The increased number of floating rate loans across BioPharma Credit’s (BPCR ) portfolio of life sciences debt boosted earnings over the six months to the end of June, however, ongoing issues with borrower LumiraDX continues to be a thorn in its side. 

With 98% of the $1.2bn trust’s portfolio in floating rate loans, earnings climbed 21% to $0.0538 per share, covering the dividend payments over the period totalling $0.0508 per share, while the portfolio’s underlying investment returns increased 4% to $79m.

Despite the strong results the trust’s discount has widened from 12% at the end of June to almost 19% because of the problem loan LumiraDX.  The $150m loan was identified earlier in the year has seen 12 amendments to its agreement as the borrower faces liquidity issues. 

Liberum’s Joachim Klement said the issue is ’hanging over the fund’ and prevents the shares from trading at a smaller discount. ‘The investment portfolio is of high quality and the IRRs [internal rate of return] generated by the investment advisor are best-in-class,’ he said. ‘We expect a significant re-rating as the LumiraDX situation gets resolved but that may take time.’

The loan, which is $300m total with Pharmakon Advisors, the trust’s investment adviser, funding the other portion, matures in 2024. It is secured against LumiraDx’s assets, including the rights to its testing platform, point-of-care diagnostic systems, and its molecular technology. The company has seen its revunes plumment since Covid, falling to just $22.2m in the first three months of the year, compared to $126m for the same period in 2022. 

Peel Hunt analyst Anthony Leatham emphasised the importance of the evolution of the LumiraDx position, which ‘will be a test for the team and the investment process’.

Pedro Gonzalez de Cosio, CEO and co-founder of Pharmakon Advisors said they were working with the company, which makes up 11.3% of assets, and will provide investors with updates as they occur.

Growing opportunities 

 The dollar-denominated trust was busy in the period deploying a further $207.5m (£170.7m) across three new investments and an additional tranche of existing investments in the six-month period. 

This increased the portfolio to 13 investments – now 12 after the recent acquisition of Reata Pharmaceuticals – while the weighted average investment life fell from 3.7 years to 3.5.

Yesterday, BPCR received $62.5m from Biogen following its acquisition of the trust’s portfolio holding Reata Pharmaceuticals as well as $15.6m in prepayment fees.

Gonzalez de Cosio (pictured above) was bullish about the market environment for BPCR in the second half of the year. The continued slowdown in equity issuance coupled with a greater appetite for fixed income as a source of capital presents investment opportunities.

BPCR had $154m in cash and $67m available to draw under its credit facility but has deployed a further $41m since the end of June, reducing the effect of cash drag and putting the 12%-yielder on track to deliver another special dividend, which it has done every year since launch in 2017.

Discount rates applied to the portfolio of 13 investments at the period end – now 12 – sat broadly around the 14% mark to illustrate their risk versus government bonds, while the discount rate applied to LumiraDx was 27.5%, reflecting the current risks, according to the latest factsheet. 

The shares nudged up 0.2% to 83 cents, an 18% discount to the latest net asset value per share of $1.02 this morning. BioPharma Credit’s board, chaired by Harry Hyman, reiterated that it would continue to buy back shares to narrow the gap.

Five years of BioPharma Credit 

Source: Morningstar