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, as companies turned to alternative debt arrangements while markets remained subdued, half-year results show.

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

This increased the portfolio to 13 investments - which has fallen to 12 since period end after the acquisition of Reata Pharmaceuticals - while the weighted average investment life fell from 3.7 years to 3.5.

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

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.

Pedro Gonzalez de Cosio (pictured), CEO and co-founder of Pharmakon Advisers, the investment manager of BPCR, was bullish about the market environment for BPCR in the second half of the year, as a continued slowdown in equity issuance coupled with 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 since 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.

However, LumiraDx, continued to be a thorn in the trust’s side and cast a shadow on the results. The $150m problem loan identified earlier in the year, has seen 12 amendments to its agreement as the borrower faces liquidity issues. 

Gonzalez de Cosio said Pharmakon was working with the company, which makes up 11.3% of assets, and will provide investors with updates as they occur.

Peel Hunt analyst Anthony Leatham noted that while the ‘solid set of results’ showed a busy period for investments, he emphasised the importance of the evolution of the LumiraDx position, which ‘will be a test for the team and the investment process.’

Discount rates applied to the portfolio of 13 investments at period end - now 12 - broadly sat 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. The 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