Shares in BioPharma Credit (BPCR ) have jumped 7% on news the specialist debt fund will recover more than 80% of a big loan it advanced to struggling US medical diagnostics company LumiraDx.

The £1bn drugs company lender said Swiss drugs giant Roche would buy all of LumiraDx’s point of care diagnostics business for $295m, providing cash to repay an estimated 81.5% of the $361.8m lent by BPCR and another fund run by its manager Pharmakon Advisors.

The announcement ends the uncertainty that has weighed on BPCR shares since last May when the extent of LumiraDx’ financial problems became clear. At the time the loan accounted for 15% of the investment company’s assets, making it the fund’s biggest borrower.  

In a statement to the stock exchange, BPCR said the information in LumiraDx’s announcement had been fed into its October and November updates. This means there will be no further writedown to a loan, whose terms were amended 17 times, and now accounts for 9.6% of net assets once its $115m of cash is excluded.

The sale and purchase agreement arranged by LuxmiraDx’s administrators also means BPCR is no longer an insider to the deal, having had two observers on its board to protect its investors’ interests.

As a result, BPCR should be free to resume share buybacks to remedy a derating caused by investors’ fear that LuxmiraDx would default.

BPCR, a previously reliable income fund, had traded close to ‘par’, or net asset value (NAV), but saw its shares slide to a 23% discount in early November, although the gap had recently narrowed to 14%.

While the sale price falls short of the total loans advanced to LuxmiraDx, it represents 117% of BPCR’s last valuation for its 50% share, implying a 2% uplift to the NAV.

Shares in the dollar-denominated fund gained 6.9% to 90 cents today, further reducing the discount to their 30 November valuation of $1 to 10%.

This is the second piece of good news in a week for BPCR. On 28 December 94% of voting shareholders backed the company in a continuation vote triggered by the faltering share price.  

No money from the sale will go to shareholders in LumiraDx, which over-stretched itself during a peak in sales of its blood-testing kits during the Covid-19 pandemic, and will now be removed from the Nasdaq index.

Under the agreement, BPCR is obliged to provide up to a further $29.6m in funding until the deal completes, but will be repaid up to $27.5m.

Jefferies analyst Matthew Hose said there could be a further recovery when LuxmiraDx is liquidated.

‘All together this points to some healthy upside to the current share price, with the shares currently trading on a 16% discount to NAV, not least because the recovery firmly validates the manager’s process and the strength of security in protecting the principal value of the loan,’ Hose said in a note early this morning, maintaining a ‘buy’ recommendation.

Stifel analyst Sachin Saggar said it was unclear whether the $362m LumiraDx owes includes accrued interest as the original loan of $331m was structured as a bullet loan, meaning no interest is cash paid until maturity. Interest since the initial loan in March 2021 would total about $30m a year, which could add a further 1.5% to the NAV.

Saggar called for BPCR’s chair Harry Hyman and fund manager Pedro Gonzalez de Cosio to review their response to LuxmiraDx’s problems, saying they should have written down the loan earlier ‘when the original risk underwritten has meaningfully changed.’

‘We would hope the manager and board reviews their valuation approach such that the next time a road bump occurs, risk is appropriately priced into the NAV.’ 

BioPharma’s performance since launch in 2017 

Source: Morningstar