proportion, as a percentage of the Company’s portfolio, of investments in environmentally sustainable economic activities
which are aligned with the Taxonomy Regulation; or c) the proportion, as a percentage of the Company’s portfolio, of enabling and transitional
activities (as described in the Taxonomy Regulation). The Investment Manager is keeping this situation under active review and where, in its
discretion, it has assessed that it has sufficient reliable, timely and verifiable data on the Company’s investments, the Investment Manager will
make the descriptions referred to above available to shareholders.
Climate change
The Investment Manager believes that climate change is now a defining factor in companies’ long-term prospects, and that it will have a
significant and lasting impact on economic growth and prosperity. The Investment Manager believes that climate risk may be an investment risk,
and that this may drive a profound reassessment of risk and asset values as investors seek to react to the impact of climate policy changes. This in
turn is likely to drive a significant reallocation of capital away from traditional carbon intensive industries over the coming years. The Investment
Manager recognizes that reporting to these standards requires significant time, analysis and effort. The Investment Manager is monitoring
regulations as they develop and will inform shareholder of any changes to its assessment.
17
Diversity and Inclusion
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
We believe that we will only succeed in our goals if we are able to attract and retain individuals of diverse backgrounds. Our success relies
on creating an inclusive environment where all of our employees can do their best work, and where each can play a vital role in achieving our
collective goals. Pharmakon is committed to working to continuously develop an organization that is diverse, equitable and inclusive. Our goal is
to provide every team member with the ability to achieve success within an equitable work environment and to encourage our teams to leverage
diversity to drive innovation and performance. The current makeup of our employee base is representative of our commitment to diversity:
Current employees: 7
Any other ethnic group 57%
White 29%
Asian or Asian British 14 %
% male 71 %
% female 29%
Average tenure 4 years
12-month turnover None
Pharmakon is conscious that the ultimate success of our ESG initiative will depend on periodic reviews to ensure adherence and seek ways to
continuously make improvements. We believe that all employees are stakeholders in the success of Pharmakon’s ESG initiative and should be
actively engaged in its design and compliance.
18
Strategic Overview
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
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, which include
Royalty Investments, Senior Secured Debt, Unsecured Debt and Credit Linked Notes.
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.
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Strategic Overview continued
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 25 per cent. of the Company’s gross assets will be exposed to any single Borrower or investment;
• no more than 35 per cent. of the Company’s gross assets will be invested in Unsecured Debt;
• no more than 15 per cent. of the Company’s gross assets will be invested in equity securities issued by LifeSci Companies; and
• the Company will invest no more than 10 per cent., in aggregate, of gross asset value at the time of acquisition in other listed closedended
investment funds.
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 2021 so as to be able to continue to qualify as
an investment trust.
The Company has two wholly-owned subsidiaries, BPCR Limited Partnership and BPCR GP Limited, details of which can be found in Note 14 to
the financial statements.
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STRATEGIC REPORT
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Strategic Overview continued
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. 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 on page 31.
The Company’s mechanisms for engaging with its stakeholders are set out below. These are kept under review by the Directors and are
discussed on a regular basis at Board meetings to ensure that they remain effective.
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 36 to 40.
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Strategic Overview continued
SHAREHOLDERS
Importance
Continued shareholder support and
engagement are critical to the existence of
the Company and the delivery of its long-term
strategy and engagement with shareholders
is given a high priority by both the Board and
the Investment Manager.
How the Company engages
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 Investment Manager
provides regular investor updates and
presentations to shareholders. 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. For further details
regarding this process see page 39.
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. Further information regarding the
AGM is detailed on page 35. 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 provided on page 85.
While the ongoing COVID-19 pandemic
meant that shareholders were encouraged
not to attend the AGM in June 2021,
Shareholders were able to provide questions
to the Company Secretary in advance of
the AGM and a separate shareholder call
was scheduled for any such questions to
be answered by the Board and Investment
Manager.
Although the Company has been established
with an indefinite life, the Articles provide that
a continuation vote be put to shareholders
at the first AGM 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. However, the
Directors believed that it was beneficial to the
Company for the first continuation resolution
to be held earlier, at the General Meeting on
30 September 2021, so as to give investors
greater certainty as to the Company’s longer
term existence in the context of the then
proposed migration to the Premium Segment.
635,130,451 shares were voted, all of
which were in favour of the approval of the
continuation resolution. The next continuation
vote will take place in 2024.
CLIENTS
Importance
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 and enable it to achieve
its investment objective.
How the Company engages
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 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
engagement with investee companies during
the year, including case studies regarding
their products, is set out on pages 6 to 14.
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Strategic Overview continued
SERVICE PROVIDERS
Importance
In order to function as an investment trust on
the Premium Segment of the London Stock
Exchange, the Company relies on a number
of reputable advisers for support in complying
with all relevant legal and regulatory
obligations.
How the Company engages
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, Joint 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 in December each year.
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 set out on pages 41 to 42.
Further information about the review of service
providers and the culture of the Investment
Manager is set out on page 37.
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Strategic Overview continued
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 2021 was $0.9926 per Share, compared to $1.0037 per Share at 31 December 2020.
A full description of the Company’s performance for the year ended 31 December 2021 is included in the Investment Manager’s Report on
page 6 to 14.
SHARE PRICE RETURN
The Company’s Share price at 31 December 2021 was $0.9680, giving a return since 31 December 2020 of -2.8 per cent. The Company’s
Share price at 31 December 2020 was $0.996, giving a return since 31 December 2019 of -2.4 per cent.
SHARE PRICE DISCOUNT/PREMIUM TO NAV PER SHARE
The Company’s Share price was at a discount to the NAV per Share at 31 December 2021 and 31 December 2020 of 2.5 per cent. and
0.77 per cent. respectively.
The daily closing price of the Company’s Shares ranged from $ 0.9460 – $1.0050 throughout the year.
In accordance with the Company’s Prospectus issued on 14 March 2018, if the Share price declines to a point where the Shares trade on
average at a discount to NAV per Share in excess of 5 per cent. in any three-month rolling period, the Company has certain discount control
mechanisms in place, one of which requires the Company to repurchase Shares until such time as the Share price discount to NAV per Share
moves below 1per cent.
In accordance with the Investment Management Agreement, the Investment Manager is required to apply 50 per cent. of any Performance Fee
paid by the Company to the Investment Manager in shares subject to certain price metrics, if the Company’s shares have, on average, traded at
a discount of 1 per cent. or more to the Net Asset Value per Share.
ONGOING CHARGES
The Company’s ongoing charges ratio is shown in the table below.
Year ended
31 December
2021
%
Year ended
31 December
2020
%
Ongoing charges excluding performance fee* 1.2 1.2
Performance fee 0.2 0.4
Ongoing charges including performance fee 1.4 1.6
*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 totaling 7.29 cents per Ordinary Share, including one special dividend of 0.29 cents, have been paid during the year ended 31
December 2021. Dividends totaling 8.29 cents per Ordinary Share, including two special dividends of 1.28 cents and 0.01 cents, were paid
during the year ended 31 December 2020.
24
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BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Strategic Overview continued
RISK MANAGEMENT AND THE INTERNAL CONTROL ENVIRONMENT
The role of the Board
A formal risk identification and assessment process has been adopted by the Company resulting in a risk framework document which
summarises the key risks and their mitigation.
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 2021, 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 16 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
Failure to achieve target
returns
The target returns are targets only and are based on financial projections that are themselves based
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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BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Strategic Overview continued
The success of the Company
depends on the ability and
expertise of the Investment
Manager
In accordance with the Investment Management Agreement, the Investment Manager is responsible
for the investment management of the Company’s assets. The Company does not have its own
employees and all of its Directors are appointed on a non-executive basis. All investment and asset
management decisions 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.
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 2021, creating a strong
alignment of interests between the Investment Manager and its affiliates and Shareholders of the
Company.
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BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Strategic Overview continued
The Company may from time
to time commit to make future
investments that exceed its
current liquidity
From time to time, the Company may commit to make future investments for which the Company
will need to raise funds by issuing equity and/or debt, or by selling all or part of other investments.
Investment opportunities may require the Company to fund transactions in two or more tranches,
with the later tranches to be funded six or more 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 Manager’s
ability to source and advise
appropriately on investments
Returns on the shareholders’ investments will depend upon the Investment Manager’s ability to source
and make successful investments on behalf of the Company. There can be no assurance that the
Investment Manager will be able to do so on 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.
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BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Strategic Overview continued
There can be no assurance that
the Board will be able to find a
replacement investment manager
if the Investment Manager
resigns
Under the terms of the Investment Management Agreement, the Investment Management Agreement
may be terminated by: (A) the Investment Manager on not less than six months’ notice to the
Company, such notice not to expire earlier than 18 months following Admission; or (B) the Company
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. 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 2021. 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 in the Company’s
portfolio may affect the
Company’s ability to achieve its
investment objective
The Company’s published investment policy allows the Company to invest up to 30 per cent. of the
Company’s assets in a single debt asset or in debt assets issued to a single borrower. While the
investment limits in the investment policy have been set keeping in mind the debt capital requirements
of the life sciences industry and the investment opportunities available to the 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.
28
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Strategic Overview continued
Life sciences products are subject
to intense competition and
various other risks
The biopharmaceutical and pharmaceutical industries are highly competitive and rapidly evolving.
The length of any life sciences product’s commercial life cannot be predicted. There can be no
assurance that the life sciences products will not be rendered 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.
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BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Strategic Overview continued
Investments in debt obligations
are subject to credit and interest
rate risks
Debt instruments are subject to credit and interest rate risks. Credit risk refers to the likelihood that
the borrower will default in the payment of principal and/or interest on an instrument. Financial
strength and solvency of a borrower 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 risk
The Company intends to hold debt assets that will 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 sciences prod-
ucts are subject to regulatory
actions that could harm the
Company’s ability to make
distributions to investors
There can be no assurance that any regulatory approvals for indications granted to one or more life
sciences products will not be subsequently revoked or restricted. Such revocation or restriction may
have a material adverse effect on the sales of such products and on the ability of borrowers 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. 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.
30
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Strategic Overview continued
Net asset values published will
be estimates only and may
differ materially from actual
results
Generally, there will be no readily available market for a significant number of the Company’s
investments and hence, the majority of the Company’s investments are not valued based on market-
observable inputs.
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 taxation legisla-
tion or practice may adversely
affect the Company and the
tax treatment for Shareholders
investing in the Company
Any change in the Company’s tax status, or in taxation legislation or practice in the UK, US or
elsewhere, could affect the value of the Company’s investments and the Company’s ability to
achieve its investment objective, or alter the post-tax returns to Shareholders. 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. 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.
COVID-19 may affect the
Company’s ability to continue
operations
The global economic disruption caused by COVID-19 may affect the Company’s ability to continue
in operation due to the impact on the market valuations of its senior secured loans or the ability of key
service providers (including the Custodian, the Fund Accountant and the Brokers) to maintain business
continuity and continue to provide appropriate service levels. The Investment Manager has reviewed
the impact of recent market volatility related to the COVID-19 pandemic on the Company’s portfolio
and have received regular updates on portfolio performance from the underlying counterparties
and considers that the Company’s business model remains viable and that the Company has
sufficient resources to continue in operation and to meet all liabilities as they fall due. The Investment
Manager has received updates from key service providers in respect of their business continuity plans
to address the issues posed by COVID-19 and are confident that they will be able to continue to
provide a good level of service for the foreseeable future.
31
STRATEGIC REPORT
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Strategic Overview continued
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 next continuation vote of the Company will also take place within this five-year time frame, in 2024. 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 on pages 24 to 30.
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.
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 on page 84. Further information on the Company’s anti-bribery and corruption policy is set out on
page35.
There are five Directors, four male and one female. Further information on the composition and operation of the Board is detailed on pages 36
and 37.
This Strategic Report has been approved by the Board and signed on its behalf by
Harry Hyman
Chairman
21 March 2022
32
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
GOVERNANCE
Board of Directors
All Directors in office at the date of this report are non-executive and independent of the Investment Manager
HARRY HYMAN
Chairman
Harry Hyman is the founder and CEO of Primary Health Properties PLC (“PHP”), a FTSE 250 Index company that specialises in the
ownership of property leased on a long-term basis to healthcare providers. After graduating from Christ’s College Cambridge, Mr
Hyman qualified as a chartered accountant with Price Waterhouse. In 1983 he joined Baltic PLC where he was deputy managing
director, finance director and company secretary. He left to establish PHP and Nexus in February 1994. Mr Hyman is the founder of
The International Opera Awards. He has been a non-executive director of a number of listed investment trusts.
Mr Hyman was appointed as a Director of the Company on 27February 2017 and as Chairman of the Company on 16September
2020.
COLIN BOND
Chairman of the Audit and Risk Committee
Colin Bond has been chief financial officer of the pharmaceutical company Vifor Pharma based in Zürich since 2016. He is a
non-executive director of Siegfried AG. From 2010 to 2016, he was the chief financial officer of Evotec AG, the early drug discovery
company listed on the Frankfurt Stock Exchange as part of the MDAX. Prior to that, he held CFO positions at several companies
including Ecolab and Novelis. During his early career, he worked as a pharmacist, auditor, and management consultant for Procter &
Gamble, Arthur Andersen, and PricewaterhouseCoopers LLP, respectively. He holds a university degree in Pharmacy from the University
of Aston (Birmingham) and an M.B.A. degree from London Business School. He is a fellow of the Institute of Chartered Accountants in
England and Wales and a member of the Royal Pharmaceutical Society. Mr Bond is a citizen of Great Britain and Switzerland.
Mr Bond was appointed as a Director of the Company on 15November 2016.
DUNCAN BUDGE
Senior Independent Director
Duncan Budge is chairman of Dunedin Enterprise Investment Trust plc and Artemis Alpha Trust plc, and a non-executive director
of Lowland Investment Company plc, Menhaden Capital plc and Asset Value Investors Limited. He was previously a director of
J.Rothschild Capital Management from 1988 to 2012 and a director and chief operating officer of RIT Capital Partners plc from
1995 to 2011. After graduating from the University of Oxford, he spent six years with Lazard Brothers.
Mr Budge was appointed as a Director of the Company on 24October 2016 and as Senior Independent Director on 16September
2020.
STEPHANIE LÉOUZON
Director
Stephanie Léouzon is a partner and head of Torreya Europe. She has worked on over 100 strategic and financing transactions in the
biopharmaceutical industry, with an aggregate value of over $75 billion. MrsLéouzon joined Torreya in 2011. Previously, she was a
managing director and senior adviser at Credit Suisse in London. She has also worked at Salomon Brothers, as a director of healthcare
investment banking, and as a vice president in the investment banking divisions of JP Morgan and Lehman Brothers in New York. She
was previously a non-executive director of Immunovaccine Inc and Endotis Pharma SA.
Mrs Léouzon was appointed as a Director of the Company on 5December 2018.
ROLF SODERSTROM
Director
Rolf Soderstrom has over 30 years’ strategic and operational experience in finance including M&A, fundraisings and disposals and
is currently CFO of Syncona Investment Management Limited and External Independent Director of Sosei Group Corporation, which
is listed on the Tokyo Stock Exchange. From 2008 to 2018, Mr Soderstrom was CFO of BTG plc and helped drive the successful
transformation of the company into a fully integrated global manufacturing and sales organisation focused on specialist healthcare. He
was previously Divisional Finance Director at Cobham Plc and Director of Corporate Finance at Cable & Wireless Plc and qualified as
a chartered accountant at PricewaterhouseCoopers LLP. He received a BA honours degree in History from University College London
and is a member of the Institute of Chartered Accountants of England and Wales. Mr Soderstrom is a citizen of Great Britain and
Finland.
Mr Soderstrom was appointed as a Director of the Company on 16September 2020.
33
Directors’ Report
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
GOVERNANCE
The Directors are pleased to present the Annual Report and audited
financial statements for the year ended 31 December 2021.
DIRECTORS
The Directors of the Company who were in office during the year
and up to the date of signing the financial statements are shown on
page32.
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 were allotted under this authority
during the year. This authority has now expired. A new allotment
authority will be sought at the Annual General Meeting to be held
inMay2022.
At the annual general meeting held on 17 June 2021, the Company
was granted authority to purchase up to 14.99 per cent. of the
Company’s Ordinary Share capital in issue at that date, amounting
to 205,952,416 Ordinary Shares. This authority will expire at the
conclusion of, and renewal will be sought at, the annual general
meeting to be held in May 2022. No shares were purchased during
the year for cancellation or held in treasury.
At 31 December 2021, and as at the date of this report, there are
1,373,932,067 Ordinary Shares in issue, of which 59,694 Ordinary
Shares 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. Shares held in treasury do not carry
voting rights. The total voting rights of the Company at 31 December
2021, and as at the date of this report, were 1,373,872,373.
Further information on the Company’s share capital is set out in
Note 13 to the financial statements.
SUBSTANTIAL SHAREHOLDINGS
The Directors have been informed of the following notifiable interests
in the Company’s voting rights as at 31 December 2021:
Number of
Ordinary Shares
% of
voting rights
Newton Investment Management
Limited 136,378,417 9.93
Adage Capital Partners GP LLC 130,851,379 9.52
Pablo Legorreta 76,742,548 5.59
Interseguro Compañía de Seguros S.A. 72,791,326 5.30
M&G plc 67,215,104 4.89
Inteligo Bank Limited 66,593,210 4.85
The Company has not been informed of any changes to the notifiable
interests between 31 December 2021 and the date of this report.
INFORMATION ABOUT SECURITIES CARRYING
VOTING RIGHTS
The following information is disclosed in accordance with The Large
and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 and DTR 7.2.6 of the Financial Conduct Authority’s
Disclosure Guidance and Transparency Rules:
• the Company’s capital structure and voting rights and details of
the substantial shareholders in the Company are set in Note 13
to the financial statements and above;
• the giving of powers to issue or buy back the Company’s
Shares requires an appropriate resolution to be passed by
shareholders; and
• there are no restrictions concerning the transfer of securities in
the Company or on voting rights; no special rights with regard
to control attached to securities and no agreements between
holders of securities regarding their transfer known to the
Company.
SIGNIFICANT AGREEMENTS
The Company’s facility agreement is considered significant in terms
of its potential impact on the business of the Company. In 2020,
the Company entered into a $200 million revolving credit facility
with JPMorgan Chase Bank through its wholly owned subsidiary,
BPCR Limited Partnership. On 10 September 2021, the Company
was able to negotiate and amend the revolving credit facility on
more favourable terms. The key terms to the amendment include a
reduction in the committed Revolving Credit Facility (“RCF”) from
$200 million to $50 million together with changes in the accordion
feature allowing for an increase in the RCF to $100 million and up to
$200 million in term loans, extension of the maturity date to 22 June
2024 and a reduction in the margin payable under the RCF from
4.00 per cent. to 2.75 per cent. (the “Facilities Agreement”). The
Facilities Agreement could alter or terminate on the change of control
of the Company.
DIVIDENDS AND DIVIDEND POLICY
Dividends paid in respect of the year ended 31 December 2021 are
set out on in Note 6 to the financial statements.
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
special distributable reserve created by the cancellation of its Share
premium account to pay dividends.
34
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Directors’ Report continued
GOVERNANCE
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.
FINANCIAL RISK MANAGEMENT
The principal risks and the Company’s policies for managing these
risks are set out in the Strategic Overview on pages 24 to 30 and
Note 16 to the financial statements.
CORPORATE GOVERNANCE
The Corporate Governance Statement on pages 36 to 40 forms part
of the Directors’ Report.
STAKEHOLDER ENGAGEMENT
While the Company has no employees, suppliers or customers,
the Directors give regular consideration to the need to foster the
Company’s business relationships with its stakeholders, in particular
with clients, shareholders and service providers. The effect of this
consideration upon the principal decisions taken by the Company
during the financial year is set out in further detail in the Strategic
Report on pages 20 to 22.
STREAMLINED ENERGY AND CARBON REPORTING
The Company is an investment trust, with neither employees nor
premises. It has no greenhouse gas emissions to report from its
operations nor does it have responsibility for any other emissions
producing sources under the Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013, including those within
the Company’s underlying investment portfolio. Consequently, the
Company consumed less than 40,000 kWh of energy during the
year in respect of which the Directors’ Report is prepared and is
therefore exempt from the disclosures required under the Streamlined
Energy and Carbon Reporting criteria.
REQUIREMENTS OF THE LISTING RULES
Listing Rule 9.8.4 requires the Company to include specified
information in a single identifiable section of the Annual Report or
a cross reference table indicating where the information is set out.
The information required under Listing Rule 9.8.4(7) in relation to
allotments of shares is set out on page 33. The Directors confirm that
no additional disclosures are required in relation to Listing Rule 9.8.4.
MANAGEMENT ARRANGEMENTS
The Company has appointed Pharmakon Advisors L.P., a limited
partnership established under the laws of the State of Delaware, USA
as its Investment Manager and acting Alternative Investment Fund
Manager (“AIFM”) for the purposes of the Alternative Investment Fund
Managers Directive. The Investment Manager is a registered investment
adviser under the Advisers Act and is regulated by the SEC.
The Company and the Investment Manager have entered into an
Investment Management Agreement dated 1 March 2017, as
amended on 14 March 2018, 24 May 2018 and 19 September
2018, pursuant to which the Investment Manager has been given
responsibility, subject to the overall supervision of the Board, for
the active investment management of the Debt Assets and all other
investments of the Company from time to time, including sourcing
and advising on investment opportunities and proposals which are
in accordance with the Company’s investment objective and policy.
The Investment Management Agreement may be terminated by:
(a) the Investment Manager on not less than six months’ notice to the
Company; or (b) the Company 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.
Details about the management and performance fee can be found in
Note 4 to the financial statements.
The Investment Manager consists of three principals: Pedro Gonzalez
de Cosio, Pablo Legorreta and Martin Friedman. In addition, the
Investment Manager may draw on the expertise of certain employees
of its affiliate, RP Management LLC. For these purposes, the Investment
Manager and RP Management LLC entered into a Shared Services
Agreement on 30 November 2016, whereby RP Management
LLC provides the services of its research, legal and compliance, and
finance teams to the Investment Manager.
The Investment Manager is responsible for the acts of
RP Management LLC personnel pursuant to the Shared Services
Agreement. Under the Shared Services Agreement, each of
RP Management LLC and the Investment Manager has agreed to
reimburse the other for reasonable internal and third-party expenses
incurred by the other on its behalf, or for its benefit, as a result of
rendering such services. Such expenses include (without limitation)
business development, due diligence, legal, consulting, compliance,
research and similar expenses.
Under the Shared Services Agreement, subject to each party’s fiduciary
duties to its clients, each of RP Management LLC and the Investment
Manager has agreed to refer to the other any business opportunities
that fit the other’s investment objectives. To the extent that a business
opportunity involves both equity and debt-like financing transactions,
each of RP Management LLC and the Investment Manager shall be
free to negotiate an offer aligning with its own investment objectives
and is under no obligation to take the other party’s investment
objectives into consideration during such a negotiation.
The Shared Services Agreement is governed by the laws of the State
of New York and may be terminated by either RP Management LLC
or the Investment Manager upon 30 days’ written notice.
35
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Directors’ Report continued
GOVERNANCE
ANTIBRIBERY AND CORRUPTION POLICY
The Company has reviewed the statements regarding compliance
with the Bribery Act 2010 by the Company’s Investment Manager
and service providers. These statements are reviewed regularly by the
Audit and Risk Committee.
FUTURE DEVELOPMENTS
Looking ahead, there are likely to be challenges during 2022
as the UK deals with the uncertainty arising from the end of the
transition period from leaving the European Union. The long-term
impact on the portfolio from Brexit has been considered. Whilst it is
difficult to quantify the impact of such a change, it is not believed to
fundamentally impact the business of the Company or to make the
sector any less attractive as an investment.
The effects of COVID-19 and other geopolitical and social risks,
including the invasion by Russia of Ukraine, may have economic
consequences that extend beyond the short term. The restrictions put
in place to limit the further spread of COVID-19 while the vaccine is
distributed may have a large impact on a wide range of economic
indicators. Geopolitical tensions between regions across the world,
global supply chain pressures (which have already fuelled inflationary
pressures), stretched household finances, and emerging social unrest
may also present future headwinds. The Investment Manager has
conducted a review of the Company’s investments and believes
that the COVID-19 virus and the invasion by Russia of Ukraine has
not had a material impact on the credit quality of the loans. The
Investment Manager continues to monitor the portfolio and will inform
investors of any material changes to this assessment.
Further details on the outlook of the Company are set out in the
Chairman’s Statement on page 4.
AUDIT INFORMATION
The Directors who held office at the date of approval of the Directors’
Report confirm that, so far as they are aware, there is no relevant
audit information of which the Company’s Auditor is unaware; and
each Director has taken all reasonable steps that he/she ought
to have taken as a Director to make himself/herself aware of any
relevant audit information and to establish that the Company’s Auditor
is aware of that information.
AGM
The Company’s annual general meeting will be held in May 2022.
The notice of this meeting is included with this mailing and will also be
uploaded to the Company’s website www.bpcruk.com.
By order of the Board
Link Company Matters Limited
Company Secretary
21 March 2022
36
Corporate Governance Statement
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
GOVERNANCE
This Corporate Governance Statement forms part of the Directors’
Report.
INTRODUCTION FROM THE CHAIRMAN
I am pleased to introduce this year’s Corporate Governance
Statement. In this statement, the Company reports on its compliance
with the 2019 AIC Code of Corporate Governance (the “AIC
Code”) and sets out how the Board has operated during the past
year. The Board is accountable to shareholders for the governance
of the Company and is committed to maintaining the highest standard
of corporate governance for the long-term sustainable success of the
Company.
COMPLIANCE WITH THE AIC CODE
The Company reviews its standards of governance against the
principles and recommendations of the AIC Code. The Board
considers that reporting against the principles and recommendations
of the AIC Code provides better information to shareholders as
it addresses all the principles set out in the 2018 UK Corporate
Governance Code (the “UK Code”), as well as setting out additional
principles and recommendations on issues that are of specific
relevance to investment trusts, and is endorsed by the Financial
Reporting Council (the “FRC”). The terms of the FRC’s endorsement
mean that AIC members who report against the AIC Code meet
fully their obligations under the UK Code and the related disclosure
requirements contained in the Listing Rules of the Financial Conduct
Authority. A copy of the AIC Code can be found at www.theaic.
co.uk. A copy of the UK Code can be obtained at www.frc.org.uk.
The Board recognises the importance of a strong corporate
governance culture and has established a framework for corporate
governance which it considers to be appropriate to the business of
the Company.
The UK Code includes provisions relating to:
• the role of the chief executive; and
• executive directors’ remuneration.
For the reasons explained in the AIC Code, the Board considers that
these provisions are not relevant to the Company, being an externally
managed investment company. The Company has therefore not
reported further in respect of these provisions.
The Board has reviewed the principles and recommendations of the
AIC Code and considers that it has complied throughout the year,
except as disclosed below:
• Directors are not appointed for a specific term as all Directors
are non-executive and the Company has adopted a policy
of all Directors, including the Chairman, standing for annual
re-election. The Board has determined that no further policy on
tenure is required.
• Given the structure and size of the Board, the Board does
not consider it necessary to appoint separate nomination,
management engagement or remuneration committees. The
roles and responsibilities normally reserved for these committees
are matters for the full Board.
BOARD OF DIRECTORS
Under the leadership of the Chairman, the Board of Directors is
collectively responsible for the long-term sustainable success of
the Company, generating value for shareholders and contributing
to wider society. It provides overall leadership, sets the strategic
aims of the Company and ensures that the necessary resources
are in place for the Company to meet its objectives and fulfil its
obligations to shareholders within a framework of high standards of
corporate governance and effective internal controls. The Directors
are responsible for the determination of the Company’s investment
policy and investment strategy and have overall responsibility for
the Company’s activities, including the review of investment activity
and performance and the control and supervision of the Investment
Manager.
The Board consists of five non-executive Directors. It seeks to ensure
that it has an appropriate balance of skills and experience, and
considers that, collectively, it has substantial recent and relevant
experience of investment trusts and financial and public company
management. The Chairman of the Audit and Risk Committee, Mr
Bond, has recent and relevant financial experience as set out in his
biography on page 32.
The terms and conditions of the appointment of the Directors are
formalised in letters of appointment, copies of which are available
for inspection from the Company’s registered office. None of the
Directors has a contract of service with the Company nor has there
been any other contract or arrangement between the Company and
any Director at any time during the year. Directors are not entitled to
any compensation for loss of office.
37
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Corporate Governance Statement continued
GOVERNANCE
CULTURE
The Chairman leads the Board and is responsible for its overall
effectiveness in directing the Company. He demonstrates objective
judgement, promotes a culture of openness and debate and
facilitates constructive Board relations and the effective contribution
of all Directors. In liaison with the Company Secretary, he ensures
that the Directors receive accurate, timely and clear information. The
Directors are required to act with integrity, lead by example and
promote this culture within the Company.
The Board seeks to ensure the alignment of its purpose, values
and strategy with this culture of openness, debate and integrity
through ongoing dialogue and engagement with its service
providers, principally the Investment Manager. The culture of the
Board is considered as part of the annual performance evaluation
process which is undertaken by each Director and the culture of
the Company’s service providers, including their policies, practices
and behaviour, is considered by the Board as a whole during the
annual review of the performance and continuing appointment of all
service providers. The Board holds monthly update meetings with the
Investment Manager and seeks to hold one Board meeting a year
at Pharmakon’s offices in New York, though this was not possible in
2021 due to the ongoing impact of the COVID-19 pandemic. Such
meetings enable the Directors to understand better the culture of the
Investment Manager and of RP Management LLC, with whom the
Investment Manager has a shared service agreement.
Further information on the Company’s engagement with its
stakeholders is set out on pages 20 to 22.
CHAIRMAN AND SENIOR INDEPENDENT DIRECTOR
The Chairman, Mr Hyman, is deemed by his fellow independent
Board members to be independent in character and judgement and
free of any conflicts of interest. He considers himself to have sufficient
time to spend on the affairs of the Company. Mr Hyman has no
significant commitments other than those disclosed in his biography on
page 32.
As Senior Independent Director, Mr Budge acts as a sounding board
for the Chairman, meets with major shareholders as appropriate,
provides a channel for any shareholder concerns regarding the
Chairman and takes the lead in the annual evaluation of the
Chairman by the independent Directors. In the event of a period
of stress, the Senior Independent Director would work with the
Chairman, the other Directors, and/or shareholders to resolve any
issues.
BOARD OPERATION
The Directors have adopted a formal schedule of matters specifically
reserved for their approval. These include the following:
• approval of the Company’s investment policy, long-term
objectives and commercial strategy;
• approval of the gearing policy of the Company;
• approval of Annual and Half-yearly Reports and financial
statements and accounting policies, prospectuses, circulars and
other shareholder communications;
• raising new capital;
• approval of dividends;
• Board appointments and removals;
• appointment and removal of the Investment Manager, Auditor
and the Company’s other service providers; and
• approval of the Company’s annual expenditure budget.
BOARD MEETINGS
The Company has four scheduled Board meetings a year, with
additional meetings arranged as necessary.
At each Board meeting, the Directors follow a formal agenda
which is circulated in advance by the Secretary. The Secretary,
the Administrator and the Investment Manager regularly provide
the Board with financial information, including an annual expenses
budget, together with briefing notes and papers in relation to changes
in the Company’s economic and financial environment, statutory
and regulatory changes and corporate governance best practice. A
description of the Company’s risk management and internal control
systems is set out in the Strategic Report on page 24.
At each Board meeting, representatives from the Investment Manager
are in attendance to present reports to the Directors covering the
Company’s current and future activities, portfolio of assets and its
investment performance over the preceding period. The Board and
the Investment Manager operate in a fully supportive, co-operative
and open environment and ongoing communication with the Board is
maintained between formal meetings.
38
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Corporate Governance Statement continued
GOVERNANCE
AUDIT AND RISK COMMITTEE
The Board has established an Audit and Risk Committee to assist its
operations. The Committee’s delegated responsibilities are clearly
defined in formal terms of reference, which are available on the
Company’s website.
The Committee comprises all Directors and is chaired by Mr Bond.
Given the size and nature of the Board it is felt appropriate that
all Directors are members of the Audit and Risk Committee. Its
responsibilities are detailed in the Audit and Risk Committee Report
on pages 41 and 42. The Committee has direct access to the
Company’s Auditor, and provides a forum through which the Auditor
reports to the Board. Representatives of the Auditor attend quarterly
meetings of the Committee.
Further details about the Audit and Risk Committee and its activities
during the year under review are set out on pages 41 and 42.
MEETING ATTENDANCE
The number of scheduled Board and Audit and Risk Committee
meetings held during the year ended 31 December 2021 and the
attendance of the individual Directors is shown below:
Board
Audit and risk
committee
Number
entitled to
attend
Number
attended
Number
entitled to
attend
Number
attended
Harry Hyman 4 4 3 3
Duncan Budge 4 4 3 3
Colin Bond 4 4 3 3
Stephanie Léouzon 4 4 3 3
Rolf Soderstrom 4 4 3 3
A number of additional Board and Audit and Risk Committee
meetings were held by the Company during the year ended
31December 2021. These meetings were held in respect of
planning the year end audit, obtaining updates on the interim review
and in respect of the audit tender process.
INDEPENDENCE OF DIRECTORS
The independence of the Directors is reviewed as part of the annual
evaluation process. Each Director is considered to be independent in
character and judgement and entirely independent of the Investment
Manager. None of the Directors sit on the boards of any other
companies managed by the Investment Manager.
INDUCTION OF NEW DIRECTORS
A procedure for the induction of new Directors has been established,
including the provision of an induction pack containing relevant
information about the Company, its processes and procedures. New
appointees have the opportunity of meeting with the Chairman,
relevant persons at the Investment Manager and the Secretary. There
were no Director appointments during the year.
REELECTION AND RETIREMENT OF DIRECTORS
Under the Company’s Articles and in accordance with the AIC
Code, Directors are subject to election by shareholders at the first
AGM after their appointment. Thereafter, at each AGM any Director
who has not stood for re-election at either of the two preceding
AGMs shall retire. In addition, one-third of the Directors eligible to
retire by rotation shall retire from office at each AGM. Beyond these
requirements, the Board has agreed a policy whereby all Directors
will seek annual re-election at the Company’s Annual General
Meetings. In accordance with the above policy, and as there were
no appointments or retirements in the year, all Directors will be
seeking re-election at the forthcoming AGM.
Following formal performance evaluation as detailed above, the
Board strongly recommends the re-election of each of the Directors
on the basis of their experience and expertise in investment matters,
their independence and continuing effectiveness and commitment to
the Company.
DIVERSITY POLICY
In accordance with the AIC Code, the Board is comprised of a
mixture of individuals who have an appropriate balance of skills and
experience to meet the future opportunities and challenges facing
the Company. Appointments are made first and foremost on the
basis of merit and taking into account the recognised benefits of all
types of diversity. The Board ensures that diversity is an important
consideration and part of the selection criteria used to assess
candidates to achieve a balanced Board.
The Board is mindful of the current FCA proposals to incorporate the
diversity recommendations from the Parker and Hampton-Alexander
reviews into the Listing Rules on a ‘comply or explain’ basis which
will apply to financial years commencing 1 January 2022. Once
finalised, these proposals will be taken into consideration in respect
of the recruitment of all new Directors of the Company. The Company
will report its compliance against this new requirement in the annual
report for the year ending 31 December 2022, to be published in
2023.
39
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Corporate Governance Statement continued
GOVERNANCE
CONFLICTS OF INTEREST
It is the responsibility of each individual Director to avoid an
unauthorised conflict of interest situation arising. The Director must
request authorisation from the Board as soon as he/she becomes
aware of the possibility of an interest that conflicts, or might possibly
conflict, with the interests of the Company (“situational conflicts”). The
Company’s Articles authorise the Board to approve such situations,
where deemed appropriate.
A register of conflicts is maintained by the Secretary and is reviewed
at Board meetings, to ensure that any authorised conflicts remain
appropriate. The Directors are required to confirm at these meetings
whether there has been any change to their position.
The Board is responsible for considering Directors’ requests for
authorisation of situational conflicts and for deciding whether or
not the situational conflict should be authorised. The factors to be
considered will include: whether the situational conflict could prevent
the Director from properly performing their duties; whether it has,
or could have, any impact on the Company; and whether it could
be regarded as likely to affect the judgement and/ or actions of
the Director in question. When the Board is deciding whether to
authorise a conflict or potential conflict, only Directors who have
no interest in the matter being considered are able to take the
relevant decision, and in taking the decision the Directors must act
in a way they consider, in good faith, will be most likely to promote
the Company’s success. The Directors are able to impose limits or
conditions when giving authorisation if they think this is appropriate in
the circumstances.
PERFORMANCE EVALUATION OF THE BOARD
The Directors are aware that they need to continually monitor and
improve performance and recognise this can be achieved through
regular Board evaluation, which provides a valuable feedback
mechanism for improving Board effectiveness. The Directors have
therefore opted to undertake an internal performance evaluation by
way of questionnaires specifically designed to assess the strengths
and independence of the Board and the Chairman, individual
Directors and the performance of the Audit and Risk Committee. The
evaluation of the Chairman is carried out by the other Directors of the
Company, led by the Senior Independent Director. The questionnaires
are also intended to analyse the focus of Board meetings and assess
whether they are appropriate, or if any additional information may
be required to facilitate Board discussions. The Chairman acts on the
results of the evaluation by recognising the strengths and addressing
any weaknesses of the Board as appropriate. The results of the Board
evaluation process are reviewed and discussed by the Board as a
whole. This evaluation process is carried out annually.
The composition of the Board and, in particular, succession
planning are kept under review by the Board and are considered
on an annual basis in December each year in conjunction with the
evaluation process in order to ensure an orderly refreshment of the
Board and to develop a diverse pipeline.
Following the evaluation process conducted during the year under
review, the Board considers that all the current Directors contribute
effectively and have the skills and experience relevant to the
leadership and direction of the Company. The Board has satisfied
itself that the Directors have enough time to devote to the Company’s
affairs.
INSURANCE AND INDEMNITY PROVISIONS
The Board has agreed arrangements whereby Directors may take
independent professional advice in the furtherance of their duties.
The Company has Directors’ and Officers’ liability insurance and
professional indemnity insurance to cover legal defence costs and
public offering of securities insurance in place in respect of both the
IPO and the Placing Programme. Under the Company’s Articles, the
Directors are provided, subject to the provisions of UK legislation, with
an indemnity in respect of liabilities which they may sustain or incur in
connection with their appointment. This indemnity was in force during
the year and remains in force as at the date of this report. Apart from
this, there are no third-party indemnity provisions in place for the
Directors.
COMPANY SECRETARY
The Board has direct access to the advice and services of the
Secretary, Link Company Matters Limited, which is responsible for
ensuring that Board and Committee procedures are followed and
that applicable regulations are complied with. The Secretary is also
responsible to the Board for ensuring timely delivery of the information
and reports which the Directors require and that the statutory
obligations of the Company are met.
INTERNAL CONTROL REVIEW
The Board is responsible for the systems of internal controls relating
to the Company, including the reliability of the financial reporting
process and for reviewing the systems’ effectiveness. The Directors
have reviewed and considered the guidance supplied by the
FRC on risk management, internal control and related finance and
business reporting and an ongoing process has been established for
identifying, evaluating and managing the principal risks faced by the
Company. This process, together with key procedures established
with a view to providing effective financial control, was in place
during the year under review and at the date of this report.
The internal control systems are designed to ensure that proper
accounting records are maintained, that the financial information
on which business decisions are made and which is issued for
publication is reliable, and that the assets of the Company are
safeguarded.
40
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Corporate Governance Statement continued
GOVERNANCE
The risk management process and systems of internal control are
designed to manage rather than eliminate the risk of failure to achieve
the Company’s objectives. It should be recognised that such systems
can only provide reasonable, not absolute, assurance against
material misstatement or loss.
The Directors have carried out a review of the effectiveness of the
systems of internal control as they have operated over the year and
up to the date of approval of the report and financial statements.
There were no matters arising from this review that required further
investigation and no significant failings or weaknesses were identified.
INTERNAL CONTROL ASSESSMENT PROCESS
Robust risk assessments and reviews of internal controls are
undertaken regularly in the context of the Company’s overall
investment objective:
In arriving at its judgement of what risks the Company faces, the
Board has considered the Company’s operations in light of the
following factors:
• the nature and extent of risks which it regards as acceptable for
the Company to bear within its overall business objective;
• the threat of such risks becoming reality;
• the Company’s ability to reduce the incidence and impact of risk
on its performance;
• the cost to the Company and benefits related to the review of
risk and associated controls of the Company; and
• the extent to which third parties operate the relevant controls.
A risk matrix has been produced against which the risks identified and
the controls in place to mitigate those risks can be monitored. The
risks are assessed on the basis of the likelihood of them happening,
the impact on the business if they were to occur and the effectiveness
of the controls in place to mitigate them. This risk matrix is reviewed
twice a year by the Audit and Risk Committee and at other times as
necessary.
The principal risks that have been identified by the Board are set out
on pages 24 to 30.
The Board reviews financial information produced by the Investment
Manager and the Administrator on a regular basis.
Most functions for the day-to-day management of the Company
are subcontracted, and the Directors therefore obtain regular
assurances and information from key third-party suppliers regarding
the internal systems and controls operated in their organisations. In
addition, each third party is requested to provide a copy of its report
on internal controls each year, which is reviewed by the Audit and
RiskCommittee.
41
Audit and Risk Committee Report
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
GOVERNANCE
AUDIT AND RISK COMMITTEE REPORT
I am pleased to present the Audit and Risk Committee Report for the
year ended 31 December 2021.
RESPONSIBILITIES OF THE COMMITTEE
The primary responsibilities of the Committee are as follows:
• to monitor the integrity of the financial statements of the
Company, the financial reporting process and the accounting
policies of the Company;
• to review the content of the Annual Report and financial
statements and advise the Board on whether, taken as a whole,
it is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s
position and performance, business model and strategy;
• to keep under review the effectiveness of the Company’s internal
control environment and risk management systems;
• to review the scope and effectiveness of the audit process
undertaken by the Auditor;
• to make recommendations to the Board in relation to the
appointment, reappointment or removal of the external Auditor
and to approve its remuneration and terms of engagement;
• to review and monitor the Auditor’s independence, objectivity
and effectiveness; and
• to approve any non-audit services to be provided by the Auditor
and monitor the level of fees payable in that respect.
ACTIVITIES IN THE YEAR
During the year, the Committee has:
• conducted a review of the internal controls and risk management
systems of the Company and its third-party service providers;
• agreed the audit plan and fees with the Auditor in respect of the
interim review of the Half-yearly Report for the period ended
30 June 2021 and the statutory audit of the Annual Report for
the year ended 31 December 2021, including the principal
areas of focus;
• received and discussed with the Auditor its report on the results
of the review of the half-yearly financial statements and the year-
end audit;
• reviewed the Company’s half-yearly and annual financial
statements and recommended these to the Board for approval;
• examined in detail the methodology and assumptions applied in
revaluing the assets of the Company;
• reviewed the valuation of the Company’s assets on a quarterly
basis; and
• undertaken a competitive tender process in relation to the
statutory audit of the Company
MEETINGS
The Committee met four times during the year under review and once
following the year end.
Details of the composition of the Committee are set out in the
Corporate Governance Statement on page 38.
SIGNIFICANT ISSUES
The Committee considered the following key issues in relation to the
Company’s financial statements during the year. A more detailed
explanation of the consideration of the issues set out below, and
the steps taken to manage them, is set out in the Principal Risks and
Uncertainties on pages 24 to 30.
Valuation of unlisted investments
In the year under review, the Committee reviewed the valuation
process of the Company’s unlisted investments and the systems in
place to ensure the accuracy of these valuations, particularly in
view of the fact that the unlisted investments represent the principal
element of the NAV. During the year, the Committee conducted
quarterly reviews of the investments held by the Company and was
comfortable with the valuations given.
Internal controls
The Committee carefully considers the internal control systems by
continually monitoring the services and controls of its third-party
service providers.
The Committee reviewed, and where appropriate, updated the risk
matrix during the year under review. This is done on a biannual basis.
The Committee received a report on internal control and compliance
from the Administrator and Registrar and no significant matters of
concern were identified.
The Company does not have an internal audit function. During the
year, the Committee reviewed whether an internal audit function
would be of value and concluded that this would provide minimal
additional comfort at considerable extra cost to the Company. While
the Committee believes that the existing system of monitoring and
reporting by third parties remains appropriate and adequate, it will
continue, on an annual basis, to actively consider possible areas
within the Company’s controls environment which may need to be
reviewed in detail.
42
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Audit and Risk Committee Report continued
GOVERNANCE
Going concern and long-term viability of the Company
The Committee considered the Company’s financial requirements
for the next 12 months and concluded that it has sufficient resources
to meet its commitments. Consequently, the financial statements
have been prepared on a going concern basis. The Committee
also considered the longer-term viability statement within the Annual
Report for the year ended 31 December 2021, covering a five-year
period, and the underlying factors and assumptions which contributed
to the Committee deciding that this was an appropriate length of
time to consider the Company’s long-term viability. The Company’s
viability statement can be found on page 31.
AUDIT FEES AND NONAUDIT SERVICES PROVIDED BY
THE AUDITOR
The Committee reviewed the audit plan and fees presented by the
Auditor and considered its report on the financial statements. Total
fees for the year payable to the Auditor amounted to $672,000.
This figure includes non-audit fees of $54,000 in respect of the
interim review of the Half-yearly Report and financial statements for
the period ended 30 June 2021, $30,000 in respect of quarterly
agreed upon procedures over investment valuations and $127,000
in respect of reporting accountant work. In accordance with the
Company’s policy on the provision of non-audit services, all non-audit
services provided by the Auditor during the year were approved in
advance by the Directors. Further information on the fees paid to the
Auditor is set out in Note 4 to the financial statements.
The non-audit services provided by the Auditor during the year under
review were assurance related, and the Committee firmly believes
that PwC have been best placed to provide them on a timely and
cost-effective basis to the benefit of shareholders.
EFFECTIVENESS OF THE EXTERNAL AUDIT
The Committee reviews the effectiveness of the external audit
carried out by the Auditor on an annual basis. The Chairman of the
Committee maintained regular contact with the Company’s Audit
Partner throughout the year and also met with them prior to the
finalisation of the audit of the Annual Report and financial statements
for the year ended 31 December 2021, without the Investment
Manager present, to discuss how the external audit was carried out,
the findings from such audit and whether any issues had arisen from
the Auditor’s interaction with the Company’s various service providers.
INDEPENDENCE AND OBJECTIVITY OF THE AUDITOR
The Committee has considered the independence and objectivity
of the Auditor and has conducted a review of non-audit services
which the Auditor has provided during the year under review. The
Committee receives an annual confirmation from the Auditor that
its independence is not compromised by the provision of such
non-audit services. Jessica Miller is the Audit Partner allocated to
the Company by PwC. The audit of the financial statements for the
year ended 31December 2021 is her fourth as Audit Partner. The
Committee is satisfied that the Auditor’s objectivity and independence
is not impaired by the performance of these non-audit services and
that the Auditor has fulfilled its obligations to the Company and its
shareholders.
AUDIT TENDER AND CHANGE OF AUDITOR
As previously announced to shareholders, the Company undertook
a competitive tender process in relation to the statutory audit of
the Company in March 2021, at the end of which it was agreed
that Ernst & Young (“EY”) would conduct the statutory audit of the
Company for the year ending 31 December 2021. Regrettably,
EY informed the Board that, due to the tax work carried out by its
U.S. offices for the Company for previous financial years up to the
financial year ending on 31 December 2020, it was unable to
accept the proposed appointment as auditor to the Company for the
year to 31 December 2021. Consequently, the Board agreed that
PwC should be appointed as auditor to the Company for one further
year. The appointment of PwC was approved by shareholders at
the general meeting held on 24 June 2021. On behalf of the Board,
I would like to thank PwC for its service to the Company since the IPO
in 2017.
I look forward to working with EY on the statutory audit of the
Company for the year ending 31 December 2022. Shareholder
approval of the appointment of EY as Auditor will be sought at the
Annual General Meeting of the Company to be held later this year.
Colin Bond
Audit and Risk Committee Chairman
21 March 2022
43
Remuneration Report
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
GOVERNANCE
STATEMENT FROM THE CHAIRMAN
I am pleased to present the Directors’ Remuneration Report for the
year ended 31 December 2021.
As set out in the Corporate Governance Statement on page 36, the
Directors’ remuneration is determined by the Board as a whole. The
Board reviews Directors’ fees on an annual basis, in December each
year. During the year ended 31 December 2021, the annual fees
were as follows:
Chairman $100,000
Chairman of the Audit and Risk Committee $85,000
Director $70,000
The Board reviewed Directors’ remuneration at its meeting in
December 2021, taking into account a number of factors including
recent and relevant benchmarking analysis produced by Trust
Associates and the Company’s Joint Broker, J.P. Morgan Cazenove;
the additional responsibilities of the Directors following the admission
of the Company’s ordinary shares to listing on the Official List of the
Financial Conduct Authority and to trading on the Premium Segment
of the London Stock Exchange’s Main Market; the fact that current
Directors’ fee levels were set prior to IPO in 2017; and broader
inflationary increases since that time. Following consideration, the
Board agreed that, with effect from 1 January 2022, the annual
fee levels for the Chairman, the Chairman of the Audit and Risk
Committee and for a Director should be increased by 5%, rounded to
the nearest $100.
Consequently, the revised fee levels for Directors’ remuneration for the
year ending 31 December 2022 will be as follows:
Chairman $105,000
Chairman of the Audit and Risk Committee $89,300
Director $73,500
The Directors’ remuneration report is put to a shareholder vote on an
annual basis.
The Directors’ remuneration policy is put to a shareholder vote in the
first year of a company or in any year where there is to be a change
to the policy and, in any event, at least once every three years. The
Directors’ remuneration policy was last approved by shareholders
in 2021. There will be no significant change in the way the current,
approved remuneration policy will be implemented during the
course of the next financial year. An ordinary resolution will be put to
shareholders at the forthcoming annual general meeting to receive
and approve the Directors’ remuneration report.
VOTING AT AGM
The Directors’ Remuneration Report for the year ended 31 December 2021 and the Directors’ Remuneration Policy were approved by
shareholders at the AGM held on 17 June 2021. The votes cast by proxy were as follows:
Directors’ remuneration report Directors’ remuneration policy
Number of
votes
% of
votes cast
Number of
votes
% of
votes cast
For 613 , 712 ,13 9 99.99 613 , 712 ,13 9 99.99
Against 15 , 3 34 0.01 15 , 3 34 0.01
At Chairman’s discretion — — — —
Total votes cast 613 , 727, 4 73 100.00 613 , 72 7, 4 73 100.00
Number of votes withheld 669 — 669 —
44
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Remuneration Report continued
GOVERNANCE
PERFORMANCE OF THE COMPANY
The graph below compares the total return to Ordinary Shareholders compared to the AIC Investment Trust Debt sector index. The performance
of the AIC Investment Trust Debt sector index (USD) is shown as a market reference for investors.
Share Performance of the Company
1
60.0
70.0
80.0
90.0
100.0
110.0
120.0
130.0
140.0
150.0
Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20 Mar-21 Sep-21
BPCR AIC Investment Trust Debt sector index
1 Share Performance of the Company and its subsidiaries versus AIC Investment Trust Debt sector index.
DIRECTORS’ REMUNERATION FOR THE YEAR ENDED 31 DECEMBER 2021 (AUDITED)
The remuneration paid to the Directors during the year ended 31 December 2021 is set out in the table below:
Remuneration Expenses Total
Year ended
31 December
2021
$
Year ended
31 December
2020
$
Year ended
31 December
2021
$
Year ended
31 December
2020
$
Year ended
31 December
2021
$
Year ended
31 December
2020
$
Harry Hyman
1
100,000 78,769 — — 100,000 78,769
Colin Bond 85,000 85,000 — 3,185 85,000 88,185
Duncan Budge 70,000 70,000 — — 70,000 70,000
Stephanie Léouzon 70,000 70,000 — 115 70,000 7 0 ,115
Jeremy Sillem
2
— 71,154 16 545 16 71,699
Rolf Soderstrom
3
70,000 20,462 — — 70,000 20,462
395,000 395,385 16 3,845 395,016 399,230
1. Appointed as Chairman of the Company on 16 September 2020.
2. Retired as a Director of the Company on 16 September 2020.
3. Appointed as a Director of the Company on 16 September 2020.
45
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Remuneration Report continued
GOVERNANCE
DIRECTORS’ REMUNERATION FOR THE YEAR ENDED 31 DECEMBER 2021 (AUDITED) (CONTINUED)
The annual percentage change in remuneration paid to the Directors is set out in the table below:
Year Ended
31December
2021
$
Year Ended
31December
2020
$
% Change To
2021
% Change To
2020
Harry Hyman
1
100,000 78,769 27% 13%
Colin Bond 85,000 85,000 — —
Duncan Budge 70,000 70,000 — —
Stephanie Leouzon 70,000 70,000 — —
Jeremy Sillem
2
— 71,154 — -29%
Rolf Soderstrom
3
70,000 20,462 242% —
Total 395,000 395,385 20% 32%
1. Appointed as Chairman of the Company on 16 September 2020.
2. Retired as a Director of the Company on 16 September 2020.
3. Appointed as a Director of the Company on 16 September 2020.
RELATIVE IMPORTANCE OF SPEND ON PAY
The table below sets out in respect of the year ended 31 December 2021:
a) the remuneration paid to the Directors;
b) the Investment management fee;
c) the Investment Manager’s performance fee; and
d) the distributions made to shareholders by way of dividend.
Year ended
31 December
2021
$
Year ended
31 December
2020
$
Change
%
Directors’ remuneration 395,000 395,385 (0.10)
Investment management fee 13,669,927 13 , 74 5 ,161 (0.55)
Investment Manager’s performance fee 2,221,810 4,909,000 (54.74)
Dividends paid to shareholders 100,156,931 113,896,873 (12.06)
46
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Remuneration Report continued
GOVERNANCE
DIRECTORS’ INTERESTS (AUDITED)
There is no requirement under the Company’s Articles for Directors to hold Shares in the Company.
As at 31 December 2021, the interests of the Directors and any connected persons in the Ordinary Shares of the Company are set out below:
Year ended
31 December 2021
Number of Shares
Year ended
31 December 2020
Number of Shares
Harry Hyman 102,642 102,506
2
Colin Bond 100,000 100,000
Duncan Budge
3
100,000 100,000
Stephanie Léouzon — —
Rolf Soderstrom
4
100,000 100,000
1. 2,642 of these shares are held by Anita Hyman, a connected person of Mr Hyman.
2. 2,506 of these shares were held by Anita Hyman, a connected person of Mr Hyman.
3. The legal and beneficial interest in 50% of Mr Budge’s shares is held by Mrs Budge.
4. 50,000 of these shares are held by Linda Davey, a connected person of Mr Soderstrom.
On 15 February 2022, an additional 44 shares were purchased by Anita Hyman, a connected person of Mr Hyman.
None of the Directors or any persons connected with them had a material interest in the Company’s transactions, arrangements or agreements
during the year.
47
Remuneration policy
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
GOVERNANCE
INTRODUCTION
The Directors’ remuneration policy is put to a shareholder vote at least
once every three years and in any year if there is to be a change
in the Directors’ remuneration policy. A resolution to approve this
remuneration policy was proposed at the annual general meeting of
the Company held on 17 June 2021. The resolution was passed, and
the remuneration policy provisions set out below will apply until they
are next put to shareholders for renewal of that approval.
POLICY
The Company follows the recommendation of the AIC Code that
Non-executive Directors’ remuneration should reflect the time
commitment and responsibilities of the role. The Board’s policy is
that the remuneration of Non-executive Directors should reflect
the experience of the Board as a whole, and be determined with
reference to comparable organisations and appointments.
All Directors are Non-executive, appointed under the terms of
letters of appointment. There are no service contracts in place. The
Company has no employees. In line with the majority of investment
trusts, there are no performance conditions attached to the
remuneration of the Directors as the Board does not consider such
arrangements or benefits necessary or appropriate for Non-executive
Directors.
The Board has set three levels of fees: for a Director, for the Chairman
of the Audit and Risk Committee and for the Chairman of the Board.
Fees are reviewed annually in accordance with the above policy. The
fee for any new Director appointed to the Board will be determined
on the same basis.
The approval of shareholders would be required to increase the
aggregate limit of $750,000, as set out in the Company’s Articles.
The Company is committed to ongoing shareholder dialogue and
any views expressed by shareholders on the fees being paid to
Directors would be taken into consideration by the Board when
reviewing the Directors’ Remuneration Policy and in the annual review
of Directors’ fees.
DIRECTORS’ FEE LEVELS
Expected annual fees
for the year ending
31 December 2022
Annual
fees for the year
ended
31 December 2021
Chairman $105,000 $100,000
Chairman of the Audit and Risk Committee $89,300 $85,000
Director $73,500 $70,000
APPROVAL
The Directors’ Remuneration Report was approved by the Board and signed on its behalf by:
Harry Hyman
Chairman
21 March 2022
48
Statement Of Directors’ Responsibilities
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
In respect of the Financial Statements
GOVERNANCE
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 (IFRSs) as issued by the International Accounting
Standards Board (IASB).
Under company law, 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 IFRSs as issued by the International
Accounting Standards Board (IASB) 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
Each of the directors, whose names and functions are listed in the
Board of Directors section on page 32 confirm that, to the best of
their knowledge:
• the company financial statements, which have been prepared in
accordance with IFRSs as issued by the International Accounting
Standards Board (IASB), 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
Harry Hyman
Chairman
21 March 2022
49
Independent Auditors’ Report
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
GOVERNANCE
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF BIOPHARMA CREDIT PLC
Report on the audit of the financial statements
OPINION
In our opinion, BioPharma Credit PLC’s financial statements:
• give a true and fair view of the state of the company’s affairs as
at 31December2021 and of its profit and cash flows for the
year then ended;
• have been properly prepared in accordance with UK-adopted
international accounting standards; and
• have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements, included within the
Annual Report and Financial Statements (the “Annual Report”),
which comprise: the Statement of Financial Position as at
31December2021; the Statement of Comprehensive Income, the
Statement of Changes in Equity and the Cash Flow Statement for
the year then ended; and the notes to the financial statements, which
include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit and Risk
Committee.
BASIS FOR OPINION
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’
responsibilities for the audit of the financial statements section of our
report. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
INDEPENDENCE
We remained independent of the company in accordance with the
ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as
applicable to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit
services prohibited by the FRC’s Ethical Standard were not provided.
Other than those disclosed in the Audit and Risk Committee Report
and Note 4 - Fees and Expenses, we have provided no non-audit
services to the company in the period under audit.
OUR AUDIT APPROACH
OVERVIEW
Audit scope
• BioPharma Credit Plc is a standalone Investment Trust Company
and engages Pharmakon Advisors L.P. (the “Manager”) to
manage its assets.
• We conducted our audit of the financial statements using
information from Link Alternative Fund Administrators Limited (the
“Administrator”) to whom the Investment Manager has, with
the consent of the Directors, delegated the provision of certain
administrative functions.
• We tailored the scope of our audit taking into account the types
of investments within the company, the involvement of the third
parties referred to above, the accounting processes and controls,
and the industry in which the company operates.
• We obtained an understanding of the control environment in
place at both the Investment Manager and the Administrator and
adopted a fully substantive testing approach.
• In planning our audit, we made enquiries of the Investment
Manager to understand the extent of the potential impact of
climate change risk on the Company’s Financial Statements.
The Investment Manager concluded that the impact on the
measurement and disclosures within the Financial Statements
is not material because the Company’s investment portfolio is
made up of investments in pharmaceutical companies which are
less susceptible to the risks of climate change (including both
transition and physical risks).. We found this to be consistent
with our understanding of the Company’s investment activities.
We also considered the consistency of the Climate change
disclosures included in the Strategic Report and Investment
Manager Report with the Financial Statements and our
knowledge from our audit.
Key audit matters
• Valuation of unlisted investments
• Accuracy, occurrence and completeness of performance fees
Materiality
• Overall materiality: US$13.64 million (2020: US$13.80 million)
based on 1% of net assets.
• Performance materiality: US$10.23 million (2020: US$10.30
million).
50
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Independent Auditors’ Report continued
GOVERNANCE
THE SCOPE OF OUR AUDIT
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial statements.
KEY AUDIT MATTERS
Key audit matters are those matters that, in the auditors’ professional
judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest
effect on: the overall audit strategy; the allocation of resources in
the audit; and directing the efforts of the engagement team. These
matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Transfer of assets to BPCR Limited Partnership and COVID-19,
which were key audit matters last year, are no longer included
because the transfer of assets to BPCR Limited Partnerships took
place in May 2020 and is therefore not relevant for the current
year and COVID-19 which was a key audit matter last year, is no
longer included because of the reduced uncertainty of the impact of
COVID-19 in the current year as markets and economies continue to
recover. Otherwise, the key audit matters below are consistent with
last year.
Key audit matter How our audit addressed the key audit matter
Valuation of unlisted investments
Refer to pages 68 to 73 of Note 7 - Investments at fair value
through profit and loss. The investment portfolio at the year end
comprised level three unlisted investments valued at $1,257 million,
as disclosed on the Statement of Financial Position in the Annual
Report.
We assessed the appropriateness of the valuation methodology
used to estimate the fair value of unlisted investments, including
whether it was in accordance with IFRS and IPEV guidelines.
We focused on the valuation of unlisted investments because they
represent the principal element of the net asset value as disclosed on
the Statement of Financial Position in the Annual Report and require
estimates and significant judgements to be applied by the Investment
Manager in determining their fair value.
We understood and assessed the analysis performed by the
Investment Manager to estimate the key assumptions used in
estimating fair value, specifically the discount rates used to
discount the cash flows of the unlisted investments. We assessed
the information used by the Investment Manager in making their
assessment, such as cash flow forecasts, collateral valuations and
their interactions with management of the investee companies.
Changes to the estimates and/or judgements can result, either on an
individual or aggregate basis, in a material change to the valuation
of unlisted investments.
We performed backtesting of the Investment Manager’s cash flow
projections against actuals for investee companies to assess the
reasonableness of their forecasts. We independently obtained
analyst reports for investee companies where available and used
them to assess the reasonableness of the Investment Manager’s
assumptions.
When assessing the fair value of these unlisted investments, we also
examined compliance with the requirements of International Private
Equity and Venture (“IPEV”) Capital Valuation Guidelines.
We engaged our valuation experts to assess the reasonableness
of the discount rates used to discount cash flows for certain unlisted
investments, giving consideration to both the investee companies
themselves and the broader interest rate market.
We focused on the existence of unlisted investments as they are,
individually and in aggregate, material to the financial statements
We tested the existence of the investment portfolio by circulating
investment confirmations to all investee companies. For new
investments, we agreed the key terms to the original signed contracts
with the investee companies.
51
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Independent Auditors’ Report continued
GOVERNANCE
Accuracy, occurrence and completeness of performance fees
Refer to page 59 - Accounting Policies and pages 64 to 65 of Note
4 - Fees and Expenses. A performance fee of $2.2 million has been
charged for the year with a liability at the year end of $2.2 million.
We recalculated the performance fee to validate compliance
with the methodology as set out in the Investment Management
Agreement. We agreed the inputs to the calculation, including the
net asset value and benchmark data, to appropriate sources, where
applicable.
We focused on this area because the performance fee is calculated
using a complex methodology, as set out in the Investment
Management Agreement between the company and the Investment
Manager.
We validated that the conditions for the payment of the performance
fee have been met, and that the accounting treatment of the
performance fee as a liability is appropriate.
HOW WE TAILORED THE AUDIT SCOPE
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial statements
as a whole, taking into account the structure of the company, the
accounting processes and controls, and the industry in which it
operates.
All audit procedures were conducted remotely by a UK audit team.
We tested and examined information using sampling and other
auditing techniques, to the extent we considered necessary.
MATERIALITY
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine
the scope of our audit and the nature, timing and extent of our
audit procedures on the individual financial statement line items
and disclosures and in evaluating the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall company materiality US$13.64 million (2020: US$13.80 million).
How we determined it 1% of Net Assets
Rationale for benchmark applied We applied this benchmark, which is a generally accepted auditing practice for investment
trust audits
We use performance materiality to reduce to an appropriately
low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically,
we use performance materiality in determining the scope of our audit
and the nature and extent of our testing of account balances, classes
of transactions and disclosures, for example in determining sample
sizes. Our performance materiality was 75% (2020: 75%) of overall
materiality, amounting to US$10.23 million (2020: US$10.30
million) for the company financial statements.
In determining the performance materiality, we considered a
number of factors - the history of misstatements, risk assessment
and aggregation risk and the effectiveness of controls - and
concluded that an amount at the upper end of our normal range was
appropriate.
We agreed with the Audit and Risk Committee that we would report
to them misstatements identified during our audit above US$ 0.68
million (2020: US$ 0.69 million) as well as misstatements below that
amount that, in our view, warranted reporting for qualitative reasons.
CONCLUSIONS RELATING TO GOING CONCERN
Our evaluation of the directors’ assessment of the company’s ability to
continue to adopt the going concern basis of accounting included:
• Performing a look-back assessment of management’s prior year
going concern assessment and forecast cash flows;
• Assessed management’s current year going concern assessment;
• Assessed management’s forecast of future cash flows;
• Considered the Company’s future commitments;
• Considered the Company’s Statement of Financial Position and
cash position; and
• Considered additional resources available to the company
including a $50 million revolving credit facility.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the company’s ability to
52
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Independent Auditors’ Report continued
GOVERNANCE
continue as a going concern for a period of at least twelve months
from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the
directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
However, because not all future events or conditions can be
predicted, this conclusion is not a guarantee as to the company’s
ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied
the UK Corporate Governance Code, we have nothing material
to add or draw attention to in relation to the directors’ statement in
the financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with
respect to going concern are described in the relevant sections of this
report.
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the Annual
Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information.
Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or,
except to the extent otherwise explicitly stated in this report, any form
of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we identify
an apparent material inconsistency or material misstatement, we
are required to perform procedures to conclude whether there is
a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact. We have
nothing to report based on these responsibilities.
With respect to the Strategic report and Directors’ report, we also
considered whether the disclosures required by the UK Companies
Act 2006 have been included.
Based on our work undertaken in the course of the audit, the
Companies Act 2006 requires us also to report certain opinions and
matters as described below.
STRATEGIC REPORT AND DIRECTORS’ REPORT
In our opinion, based on the work undertaken in the course of the
audit, the information given in the Strategic report and Directors’
report for the year ended 31December2021 is consistent with the
financial statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the company and its
environment obtained in the course of the audit, we did not identify
any material misstatements in the Strategic report and Directors’
report.
DIRECTORS’ REMUNERATION
In our opinion, the part of the Remuneration Report to be audited
has been properly prepared in accordance with the Companies Act
2006.
CORPORATE GOVERNANCE STATEMENT
The Listing Rules require us to review the directors’ statements in
relation to going concern, longer-term viability and that part of
the corporate governance statement relating to the company’s
compliance with the provisions of the UK Corporate Governance
Code specified for our review. Our additional responsibilities with
respect to the corporate governance statement as other information
are described in the Reporting on other information section of this
report.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial
statements and our knowledge obtained during the audit, and we
have nothing material to add or draw attention to in relation to:
• The directors’ confirmation that they have carried out a robust
assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal
risks, what procedures are in place to identify emerging risks and
an explanation of how these are being managed or mitigated;
• The directors’ statement in the financial statements about whether
they considered it appropriate to adopt the going concern basis
of accounting in preparing them, and their identification of any
material uncertainties to the company’s ability to continue to
do so over a period of at least twelve months from the date of
approval of the financial statements;
• The directors’ explanation as to their assessment of the
company’s prospects, the period this assessment covers and why
the period is appropriate; and
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BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Independent Auditors’ Report continued
GOVERNANCE
• The directors’ statement as to whether they have a reasonable
expectation that the company will be able to continue in
operation and meet its liabilities as they fall due over the period
of its assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term
viability of the group was substantially less in scope than an audit
and only consisted of making inquiries and considering the directors’
process supporting their statement; checking that the statement
is in alignment with the relevant provisions of the UK Corporate
Governance Code; and considering whether the statement is
consistent with the financial statements and our knowledge and
understanding of the company and its environment obtained in the
course of the audit.
In addition, based on the work undertaken as part of our audit, we
have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial
statements and our knowledge obtained during the audit:
• The directors’ statement that they consider the Annual Report,
taken as a whole, is fair, balanced and understandable, and
provides the information necessary for the members to assess the
company’s position, performance, business model and strategy;
• The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems;
and
• The section of the Annual Report describing the work of the Audit
and Risk Committee.
We have nothing to report in respect of our responsibility to report
when the directors’ statement relating to the company’s compliance
with the Code does not properly disclose a departure from a relevant
provision of the Code specified under the Listing Rules for review by
the auditors.
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS
AND THE AUDIT
RESPONSIBILITIES OF THE DIRECTORS FOR THE
FINANCIAL STATEMENTS
As explained more fully in the Statement of Directors’ Responsibilities
in respect of the financial statements, the directors are responsible
for the preparation of the financial statements in accordance with the
applicable framework and for being satisfied that they give a true and
fair view. The directors are also responsible for such internal control
as they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible
for assessing the company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either
intend to liquidate the company or to cease operations, or have no
realistic alternative but to do so.
AUDITORS’ RESPONSIBILITIES FOR THE AUDIT OF THE
FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report
that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud, is
detailed below.
Based on our understanding of the company and industry, we
identified that the principal risks of non-compliance with laws and
regulations related to breaches of section 1158 of the Corporation
Tax Act 2010, and we considered the extent to which non-
compliance might have a material effect on the financial statements.
We also considered those laws and regulations that have a direct
impact on the financial statements such as the Companies Act
2006, Listing Requirements of the London Stock Exchange, the AIC
SORP 2021 and the UK Corporate Governance Code 2018. We
evaluated management’s incentives and opportunities for fraudulent
manipulation of the financial statements (including the risk of override
of controls), and determined that the principal risks were related
to posting inappropriate journal entries to increase net asset value
and management bias in accounting estimates. Audit procedures
performed by the engagement team included:
• Making inquiries with those charged with governance in relation
to known or suspected instances of non-compliance with laws
and regulations and fraud;
• Assessment of the Company’s compliance with the requirements
of Section 1158 of the Corporation Tax Act 2010;
54
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Independent Auditors’ Report continued
GOVERNANCE
• Testing journals using a risk-based approach and evaluating
whether there was evidence of bias or fraud;
• Designing audit procedures to incorporate unpredictability
around the nature, timing or extent of our testing for example,
targeting transactions that otherwise would be immaterial;
• Review of minutes of director meetings that occurred during the
year and made enquiries of management;
• We challenged key judgements and estimates in relation to the
valuation of unlisted investments, particularly around the discount
rates used to discount the cash flows of the unlisted investment
as explained in our key audit matter on Valuation of unlisted
investments.
There are inherent limitations in the audit procedures described
above. We are less likely to become aware of instances of non-
compliance with laws and regulations that are not closely related to
events and transactions reflected in the financial statements. Also, the
risk of not detecting a material misstatement due to fraud is higher
than the risk of not detecting one resulting from error, as fraud may
involve deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain
transactions and balances, possibly using data auditing techniques.
However, it typically involves selecting a limited number of items
for testing, rather than testing complete populations. We will often
seek to target particular items for testing based on their size or risk
characteristics. In other cases, we will use audit sampling to enable us
to draw a conclusion about the population from which the sample is
selected.
A further description of our responsibilities for the audit of the financial
statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’
report.
USE OF THIS REPORT
This report, including the opinions, has been prepared for and only
for the company’s members as a body in accordance with Chapter
3 of Part 16 of the Companies Act 2006 and for no other purpose.
We do not, in giving these opinions, accept or assume responsibility
for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.
OTHER REQUIRED REPORTING
COMPANIES ACT 2006 EXCEPTION REPORTING
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
• we have not obtained all the information and explanations we
require for our audit; or
• adequate accounting records have not been kept by the
company, or returns adequate for our audit have not been
received from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law
are not made; or
• the financial statements and the part of the Remuneration Report
to be audited are not in agreement with the accounting records
and returns.
We have no exceptions to report arising from this responsibility.
APPOINTMENT
Following the recommendation of the Audit and Risk Committee,
we were appointed by the directors on 2November2016 to audit
the financial statements for the year ended 31December2017
and subsequent financial periods. The period of total
uninterrupted engagement is 5 years, covering the years ended
31December2017 to 31December2021.
Jessica Miller (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
21March2022
55
Statement of comprehensive income
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
For the year ended 31 December 2021 (in $000s except per share amounts)
FINANCIAL STATEMENTS
Year ended 31 December 2021 Year ended 31 December 2020
Note Revenue Capital Total Revenue Capital Total
Income
Investment income 3 127, 615 — 12 7, 615 99,473 — 99,473
Other income 3 17 — 17 1,072 — 1,072
Net (losses) /gains on investments at fair
value 7 — (23,753) (23,753) — 9,474 9,474
Net currency exchange losses — (18) (18) — (12) (12)
Total income/(expense)* 127, 6 32 (23,771) 103,861 100,545 9,462 110,007
Expenses
Management fee 4 (13,670) — (13,670) (13,745) — (13,745)
Performance fee 4 (2,222) — (2,222) (4,909) — (4,909)
Directors’ fees 4 (395) — (395) (395) — (395)
Other expenses 4 (2,615) — (2,615) (1,822) — (1,822)
Total expenses (18,902) — (18,902) (20,871) — (20,871)
Return on ordinary activities after
finance costs and before taxation 108,730 (23,771) 84,959 79,674 9,462 89,136
Taxation on ordinary activities 5 — — — — — —
Return on ordinary activities after
finance costs and taxation 108,730 (23,771) 84,959 79,674 9,462 89,136
Net revenue and capital return
per ordinary share (basic and
diluted) 11 $0.0791 -$0.0173 $0.0618 $0.0580 $0.0069 $0.0649
* 2021 Investment income includes $20,500,000 million from prior year income from its financing subsidiary, BPCR Limited Partnership. Please see note 3 on page 63 for full details.
The total column of this statement is the Company’s Statement of Comprehensive Income prepared in accordance with IFRS. 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 on pages 59 to 82 form part of these financial statements.
56
Statement of changes in equity
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
For the year ended 31 December 2021 (in $000s)
FINANCIAL STATEMENTS
Note
Share
capital
Share
premium
account
Special
distributable
reserve*
Capital
reserve
Revenue
reserve*
Total equity
attributable to
shareholders of
the Company
For the year ended 31 December 2021
Net assets attributable to shareholders at
1 January 2021 13 , 73 9 6 0 7,12 5 730,492 20,014 7,545 1,378,915
Return on ordinary activities after finance costs
and taxation — — — (23,771) 108,730 84,959
Dividends paid to Ordinary Shareholders 6 — — (4,253) — (95,904) (100,157)
Cost of shares bought back for treasury — — — — — —
Net assets attributable to shareholders
at 31 December 2021 13,739 6 07,12 5 726,239 (3,757) 20,371 1,363,717
For the year ended 31 December 2020
Net assets attributable to shareholders at
1 January 2020 13, 73 9 6 0 7,12 5 730,631 10,552 41,689 1,403,736
Return on ordinary activities after finance costs
and taxation — — — 9,462 7 9, 6 74 89,136
Dividends paid to Ordinary Shareholders 6 — — (79) — (113,818) (113,897)
Cost of shares bought back for treasury — — (60) — — (60)
Net assets attributable to shareholders
at 31 December 2020 13,739 6 07,12 5 730,492 20,014 7,545 1,378,915
* The special distributable and revenue reserves can be distributed in the form of a dividend.
The notes on pages 59 to 82 form part of these financial statements.
57
Statement of financial position
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
As at 31 December 2021 (in $000s except per share amounts)
FINANCIAL STATEMENTS
Note 31 December 2021 31 December 2020
Non-current assets
Investments at fair value through profit or loss 7 1,265,898 1,194,831
1,265,898 1,194,831
Current assets
Trade and other receivables 8 10,010 208
Cash and cash equivalents 9 94,709 193,269
104,719 193,477
Total assets 1,370,617 1,388,308
Current liabilities
Trade and other payables 10 6,342 9,393
Total current liabilities 6,342 9,393
Total assets less current liabilities 1,364,275 1,378,915
Non-current liabilities
Deferred income 10 558 –
Net assets 1,363,717 1,378,915
Represented by:
Share capital 13 13 , 73 9 13 , 73 9
Share premium account 6 0 7,12 5 6 0 7,12 5
Special distributable reserve 726,239 730,492
Capital reserve (3,757) 20,014
Revenue reserve 20,371 7,545
Total equity attributable to shareholders of the Company 1,363,717 1,378,915
Net asset value per ordinary share (basic and diluted) 12 $0.9926 $1.0037
The financial statements of BioPharma Credit PLC registered number 10443190 were approved and authorised for issue by the Board of
Directors on 21 March 2022 and signed on its behalf by:
Harry Hyman
Chairman
21March 2022
The notes on pages 59 to 82 form part of these financial statements.
58
Cash flow statement
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
For the year ended 31 December 2021 (in $000s)
FINANCIAL STATEMENTS
Note
Year ended
31 December 2021
Year ended
31 December 2020
Cash flows from operating activities
Investment income received 127, 615 94,514
Other income received 20 1,498
Investment management fee paid (19,177) (34,610)
Amounts paid on behalf of BPCR Limited Partnership — (1,357)
Amounts due from BPCR Limited Partnership (9,593) —
Other expenses paid (2,429) (1,973)
Cash generated from operations 15 96,436 58,072
Net cash flow generated from operating activities 96,436 58,072
Cash flow from investing activities
Purchase of investments* ( 18 7,141 ) (225,736)
Redemptions of investments** — 162,500
Sales of investments** 92,320 15 , 76 4
Net cash flow used in investing activities (94,821) (47,472)
Cash flow from financing activities
Dividends paid to Ordinary shareholders 6 (100,157) (113,897)
Share buybacks — (60)
Net cash flow used in financing activities (100,157) (113,957)
Decrease in cash and cash equivalents for the year (98,542) (103,357)
Cash and cash equivalents at start of year 9 193,269 296,638
Revaluation of foreign currency balances (18) (12)
Cash and cash equivalents at end of year 9 94,709 193,269
* 2021 purchases of investments includes $186,250,000 transferred to BPCR Limited Partnership for the purchase of investments in LumiraDx and Evolus. 2020 includes Collegium,
Optinose Tranche B, Epizyme Tranche B and BDSI Tranche B fundings before assets were transferred in kind to the financing subsidiary, BPCR Limited Partnership, on 22 May 2020. These
payments do not include investments made by BPCR Limited Partnership.
** BPCR Limited Partnership investments not included.
The notes on pages 59 to 82 form part of these financial statements.
59
Notes to the financial statements
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
For the year ended 31 December 2021
FINANCIAL STATEMENTS
1. GENERAL INFORMATION
BioPharma Credit PLC is a closed-ended investment company limited by shares incorporated and registered in England and Wales on
24October 2016 with registered number 10443190. The registered office of the Company is 51 New North Road, Exeter, EX4 4EP. On 6
February 2017 the Company changed its name from PRECIS (2772) PLC.
The Company carries on the business as an investment trust company within the meaning of Sections 1158/1159 of the Corporation Tax
Act2010.
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 Securities and Exchange Commission (“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 duties to Link Alternative Fund Administrators
Limited (“Link”) .
2. ACCOUNTING POLICIES
A) BASIS OF PREPARATION
On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International
Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. The Company transitioned to UK-
adopted International Accounting Standards in its financial statements on 1 January 2021. This change constitutes a change in accounting
framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in
framework. The Company’s annual financial statements covers the year from 1 January 2021 to 31 December 2021 and have been prepared
in accordance with UK-adopted International Accounting Standards and as applied in accordance with the Disclosure Guidance Transparency
Rules sourcebook of the Financial Conduct Authority (FCA) and the AIC SORP (issued in April 2021) 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 reporting under those standards.
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 measured at fair
value through profit or loss.
The information for the year ended 31 December 2021 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; holds a portfolio of investments, predominantly in the form of loans which generates returns through interest
income. All investments, including its subsidiary BPCR Limited Partnership, 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.
60
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
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.
The fair value hierarchy consists of the following three levels:
• Level 1 – Quoted market price for identical instruments in active markets
• Level 2 – Valuation techniques using observable inputs
• Level 3 – Valuation techniques using significant unobservable inputs
Listed level 1 investments where a financial instrument is active are priced by quoted market prices.
Level 2 investments may be valued using market data obtained from external, independent sources. The data used could include quoted prices
for similar assets and liabilities in active markets, prices for identical or similar assets and liabilities in inactive markets, or models with observable
inputs.
For unlisted level 3 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. More information can be found in Note 2(n) below.
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.
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) 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.
F) INCOME
There are five main sources of revenue for the Company: interest income, income from subsidiaries, royalty revenue, make-whole and
prepayment income, dividends and paydown fees.
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.
The Company recognises accrued income for investments that it holds directly. The Company also holds an investment in BPCR Limited
Partnership, its wholly owned subsidiary which it measures at fair value through profit or loss rather than consolidate. BPCR Limited Partnership
also recognises accrued income for investments it holds directly. When the accrued income is recorded at the Partnership, the Company
recognises the income in capital within the Statement of Comprehensive Income. When the Company’s right to receive the income is
61
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
established, funds are transferred from the Partnership to the Company and income 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 structuring fees, which are paid on completion of the transaction. As the
investments are classified as level 3 in the fair value hierarchy, there is no observable evidence of the fair value of the investments excluding the
fees, therefore the fees should be included in the day one fair value of the investments. Such fees are included in the fair value of the investment
and released to the Statement of Comprehensive Income over the life of the investment. We consider incorporating the fees in the fair value
gains and losses over the life of the loans to be more reflective of the period over which the benefit is received. These fees are allocated to
revenue within the Statement of Comprehensive Income.
Bank interest and other interest receivable are accounted for on an accruals basis.
G) DIVIDENDS PAID TO SHAREHOLDERS
The Company intends to pay dividends in US Dollars on a quarterly basis, however, shareholders can elect to have dividends paid in sterling.
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 intends to comply with the requirements for maintaining investment trust status for the purposes of section 1158 of the Corporation
Tax Act 2010 (as amended) regarding distributable income. As such, the Company will distribute amounts such that it does not retain in respect
of an accounting period an amount greater than 15 per cent. of its income (as calculated for UK tax purposes) for that period.
H) EXPENSES
All expenses are accounted for on an accruals basis, with the exception of director’s expenses which are accounted for on a cash 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.
I) TRADE AND OTHER RECEIVABLES
Trade and other receivables are recognised and carried at amortised cost as the Company collects contractual interest payments from its
borrowers. An allowance for estimated unrecoverable amounts are measured and recognised where necessary. The Company assesses, on a
forward-looking basis, the expected losses associated with its trade and other receivables.
J) 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.
Cash and cash equivalents includes interest and income from money market funds.
62
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
K) TRADE AND OTHER PAYABLES
Trade and other payables are recognised and carried at amortised cost, do not carry any interest and are short-term in nature.
L) TAXATION
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.
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 period.
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 period when the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the
balance sheet date.
M) 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. This reserve cannot be distributed.
The special distributable reserve was created on 29 June 2017 to enable 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. This reserve cannot be distributed.
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.
N) 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. There are no material judgements required 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 included in other notes, together with information about the basis of calculation for each line in the financial
statements.
In particular, estimates are made in 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, estimates including cash flow projections, discount rates and growth rates in product sales 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(h) above.
These estimates are reviewed on an ongoing basis. Revisions to these judgements and estimates are also reviewed on an ongoing basis.
Revisions are recognised prospectively.
63
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
O) NEW ACCOUNTING STANDARDS EFFECTIVE 1 JANUARY 2021
There are no new standards impacting the Company that have had a significant effect in the annual financial statements for the year ended
31December 2021.
New standards that have been adopted in the annual financial statements for the year ending 31 December 2021, but have not had a
significant effect on the Company are:
IFRS 9 ‘Financial Instruments’, interest benchmark reform. The Phase 2 amendments address issues that arise from the implementation of the
reforms, including the replacement of one benchmark with an alternative one.
The Directors have considered the implications of the amendments to IFRS 9 and are of the opinion that there is no significant impact to the
Company, as all investments which reference USD LIBOR will transition in June 2023. Therefore, there has been no impact on the current and
comparative financial statements for this accounting standard.
P ) ACCOUNTING STANDARDS NOT YET EFFECTIVE
There are no standards or amendments not yet effective which are relevant or have a material impact on the Company.
The standards or amendments not yet effective that will be adopted on their effective date are:
• Amendment to IAS1, presentation of financial statements on classification of liabilities, effective from 1 January 2024 clarify that liabilities
are classified as either current or non-current, depending on the rights that exist at the end of the reporting period.
• Amendment to IAS12, Income taxes effective from 1 January 2023. These amendments require companies to recognise deferred tax on
transactions that, on initial recognition give rise to equal amounts of taxable and deductible temporary differences.
3. INCOME
Year ended
31 December 2021
$000
Year ended
31 December 2020
$000
Income from investments
US unfranked investment income from BPCR Limited Partnership 122,991 40,844
US unfranked investment income from BPCR Ongdapa Limited — 3,440
US fixed interest investment income 13 6 21,856
US floating interest investment income* 2,978 26,682
US make-whole interest investment income** — 3,082
Paydown fee — 427
Prepayment premium*** 1,474 2,675
Additional consideration received**** 36 467
127, 615 99,473
Other income
Interest income from liquidity/money market funds 17 1,072
17 1,072
Total income***** 127,632 100,545
* In 2020 $136,000 of fixed investment income was incorrectly deducted as tax at source. This was corrected in 2021.
** In 2020 the Company’s senior secured term loan to Lexicon included make whole interest investment income of $3,082,000, which was paid upon the loan repayment and
recognised as income in the year.
*** In 2021 the Company’s senior secured term loan to Sebela included a prepayment premium of $1,474,000, which was paid upon the loan repayment and recognised as income
in the year. In 2020 the Company’s senior secured term loans to Lexicon and Sebela included a prepayment premium of $2,675,000, which was paid upon the loan repayment
and recognised as income in the year.
**** In 2021 $36,000 was recorded as additional income from the Company’s investment in Optinose Warrants. In 2020 the Company’s senior secured term loan to Collegium
included additional consideration in the form of structuring fees of $4,125,000 which was paid upon the completion of the transaction and $467,000 of this amount was
recognised as income in the year.
***** Net income in 2020 included $20,484,000 relating to the change in fair value of the Company’s subsidiary, BPCR Limited Partnership (“BPCR LP”). This change in fair value of
$20,484,000 is equal to the undistributed net income earned by BPCR LP in the year, reflecting changes in the fair value of and income earned on the investment it holds and gave
rise to an unrealised gain in the Company in 2020.
In 2021, the undistributed net income earned by BPCR LP in 2020 was received by the Company and was recognised in Investment income in the Statement of Comprehensive
Income and as a corresponding unrealised loss in the fair value of the investment. If this had been included in the year in which the income was received, 2021 Investment income
would have been $107,148,000 (2020: $121,029,000).
In 2021, undistributed investment income earned by BPCR LP was booked as a receivable of the Company ($9,593,000) and did not result in a change in fair value. The
Company will continue with this treatment prospectively. Details of this investment are set out in the accounting policy for income (Note 2F) and Note 7, investment at fair value
through profit or loss.
64
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
4. FEES AND EXPENSES
EXPENSES
Year ended 31 December 2021 Year ended 31 December 2020
Revenue
$000
Capital
$000
Total
$000
Revenue
$000
Capital
$000
Total
$000
Management fee (note 4a) 13,670 — 13,670 13 , 74 5 — 13 , 74 5
Performance fee (note 4b) 2,222 — 2,222 4,909 — 4,909
Directors’ fees (note 4c) 395 — 395 395 — 395
Other expenses
Company Secretarial fee 93 — 93 85 — 85
Administration fee 12 7 — 12 7 118 — 118
Legal & professional fees 18 0 — 180 368 — 368
Public relations fees 200 — 200 202 — 202
Director's and Officer's liability insurance 19 6 — 19 6 114 — 114
Auditors’ remuneration - Statutory audit 4 61 — 4 61 4 41 — 4 41
Auditors’ remuneration - Other audit related services -
Half year review and agreed upon procedures 84 — 84 81 — 81
Auditors’ remuneration - Other audit related procedures -
Listing fee** 12 7 — 12 7 — — —
VAT* (47) — (47) 102 — 102
LSE listing fee** 854 — 854 — — —
Other expenses 340 — 340 311 — 311
2 , 615 — 2 , 615 1,822 — 1,822
Total expenses 18,902 — 18,902 20,871 — 20,871
* Negative VAT expense is due to an over accrual of VAT in 2020.
** In 2021 the company incurred costs of $981,000 to be admitted to trade on the premium segment of the main market of the London Stock Exchange. Includes $127,000 auditor’s
remuneration - LSE listing.
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
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 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.
65
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
4. FEES AND EXPENSES (CONTINUED)
B) PERFORMANCE FEE (CONTINUED)
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 satisfied. 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 Manager 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.
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.
The below table shows the accrued and payable performance fee.
As at
31 December 2021
$000
As at
31 December 2020
$000
Accrued performance fee 2,222 4,909
Performance fee payable 2,222 5,473
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 and Risk Committee, who will receive an additional $15,000 per annum.
66
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
5. TAXATION ON ORDINARY ACTIVITIES
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 19.00 per cent. (2020: 19.00 per
cent.), the effective tax rate was 0.00 per cent. (2020: 0.00 per cent.). The differences are explained below.
There will be in increase in the UK corporation tax rate from 19% to 25%, effective from April 2023, which was substantively enacted on
3March 2021. This is expected to have no effect on the tax charge for the Company as the exemptions above will still apply.
Year ended 31 December 2021 Year ended 31 December 2020
Revenue
$000
Capital
$000
Total
$000
Revenue
$000
Capital
$000
Total
$000
Total return on ordinary activities before taxation 108,730 (23,771) 84,959 79, 6 74 9,462 89,136
Theoretical tax at UK Corporation tax rate of 19.00%
(2020: 19.00% ) * 20,659 (4,517) 16 ,142 15 ,13 8 1,798 16,936
Effects of:
Capital items that are not taxable — 4,517 4,517 — (1,798) (1,798)
Tax deductible interest distributions (20,659) — (20,659) (15,138) — (15,138)
Total tax charge — — — — — —
* The theoretical tax rate is calculated using a blended tax rate over the year.
At 31 December 2021, the Company had no unprovided deferred tax liabilities (2020: $nil).
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.
Income received from BPCR LP is qualifying interest income and is streamed by the Company, therefore no tax charge has been incurred.
67
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
6. DIVIDENDS
The below table represents the dividends paid in the financial year.
Year ended 31 December 2021 Year ended 31 December 2020
Revenue
$000
Capital
$000
Total
$000
Revenue
$000
Capital
$000
Total
$000
Paid in respect of the current year:
First interim dividend of $0.0175 per Ordinary share
(2020:$0.0175 per Ordinary share) 21,780 2,263 24,043 24,044 — 24,044
Second interim dividend of $0.0175 per Ordinary share
(2020:$0.0175 per Ordinary share) 24,043 — 24,043 24,043 — 24,043
Third interim dividend of $0.0175 per Ordinary share
(2020:$0.0175 per Ordinary share) 22,053 1,990 24,043 24,042 — 24,042
Paid in In respect of the previous year ended
31December2020:
Special dividend of $0.0029 per Ordinary share
(2020: $nil per Ordinary share) 3,985 — 3,985 — — —
Fourth interim dividend of $0.0175 per Ordinary share
(2020:$0.0175 per Ordinary share) 24,043 — 24,043 — — —
Paid in respect of the year ended 31December2019:
Special dividend of $0.0128 per Ordinary share — — — 17,586 — 17,586
Fourth interim dividend of $0.0175 per Ordinary share — — — 24,044 — 24,044
Special dividend of $0.0001 per Ordinary share — — — 59 79 138
95,904 4,253 100,157 113,818 79 113,897
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 2021 Year ended 31 December 2020
Revenue
$000
Capital
$000
Total
$000
Revenue
$000
Capital
$000
Total
$000
First interim dividend of $0.0175 per Ordinary share
(2020:$0.0175 per Ordinary share) 21,780 2,263 24,043 24,044 — 24,044
Second interim dividend of $0.0175 per Ordinary share
(2020:$0.0175 per Ordinary share) 24,043 — 24,043 24,043 — 24,043
Third interim dividend of $0.0175 per Ordinary share
(2020:$0.0175 per Ordinary share) 22,053 1,990 24,043 24,042 — 24,042
Special dividend of $nil per Ordinary share
(2020: $0.0029 per Ordinary share) — — — 3,985 — 3,985
Fourth interim dividend of $0.0175 per Ordinary share
(2020:$0.0175 per Ordinary share) — — — 24,043 — 24,043
67, 876 4,253 72,129 100,157 — 100,157
On 24 February 2022, the Board approved a fourth interim dividend, for the year ended 31 December 2021, of $0.0175 per Ordinary Share
payable on 31 March 2022. In accordance with IFRS, these dividends have not been included as a liability in these financial statements.
68
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
7. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
As at
31 December 2021
$000
As at
31 December 2020
$000
Investment portfolio summary
Listed investments at fair value through profit or loss 8,328 11,320
Unlisted investments in subsidiaries at fair value through profit or loss 1,256,676 1,090,887
Unlisted fixed interest investments at fair value through profit or loss 894 303
Unlisted floating interest investments at fair value through profit orloss — 92,321
1,265,898 1,194,831
Year ended 31 December 2021
Listed
investments
$000
Listed fixed
interest
investments
$000
Unlisted
investments in
subsidiaries
$000
Unlisted
fixed interest
investments
$000
Unlisted
floating
interest
investments
$000
Total
$000
Investment portfolio summary
Opening cost at beginning of year
13,544 —
1,070,139
1,238 92,321
1,177,242
Opening unrealised (losses)/gains at beginning of year (2,224) — 20,748 (935) — 17,589
Opening fair value at beginning of year 11,320 — 1,090,887 303 92,321 1,194,831
Movements in the year:
Purchases at cost — — 186,250 891 — 187,141
Redemption and sales proceeds — — — — (92,321) (92,321)
Transfer of assets to subsidiary — — — — — —
Realised loss on sale of investments — — — (1,238) — (1,238)
Change in unrealised (losses)/gains (2,992) — (20,461) 938 — (22,515)
Closing fair value at the end of the year 8,328 — 1,256,676 894 — 1,265,898
Closing cost at end of year 13,544 — 1,256,389 891 — 1,270,824
Closing unrealised (losses)/gains at end of year (5,216) — 287 3 — (4,926)
Closing fair value at the end of the year 8,328 — 1,256,676 894 — 1,265,898
69
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
7. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
Year ended 31 December 2020
Listed
investments
$000
Listed fixed
interest
investments
$000
Unlisted
investments in
subsidiaries
$000
Unlisted
fixed interest
investments
$000
Unlisted
floating
interest
investments
$000
Total
$000
Investment portfolio summary
Opening cost at beginning of year 13,544 19,950 — 494,738 584,366 1,112,598
Opening unrealised gains/(losses) at beginning of year 3,436 (294) — 787 (400) 3,529
Opening fair value at beginning of year 16,980 19,656 — 495,525 583,966 1,116,127
Movements in the year:
Purchases at cost — — — 16,500 209,636 226,136
Redemption and sales proceeds — (15,764) — (124,500) (38,000) (178,264)
Transfer of assets to subsidiary* — — 1,070,139 (385,500) (663,281) 21,358
Realised loss on sale of investments — (4,186) — — (400) (4,586)
Change in unrealised (losses)/gains (5,660) 294 20,748 (1,722) 400 14,060
Closing fair value at the end of the year 11,320 — 1,090,887 303 92,321 1,194,831
Closing cost at end of year 13,544 — 1,070,139 1,238 92,321 1,177,242
Closing unrealised (losses)/gains at end of year (2,224) — 20,748 (935) — 17,589
Closing fair value at the end of the year 11,320 — 1,090,887 303 92,321 1,194,831
* On 22 May 2020, the Company transferred the full carrying amount of several investments to its newly incorporated, wholly-owned subsidiary BPCR Limited Partnership in return for
an investment in BPCR Limited Partnership of the same amount $1,048 million. The balance on the transfer line of $21.358 million relates to accrued income which is subsequently
reflected in the fair value of BPCR Limited Partnership, previously disclosed as part of trade and other receivables in the Company and expenses paid on the behalf of BPCR Limited
Partnership.
Year ended
31December2021
$000
Year ended
31 December2020
$000
Realised losses on sale of investments (1,238) (4,586)
Unrealised (losses)/gains (22,515) 14,060
(23,753) 9,474
Transaction costs (incurred at the point of the transaction) incidental to the acquisition of investments totalled $nil (2020: $nil) and to the
disposals of investments totalled $nil (2020: $nil) for the year. In addition, legal fees incidental to the acquisition of investments totalled $nil
(2020: $nil) as disclosed in Note 4, have been taken to the capital column in the Statement of Comprehensive Income since they are capital
innature.
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 theinvestment.
70
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
7. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
As at 31 December 2021
Financial assets
Level 1
$000
Level 2
$000
Level 3
$000
Total
$000
Investment portfolio summary
Listed investments at fair value through profit or loss 8,328 — — 8,328
Unlisted investments in subsidiaries measured at fair value through profit or loss — — 1,256,676 1,256,676
Unlisted fixed interest investments at fair value through profit or loss — 894 — 894
Unlisted floating interest investments at fair value through profit or loss — — — —
8,328 894 1,256,676 1,265,898
Liquidity/money market funds 94,456 — — 94,456
Total 102,784 894 1,256,676 1,360,354
As at 31 December 2020
Level 1
$000
Level 2
$000
Level 3
$000
Total
$000
Investment portfolio summary
Listed investments at fair value through profit or loss
11,320 —
— 11,320
Unlisted investments in subsidiaries measured at fair value through profit or loss — — 1,090,887 1,090,887
Unlisted fixed interest investments at fair value through profit or loss — 303 — 303
Unlisted floating interest investments at fair value through profit or loss — — 92,321 92,321
11,320 303 1,183,208 1,194,831
Liquidity/money market funds 181,532 — — 181,532
Total 192,852 303 1,183,208 1,376,363
A reconciliation of fair value measurements in Level 3 is set out below.
LEVEL 3 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Year ended 31 December 2021
Unlisted
investments in
subsidiaries
$000
Unlisted
fixed interest
Investments
$000
Unlisted
floating interest
investments
$000
Total
$000
Opening balance 1,090,887 — 92,321 1,183,208
Purchases 186,250 — — 186,250
Redemptions* — — (92,321) (92,321)
Transfer of assets — — — —
Realised loss on sale of investments — — — —
Unrealised losses (20,461) — — (20,461)
Closing balance at 31 December 2021 1,256,676 — — 1,256,676
71
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
7. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
Year ended 31 December 2020
Unlisted
investments in
subsidiaries
$000
Unlisted
fixed interest
investments
$000
Unlisted
floating interest
investments
$000
Total
$000
Opening balance — 493,500 583,966 1,077,466
Purchases — 16,500 209,636 226,136
Redemptions* — (124,500) (38,000) (162,500)
Transfer of assets** 1,070,139 (385,500) (663,281) 21,358
Realised loss on sale of investments — — (400) (400)
Unrealised gains 20,748 — 400 21,148
Closing balance at 31 December 2020 1,090,887 — 92,321 1,183,208
* Redemptions are the proceeds received from the repayment of investments.
** On 22 May 2020, the Company transferred the full carrying amount of several investments to its newly incorporated, wholly-owned subsidiary BPCR Limited Partnership in return for
an investment in BPCR Limited Partnership of the same amount $1,048 million. The balance on the transfer line of $21.358 million relates to accrued income which is subsequently
reflected in the fair value of BPCR Limited Partnership, previously disclosed as part of trade and other receivables in the Company and expenses paid on the behalf of BPCR Limited
Partnership.
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.
Investments held in subsidiaries, namely BPCR Limited Partnership, are based on the fair value of the investments held in those entities.
72
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
7. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
VALUATION TECHNIQUES (CONTINUED)
The Company’s unlisted investments, including those of it's wholly owned subsidiary BPCR Limited Partnership, are all classified as Level 3
investments. The fair values of the unlisted investments have been determined principally by reference to discounted cash flows. The significant
unobservable input used is detailed below:
As at 31 December 2021
Assets
Fair value of
Level3 financial
assets at fair value
through profit or
loss
$000
Valuation
technique
Unobservable
input
Discount
rate
Fair value
sensitivity to a
100bps decrease in
the discount rate
$000
Fair value
sensitivity to a
100bps increase in
the discount rate
$000
Assets held by BPCR
Limited Partnership*
Akebia 50,000
Discounted
cash flow
Discount
rate 12.0% 49,361 50,655
BDSI 60,000
Discounted
cash flow
Discount
rate 11 . 7 % 59,184 60,840
BMS 13 7, 2 7 7
Discounted
cash flow
Discount
rate 11 . 7 % 135 ,13 0 139,493
Other net assets of BPCR Limited
Partnership 65,086
Amortised
cost — — — —
Collegium 92,813
Discounted
cash flow
Discount
rate 12.9% 92,068 93,573
Epizyme 110,000
Discounted
cash flow
Discount
rate 11.2% 107,265 112,844
Evolus 37,500
Discounted
cash flow
Discount
rate 10.7% 36,341 38,713
Global Blood Therapeutics 132,500
Discounted
cash flow
Discount
rate 10.3% 128,340 136,861
LumiraDX 150,000
Discounted
cash flow
Discount
rate 10.0% 147,177 152,908
OptiNose US 71,500
Discounted
cash flow
Discount
rate 13.8% 70,607 72,415
Sarepta Therapeutics 350,000
Discounted
cash flow
Discount
rate 11.0% 343,979 356,195
1,256,676 1,169,452 1,214,497
* The Company holds an investment in BPCR Limited Partnership, its wholly owned subsidiary, which it measures at fair value through profit or loss rather than consolidate.
73
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
7. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
VALUATION TECHNIQUES (CONTINUED)
As at 31 December 2020
Assets
Fair value of Level3
financial assets at fair
value through profit
or loss
$000
Valuation
technique
Unobservable
input
Discount
rate
Fair value
sensitivity to a
100bps decrease in
the discount rate
$000
Fair value
sensitivity to a
100bps increase in
the discount rate
$000
Sebela 92,321
Discounted
cash flow
Discount
rate 12.4% 92,860 91,789
Assets held by BPCR
Limited Partnership*
Akebia 50,000
Discounted
cash flow
Discount
rate 11 .1 % 51,035 48,999
BDSI 80,000
Discounted
cash flow
Discount
rate 11 .1 % 81, 717 78,341
BMS 160,180
Discounted
cash flow
Discount
rate 9.4% 163,586 150,906
Other net assets of BPCR Limited
Partnership 52,644 Amortised cost — — — —
Collegium 134,063
Discounted
cash flow
Discount
rate 12.0% 135,668 132,500
Epizyme 110,000
Discounted
cash flow
Discount
rate 11.0% 113,546 106,615
Global Blood Therapeutics 82,500
Discounted
cash flow
Discount
rate 13.9% 84,158 80,894
OptinNose US 71,500
Discounted
cash flow
Discount
rate 12.8% 72,932 70,112
Sarepta Therapeutics 350,000
Discounted
cash flow
Discount
rate 10.4% 358,804 341,514
1,183,208 1,154,306 1,101,670
* The Company holds an investment in BPCR Limited Partnership, its wholly owned subsidiary, which it measures at fair value through profit or loss rather than consolidate.
8. TRADE AND OTHER RECEIVABLES
As at
31 December 2021
$000
As at
31 December 2020
$000
Unlisted income receivable from BPCR Limited Partnership 9,593 —
Interest accrued on liquidity/money market funds 1 3
Other debtors 416 205
10,010 208
There have been no write-offs in the year and no expected credit losses.
74
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
9. CASH AND CASH EQUIVALENTS
As at
31 December 2021
$000
As at
31 December 2020
$000
Cash at bank 253 11 , 7 3 7
Liquidity/money market funds 94,456 181, 532
94,709 193,269
10. TRADE AND OTHER PAYABLES
Current liabilities
As at
31 December 2021
$000
As at
31 December 2020
$000
Performance fee payable 2,222 5,473
Management fees accrual 3,397 3, 431
Accruals 723 489
6,342 9,393
Non-current liabilities
Deferred income 558 —
6,900 9,393
11. RETURN PER ORDINARY SHARE
Revenue return per ordinary share is based on the net revenue after taxation of $108,730,000 (2020: $79,674,000) and 1,373,872,373
(2020: 1,373,904,204) ordinary shares, being the weighted average number of ordinary shares for the year.
Capital return per ordinary share is based on the net capital loss for the year of $23,771,000 (2020: net capital gain of $9,462,000) and
1,373,872,373 (2020:1,373,904,204) ordinary shares, being the weighted average number of ordinary shares for the year.
Basic and diluted return per share are the same as there are no arrangements which could have a dilutive effect on the Company’s ordinary
shares.
12. NET ASSET VALUE PER ORDINARY SHARE
The basic total net assets per ordinary share is based on the net assets attributable to equity shareholders at 31 December 2021 of
$1,363,717,000 (31 December 2020: $1,378,915,000) and ordinary shares of 1,373,872,373 (2020: 1,373,872,373) , being the
number of ordinary shares in issue at 31 December 2021.
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.
13. SHARE CAPITAL
Year ended 31 December 2021 Year ended 31 December 2020
Number of shares $000 Number of shares $000
Issued and fully paid:
Ordinary shares of $0.01:
Balance at beginning of the year 1,373,932,067 13 , 73 9 1,373,932,067 13, 73 9
Balance at end of the year 1,373,932,067 13,739 1,373,932,067 13,739
Total voting rights at 31 December 2021 were 1,373,872,373 (31 December 2020: 1,373,872,373) . In 2020 59,694 shares were bought
back for treasury. The balance of treasury shares on 31 December 2021 was 59,694 (31 December 2020: 59,694) .
75
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
14. 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 acquired by Royalty Pharma from Bristol-Myers Squibb (“BMS”) . On 22 May 2020 this
investment was transferred to BPCR Limited Partnership for the purpose of entering into the new credit facility. 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 31December 2021 is $1 (2020: $1) and the profit or loss for the year ended 31 December 2021 is $233,394 (2020:
$445,582) .
The Company formed a wholly-owned subsidiary, BPCR Limited Partnership (“BPCR LP”), incorporated in England and Wales on 27March
2020 for the purpose of entering into a three year $50 million revolving credit facility with JPMorgan Chase Bank. BPCR Limited Partnership has
its registered office at 51 New North Road, Exeter, United Kingdom, EX4 4EP and received an initial contribution of £1.00 at formation from
the Company, its sole Limited Partner. In accordance with IFRS 10, the Company is exempted from consolidating a controlled investee as it is an
investment entity. Therefore, the Company’s investment in BPCR Limited Partnership will be recognised at fair value through profit or loss.
The General Partner for BPCR LP is BPCR GP Limited, incorporated in England and Wales on 11 March 2020 and is wholly-owned by the
Company. The Company is not exempt from consolidating the the financial statements of BPCR GP Limited under IFRS 10, however the highly
immaterial (nil, (2020:nil)) balance of BPCR GP Limited would produce accounts with almost identical balances to the Company. Furthermore
with reference to the CA, section 405 (2) “A subsidiary undertaking may be excluded from consolidation if its inclusion is not material for the
purpose of giving a true and fair view”. The registered address for BPCR GP Limited is BPCR GP Limited, 51 New North Road, Exeter, United
Kingdom, EX4 4EP. The aggregate amount of its capital reserves as at 31 December 2021 is $nil (2020: $nil) and a return for the year to
31December 2021 is $nil (2020: $nil) .
15. RECONCILIATION OF TOTAL RETURN FOR THE YEAR BEFORE TAXATION TO CASH GENERATED
FROMOPERATIONS
Year ended
31 December 2021
$000
Year ended
31 December 2020
$000
Total return for the year before taxation 84,959 89,136
Capital losses/(gains) 23 , 7 71 (9,462)
(Increase) /decrease in trade receivables (9,802) 15,998
Decrease in trade payables (2,492) (15,842)
Non-cash movement for additional consideration* — (400)
Other assets transferred to BPCR Limited Partnership** — (21,358)
Cash generated from operations 96,436 58,072
* In 2020 the Company's senior secured term loan of $20,000,000 to BDSI included additional consideration of $400,000. This reduced the value of the payment made.
** On 22 May 2020, the Company transferred the full carrying amount of several investments to its newly incorporated, wholly-owned subsidiary BPCR Limited Partnership in return for an
investment in BPCR Limited Partnership of the same amount $1,048 million. The balance on the transfer line of $21,358 million relates to accrued income which is subsequently reflected
in the fair value of BPCR Limited Partnership, previously disclosed as part of trade and other receivables in the Company and expenses paid on the behalf of BPCR Limited Partnership.
ANALYSIS OF NET CASH AND NET DEBT
Net cash
At 1 January 2021
$000
Cash flow
$000
Exchange movement
$000
At 31 December 2021
$000
Cash and cash equivalents 193,269 (98,542) (18) 94,709
Net cash
At 1 January 2020
$000
Cash flow
$000
Exchange movement
$000
At 31 December 2020
$000
Cash and cash equivalents 296,638 (103,357) (12) 193,269
76
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
16. 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 on pages 18 to 31 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 on pages 24 to 30.
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.
77
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
16. FINANCIAL INSTRUMENTS (CONTINUED)
MARKET PRICE RISK (CONTINUED)
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 31 December 2021 At 31 December 2020
Fair value
$000
10 per cent.
Increase/decrease
in market value
$000
Fair value
$000
10 per cent.
Increase/decrease
in market value
$000
Biodelivery Sciences International Equity 8,328 833 11,320 1,13 2
OptiNose US warrants 894 89 303 30
Sebela Senior Secured Loan — — 92,321 9,232
Assets held by BPCR Limited Partnership
Akebia 50,000 5,000 50,000 5,000
Biodelivery Sciences International Loan 60,000 6,000 80,000 8,000
BMS Purchased Payments (BPCR Ongdapa Limited) 137, 2 7 7 13 , 72 8 160,180 16,018
Collegium 92,813 9,281 134,063 13,407
Epizyme 110,000 11,000 110,000 11,000
Evolus 37,500 3, 750 — —
Global Blood Therapuetics 132,500 13,250 82,500 8,250
LumiraDX 150,000 15,000 — —
LumiraDX warrants 2,068 207 — —
OptiNose US Note 71,500 7,15 0 71,500 7,15 0
OptiNose US Equity 40 4 101 10
Other Assets of BPCR Limited Partnership 62,978 6,298 52,543 5,254
Sarepta Therapeutics 350,000 35,000 350,000 35,000
1,265,898 126,590 1,194,831 119,483
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 2021, the Company held cash balances in GBP Sterling of £180,000 ($244,000) (2020: £72,000 ($99,000) ) and in Euro
of €5,000 ($5,000) (2020: €10,000 ($12,000) ) .
The currency exposures (including non-financial assets) of the Company as at 31 December 2021:
Cash
$000
Investments
$000
Other net assets
$000
Total
$000
Sterling 244 — 2 246
Euro 5 — — 5
US Dollar 94,460 1,265,898 3,052 1,363,410
94,709 1,265,898 3,054 1,363,661
78
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
16. FINANCIAL INSTRUMENTS (CONTINUED)
CURRENCY RISK (CONTINUED)
The currency exposures (including non-financial assets) of the Company as at 31 December 2020:
Cash
$000
Investments
$000
Other net liabilities
$000
Total
$000
Sterling 99 — (209) (110)
Euro 12 — — 12
US Dollar 19 3 ,15 8 1,194,831 (8,976) 1,379,013
193,269 1,194,831 (9,185) 1,378,915
A 10 per cent. increase in the Sterling exchange rate would have increased net assets by $15,000 (2020: $20,000) .
A 10 per cent. increase in the Euro exchange rate would have increased net assets by $1,000 (2020: $1,000) .
A 10 per cent. decrease would have decreased net assets by the same amount (2020: same) .
INTEREST RATE RISK
Interest rate risk is the risk that fair value of future cash 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, unquoted loans and purchased payments; and
• the level of income receivable on cash deposits and liquidity funds.
The OptiNose US and Sarepta Therapeutics instruments have a fixed interest rate and therefore are not subject to interest rate risk. The below
table shows the percentage of the Company's net assets they represent.
As at 31 December 2021
% of Company Net Assets
As at 31 December 2020
% of Company Net Assets
Sarepta Therapeutics 25.67 25.38
OptiNose US 5. 31 5 .19
The BMS Purchased Payments, Collegium, Sebela, BSI, Global Blood Therapeutics, Akebia, Epizyme, Evolus and LumiraDX loans and cash
and cash equivalents, including investments in liquidity funds, have a floating rate of interest. The below table shows the percentage of the
Company’s net assets they represent.
As at 31 December 2021
% of Company Net Assets
As at 31 December 2020
% of Company Net Assets
LumiraDX 11.15 —
BMS Purchased Payments (BPCR Ongdapa Limited) 10.07 11 . 6 2
Epizyme 8.07 7. 9 8
Collegium 6.81 9.72
Global Blood Therapeutics 6.05 5.98
Biodelivery Sciences International Loan 5. 01 5.80
Akebia 3.67 3.63
Evolus 2. 75 —
Sebela Senior Secured Loan — 6.70
Cash and cash equivalents 6.94 14.02
A 100 basis point increase in LIBOR would have increased net assets by $295,000 (2020: $198,000) .
A 100 basis point decrease in LIBOR would have decreased net assets by $nil (2020: $nil) .
1
A 300 basis point increase in LIBOR
2
would have increased net assets by $17,160,000 (2020: $16,122,000) .
1 The Company has six loans with coupons that reference 3 month USD LIBOR and five have a 2.00 per cent. floor and two have a 1.00 per cent. floor.
2 All reference to LIBOR relate to USD LIBOR. The transition away from USD LIBOR will be effective from 30 June 2023.
79
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
16. FINANCIAL INSTRUMENTS (CONTINUED)
INTEREST RATE RISK (CONTINUED)
(II) LIQUIDITY RISK
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.
At 31 December 2021, the Company had cash and cash equivalents, including investments in liquidity/money market funds with balances of
$94,709,000 (2020: $193,269,000), payables balance of $6,900,000 (2020: $9,393,000) and maximum unfunded commitments of $nil
(2020: $nil) .
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. On 22May 2020, the Partnership entered into a
$200million revolving credit facility with JPMorgan Chase Bank, expiring on 21May 2023, (the “Facilities Agreement”). The Partnership paid
a commitment fee on undrawn amounts of 200 basis points and would have paid a LIBOR margin of 400 basis points on drawn amounts. On
10September 2021 the Partnership entered into an amendment including reducing the revolving credit facility from $200million to $50million
together with changes in the accordian feature allowing for an increase in the revolving credit facility to $100million and up to $200million
in term loans, extension of the maturity date to 22June 2024 and a reduction on the LIBOR margin payable under the revolving credit facility
from 400 basis points to 275 basis points. This facility will increase the Company’s flexibility in relation to funding new lending opportunities
and provide liquidity for funding outstanding obligations. As of 31 December 2021, the outstanding balance on the credit facility was $nil
(2020:$nil) .
(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 on pages 6 to 11.
The Investment Manager performs a robust credit risk analysis during the investment process for all new investments and constantly monitors the
collateral on its outstanding senior secured loans as to minimise the credit risk to the Company of default. The credit risk of the senior secured
loans will increase significantly after initial recognition when borrowers are not making principal and interest payments as agreed. The fair value
of the senior secured loan will be adjusted, either partially or in full, when there is no realistic prospect of recovery and the amount of the change
in fair value has been determined by the Investment Manager. Subsequent recoveries of amounts previously adjusted will decrease the amount
of the fair value loss recorded. Changes to a 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. At 31 December 2021, the
Company’s maximum exposure to credit risk was $1,265,898,000 (2020: $1,194,831,000) . The Company’s concentration of credit risk by
counterparty can be found in the Investment Manager’s Report on pages 6 to 11.
CAPITAL MANAGEMENT
POLICIES AND PROCEDURES
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.
This is to be achieved through an appropriate balance of equity capital and gearing. The Company operates a flexible gearing policy which
depends on prevailing conditions. The Company may incur indebtedness up to 25 per cent. of the Company’s net asset value with a maximum
of up to 50 per cent. with Board approval.
80
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
CAPITAL MANAGEMENT (CONTINUED)
POLICIES AND PROCEDURES (CONTINUED)
The credit facility currently in place with JPMorgan Chase Bank through its financing subsidiary, BPCR Limited Partnership, includes a revolving
credit facility (“RCF”) of $50,000,000 and allows for an increase to the RCF to $100,000,000 and up to $200,000,000 in term loans through
an accordion feature.
The Board, with the assistance of the Investment Manager, monitors and reviews the broad structure of the Company’s capital on an ongoing
basis. This review includes:
• potentially issuing new equity shares;
• the planned level of gearing, which takes into account the Investment Manager’s view on the market; and;
• the need to buy back equity shares, either for cancellation or to be held in treasury, or the reissue of shares held in treasury which takes
account of the difference between the NAV per share and the share price (i.e. the level of share price discount or premium).
The Company is subject to externally imposed capital requirements:
• as a public company, the Company has a minimum share capital of £50,000.
The Company has complied with all the above requirements during this financial year.
17. RELATED PARTY TRANSACTIONS
The amount incurred in respect of management fees during the year to 31 December 2021 was $13,670,000 (2020: $13,745,000) , of
which $3,397,000 (31 December 2020: $3,431,000) was outstanding at 31 December 2021. The amount due to the Investment Manager
for performance fees at 31 December 2021 was $2,222,000 (31 December 2020: $5,473,000) .
The amount incurred in respect of Directors’ fees during the year to 31 December 2021 was $395,000 (2020: $395,000) of which $nil
was outstanding at 31 December 2021 (31 December 2020: $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.
BPCR Limited Partnership and its General Partner, BPCR GP Limited, are related entities of the Company, as they are wholly-owned
subsidiaries and formed for the purpose of entering into a new credit facility. On 22 May 2020, several investments totaling $1,070,139,000
were transferred to BPCR Limited Partnership from the Company. In the year to 31 December 2021, the Company recorded income of
$109,478,000 (2020: $61,952,000) and the outstanding balance on 31 December 2021 was $9,593,000 (31 December 2020:
$20,748,000) . BPCR GP Limited had an outstanding balance as at 31 December 2021 of $nil (2020: $nil) .
On 14 December 2021, the Company and BioPharma Credit Investments V (Master) LP (“BioPharma V”) , a fund managed by the Investment
Manager, entered into a definitive senior secured term loan agreement with Evolus Inc. (“Evolus”) . The Company's share of the transaction will
be up to $62,500,000 and the Company funded the first tranche of $37,500,000 on 29 December 2021. The loan will mature in December
2027 and will bear interest at 3-month LIBOR plus 8.50 per cent. per annum subject to a 1.00 per cent. floor along with a one-time additional
consideration of 2.25 per cent. of the total loan amount payable upon funding of the first tranche. In the year to 31 December 2021, BPCR
Limited Partnership recorded interest of $30,000 (2020: $nil) . The outstanding balance as at 31 December 2021 was $37,500,000 (2020:
$nil) .
On 24 March 2021, the Company and BioPharma V entered into a definitive senior secured term loan agreement for $300,000,000 with
LumiraDx Group Limited (“LumiraDx”) . The Company's share of the transaction was $150,000,000 and the Company funded the term loan
on 29 March 2021. The loan will mature in March 2024 and will bear interest at 8.00 per cent. per annum along with a one-time additional
consideration of 2.50 per cent. of the loan amount payable upon funding plus an additional 1.50 per cent. of the loan payable at maturity.
In the year to 31 December 2021, BPCR Limited Partnership recorded interest of $9,267,000 (2020: $nil) . The outstanding balance as at
31December 2021 was $150,000,000 (2020: $nil) .
On 7 February 2020, the Company and BioPharma V entered into a definitive senior secured term loan agreement for $200,000,000 with
Collegium Pharmaceutical, Inc. (Nasdaq: COLL) . The Company's share of the transaction was $165,000,000 and the Company funded the
term loan on 13 February 2020. The loan will mature in January 2024 and will bear interest at 3-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 which was paid at funding.
In the year to 31 December 2021, BPCR Limited Partnership recorded interest of $11,413,000 (2020: $13,313,000) . The outstanding
balance as at 31 December 2021 was $92,813,000 (2020: $134,063,000) .
81
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
On 18 December 2019, the Company and BioPharma V entered into a definitive senior secured term loan agreement with Global Blood
Therapeutics (Nasdaq: GBT) . GBT drew down $75,000,000 at closing on 20 December 2019 and $75,000,000 of the second tranche
on 20 November 2020. On 14 December 2021 the loan agreement was amended and restated. The amendment increased the aggregate
principal amount of the loan to $250,000,000 through a $100,000,000 third tranche, which was drawn on 22 December 2021. The
Company and its subsidiaries funded $132,500,000 across all three tranches. The loan will mature in December 2027 and bears 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 paid upon funding and an additional 2.00 per cent. payable upon the repayment of the loan. The third
tranche also incurred additional consideration of 1.50 per cent. at the time of funding. As a part of the amendment in 2021, the Company
and its subsidiaries received a one-time fee equal to 1.25 per cent. of the first two tranches and the three-year make-whole period was reset
to December 2021. In the year to 31 December 2021, BPCR Limited Partnership recorded interest of $7,653,000 (2020: $4,218,000) . The
outstanding balance as at 31 December 2021 was $132,500,000 (2020: $82,500,000) .
On 13 December 2019, the Company and BioPharma V entered into a definitive senior secured term loan agreement for up to $500,000,000
with Sarepta Therapeutics (Nasdaq: SRPT) . On 24 September 2020 the Sarepta loan agreement was amended and the loan amount was
increased to $550,000,000. Sarepta drew down the first $250,000,000 tranche on 20 December 2019 and the second $300,000,000
tranche on 2 November 2020. The Company funded $175,000,000 of each tranche for a total investment of $350,000,000 and BioPharma
V invested the remaining $200,000,000. The first tranche will mature in December 2023 and the second tranche in December 2024. The loan
will bear interest at 8.50 per cent. per annum along with a one-time additional consideration of 1.75 per cent. of the first tranche and 2.95
per cent. of the second tranche payable upon funding and an additional 2.00 per cent. payable upon the repayment of the loan. In the year
to 31 December 2021, BPCR Limited Partnership recorded interest of $30,163,000 (2020: $17,602,000) . The outstanding balance as at
31December 2021 was $350,000,000 (2020: $350,000,000) .
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) . Akebia drew down the first $80,000,000 on 25 November 2019 and the second
$20,000,000 tranche on 10 December 2020. The Company invested $40,000,000 and $10,000,000 of the first and second tranche,
respectively. 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 the year to 31 December 2021, BPCR Limited Partnership recorded
interest of $4,816,000 (2020: $3,921,000) . The outstanding balance as at 31 December 2021 was $50,000,000 (2020: $60,000,000) .
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) . On 3 November 2020, the Epizyme loan agreement was amended and the loan amount was increased
to $220,000,000. Epizyme drew down the $25,000,000 on 18 November 2019 and an additional $195,000,000 during 2020. The
Company funded a total of $110,000,000 of the Epizyme loan. The first three tranches of the loan will mature in November 2024 and
the fourth tranche will mature in November 2026. The loan 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 the year to 31 December 2021, BPCR Limited Partnership recorded interest of $10,874,000 (2020:
$3,582,000) . The outstanding balance as at 31 December 2021 was $110,000,000 (2020: $110,000,000) .
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. Optinose drew a total
of $130,000,000 in three tranches: $80,000,000 on 12 September 2019, $30,000,000 on 13 February 2020 and $20,000,000 on
1December 2020. There are no further funding commitments. The notes mature in September 2024 and bear interest at 10.75% per annum
along with a one-time additional consideration of 0.75% of the aggregate original principal amount of senior secured notes which the
Company and BioPharma-V are committed to purchase under the facility and 810,357 warrants exercisable into common stock of OptiNose.
The Company funded a total 71,500,000 across all tranches and was allocated 445,696 warrants. On 18 November 2021, OptiNose
raised $46,000,000 in a follow-on offering at a price of $1.60. As part of the financing, Pharmakon re-tiered its sales covenants, amended the
amortisation and make-whole provisions, and issued new three-year warrants at the offering price of $1.60, with the original warrants being
canceled. In the year to 31 December 2021, BPCR Limited Partnership recorded interest of $7,793,000 (2020: $6,503,000) . The outstanding
balance as at 31 December 2021 was $71,500,000 (2020: $71,500,000) .
On 7 February 2018, the Company entered into a senior secured term loan agreement for $150,000,000 with Novocure Limited (NASDAQ:
NVCR) (“Novocure”) . The $150,000,000 loan was originally scheduled to mature in February 2023 and bore 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 was 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 the
17. RELATED PARTY TRANSACTIONS (CONTINUED)
82
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
Notes to the financial statements continued
FINANCIAL STATEMENTS
year to 31 December 2021, the Company recorded interest of $nil (2020: $8,663,000) . On 18 August 2020, NovoCure Limited repaid their
loan and the Company received a payment of $154,838,000 million comprised of $150,000,000 million in principal, $1,838,000 million in
accrued interest, and $3,000,000 million in prepayment fees. The outstanding balance as at 31 December 2021 was $nil (2020: $nil) .
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 was expected to fund $140,000,000 to $165,000,000 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 $nil to RPI Acquisitions in the period to 31 December 2021 (2020: $12,136,000) for the
Purchased Payments. In the period to 31 December 2021 the Company recorded interest of $13,612,000 (2020: $14,283,000) .
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 was secured by substantially all of Lexicon’s assets, including its rights to Xermelo®
and sotagliflozin. The $200,000,000 loan was 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 not drawn down. The
Company funded $124,500,000 of the first tranche on 18 December 2017 and Lexicon did not drawn the second tranche. In the period to
31 December 2021, the Company recorded interest of $nil (2020: $7,844,000) . On 8 September 2020, Lexicon repaid the $150,000,000
loan. The Company received a payment of $132,300,000 million on its $124,500,000 share of the loan, including the make-whole and
prepayment premium totalling $5,600,000. The outstanding balance as at 31 December 2021 was $nil (2020: $nil) .
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.
18. CONTINGENCIES, GUARANTEES AND FINANCIAL COMMITMENTS
As at 31 December 2021, there were no outstanding commitments (31 December 2020: $0) in respect of investments.
19. SUBSEQUENT EVENTS
On 5 January 2022, the Company and BioPharma V entered into a definitive senior secured term loan agreement with Coherus Inc.
(“Coherus”) . Under the terms of the transaction, the Company will invest up to $150,000,000 ($50,000,000 in the first tranche, $50,000,000
million by 1 April 2022 and up to an additional $50,000,000 by 17 March 2023) . The loan will mature in January 2027 and will bear
interest at 3-month LIBOR plus 8.25 per cent. per annum subject to a 1.00 per cent. floor along with a one-time additional consideration of
2.0 percent. of the total loan amount payable upon funding of the first tranche. The Company funded the first tranche of $50,000,000 on
5January 2022.
On 14 February 2022, the Company and BioPharmaV, provided Collegium Pharmaceutical, Inc. a commitment to enter into a new senior
secured term loan agreement for $650,000,000. Proceeds from the new loan will be used to fund Collegium’s proposed acquisition of
BioDelivery Sciences International, Inc. as well as repay the outstanding debt of Collegium and BDSI. Under the terms of the new loan, the
Company will invest $325,000,000 million in a single drawing. The four-year loan for the Company’s investment will have $50,000,000 in
amortization payments during the first year and the remaining $275,000,000 balance will amortize in equal quarterly installments. The loan will
bear interest at 3-month LIBOR plus 7.50 per cent. per annum subject to a 1.20 per cent. floor along with a one-time additional consideration
of 2.00 per cent. of the loan amount payable at signing and 1.00 per cent. of the loan amount payable at funding.
On 24 February 2022, the Board approved a fourth interim dividend, for the year ended 31 December 2021, of $0.0175 per Ordinary Share
payable on 31 March 2022.
On 8 March 2022, the Company and BioPharma V entered into a definitive senior secured term loan agreement with UroGen Pharma, Inc.,
guaranteed by its parent, UroGen Pharma Ltd (“UroGen”). Under the terms of the transaction, the Company will invest up to $50,000,000. The
loan will mature in March 2027 and will bear interest at 3-month LIBOR plus 8.25 per cent. per annum subject to a 1.25 per cent. floor along
with a one-time additional consideration of 1.75 per cent. of the total loan amount payable upon funding of the first tranche. The Company
funded the first tranche of $37,500,000 on 16 March 2022.
17. RELATED PARTY TRANSACTIONS (CONTINUED)
83
Glossary of Terms and Alternative Performance
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
ADDITIONAL INFORMATION
83
Glossary of Terms and Alternative Performance
Measures (APM)
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINACIAL STATEMENTS 2021
Glossary of Terms and Alternative Performance
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.
The calculation below is in line with AIC guidelines.
Year to 31 December 2021
Total expenses (d) 18,902,000
Less: Performance fee (2,222,000)
Total (a) 16,680,000
Average monthly net assets (b) 1,385,868,000
Ongoing charges excluding performance fee (c
=
a/b) (c) 1.20%
Ongoing charges including performance fee (e
=
d/b) (e) 1.40%
84
Corporate information
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
ADDITIONAL INFORMATION
DIRECTORS
Harry Hyman (Chairman)
Colin Bond
Duncan Budge
Stephanie Léouzon
Rolf Soderstrom
INVESTMENT MANAGER AND AIFM
Pharmakon Advisors L.P.
110 East 59th Street #3300
New York, NY 10022
USA
ADMINISTRATOR
Link Alternative Fund Administrators Limited
51 New North Road
Exeter
EX4 4EP
COMPANY SECRETARY AND REGISTERED OFFICE
Link Company Matters Limited
51 New North Road
Exeter
EX4 4EP
Tel: 01392 477500
COMPANY WEBSITE
www.bpcruk.com
CUSTODIAN
Bank of New York Mellon
One Canada Square
London
E14 5AL
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 Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
85
Shareholder information
BIOPHARMA CREDIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021
ADDITIONAL INFORMATION
KEY DATES
March Annual results announced
Payment of fourth interim dividend
May Annual General Meeting
June Company’s half-year end
Payment of first interim dividend
September Half-yearly results announced
Payment of second interim dividend
December Company’s year end
Payment of third interim dividend
FREQUENCY OF NAV PUBLICATION
The Company’s NAV is released to the LSE on a monthly basis and is published on the Company’s website.
ANNUAL AND HALF-YEARLY REPORT
Copies of the Company’s Annual and Half-yearly Reports, stock exchange announcements and further information on the Company can be
obtained from the Company’s website www.bpcruk.com.
IDENTIFICATION CODES
SEDOL: BDGKMY2
ISIN: GB00BDGKMY29
TICKER: BPCR
LEI: 213800AV55PYXAS7SY24
CONTACTING THE COMPANY
Shareholder queries are welcomed by the Company. While any queries regarding your shareholding should be directed to the Registrar,
shareholders who wish to raise any other matters with the Company may do so using the following contact details:
Company Secretary – biopharmacreditplc@linkgroup.co.uk
Chairman – chairman@bpcruk.com
Senior Independent Director – sid@bpcruk.com
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www.blackandcallow.com
020 3794 1720
BIOPHARMA CREDIT PLC
B
IO
P
HARMA
CREDIT PLC
BioPharma Credit plc
BioPharma Credit PLC Annual Report 2021