Invests in Epizyme and Akebia

Biopharma Credit 14 November 2019 Review
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BioPharma Credit

Invests in Epizyme and Akebia

Investment companies
Debt: direct lending

14 November 2019

Price

US$1.02

Market cap

US$1,401m

NAV

US$1,400.6m

NAV*

101.94c

Discount to NAV

(0.4)%

*As at end-September 2019.

Yield

7.0%

Ordinary shares in issue

1,373.9m

Code

BPCR

Primary exchange

LSE

AIC sector

Debt-Direct lending

Benchmark

N/A

Share price/discount performance

One-year performance vs index

52-week high/low

107.0c

100.0c

104.0c

100.0c

Gearing

Gross*

0.0%

Net*

0.0%

*As at end-September 2019.

Analyst

Milosz Papst

+44 (0)20 3077 5700

BioPharma Credit is a research client of Edison Investment Research Limited

BioPharma Credit (BPCR) has announced it has entered (alongside the BioPharma V fund) two five-year senior secured loan agreements with a total commitment of US$85m over the next 12 months (of which US$52.5m will be drawn initially). The terms of both loans are broadly in line with previous deals with a high single-digit floating interest rate, a 2% upfront fee and certain make-whole/prepayment fees. We estimate that BPCR still has at least US$344m in uncommitted cash (after excluding the recently declared dividend of US$0.0175 per share), which it aims to deploy before the end of the year.

Month ending

Share price
(%)

NAV
(%)

NASDAQ Biotechnology (%)

FTSE All-Share (%)

Credit Suisse HY (%)

S&P Euro Lev Loan (%)

31/05/19

0.5

0.4

(6.0)

(6.2)

(2.8)

(0.5)

30/06/19

1.4

0.4

9.3

4.7

1.2

2.3

31/07/19

(2.4)

0.0

(3.1)

(1.9)

3.2

(2.0)

31/08/19

0.2

0.5

(2.6)

(4.1)

0.8

(0.8)

30/09/19

(0.5)

0.5

(3.2)

4.2

1.5

(0.3)

Source: Refinitiv. Note: All % on a total return basis in US$.

The Epizyme deal

BPCR and BioPharma V agreed to provide US$70m debt funding (of which half is attributable to BPCR) to the NASDAQ-listed late-stage biotech company Epizyme at an interest rate at LIBOR +7.75%. Its lead product, tazemetostat, is an oral EZH2 inhibitor for selected oncology indications, in particular, epithelioid sarcoma and follicular lymphoma. Following the positive outcome of the pre-NDA meeting announced on 30 October, Epizyme has filed for accelerated drug approval with the FDA and received a Priority Review designation, with an FDA target action date of 23 January 2020.

Although BPCR normally focuses on companies with approved drugs, it is important to note the loan will be over collateralised with cash before FDA approval, with Epizyme’s cash and marketable securities at end-September 2019 at US$292.9m vs BPCR’s and BioPharma V’s initial investment at US$12.5m each. At the same time, the drawdown of the second (US$25m) and third (US$20m) tranches is subject to the FDA approval of tazemetostat for treating epithelioid sarcoma and follicular lymphoma, respectively. The loan facility is expandable by up to US$300m, subject to a mutual agreement between BPCR and Epizyme.

The transaction follows Epizyme’s agreement earlier this month with Royalty Pharma (an affiliate of BPCR’s investment manager), which provided US$100m of direct equity financing. Consequently, Epizyme’s management expects the debt and equity funding to extend its cash runway into at least 2022. Royalty Pharma has also purchased an existing royalty on tazemetostat net sales outside of Japan owned by Eisai for US$330m. The current EvaluatePharma sales consensus for tazemetostat for 2020 and 2021 stands at US$35m and US$114m, respectively.

The Akebia deal

BPCR and BioPharma V have committed up to US$100m in debt investment (with BPCR’s contribution at US$50m) to Akebia, another NASDAQ-listed biotech player, at a rate at LIBOR +7.50%. The loan is secured against Auryxia, 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 who are not on dialysis. The current EvaluatePharma consensus for Auryxia’s sales attributable to Akebia in FY19 and FY20 is US$139m and US$209m, respectively. After increasing sequentially by 26% to US$29.1m in Q219, Auryxia Q319 sales grew slightly quarter on quarter to US$30m in Q319, bringing the year-to-date figure to US$82.2m. Akebia also has a late-stage product studied for anaemia caused by CKD in both dialysis and non-dialysis patients (vadadustat), with expected sales attributable to Akebia in FY21 and FY22 of US$79m and US$234m, respectively (according to EvaluatePharma consensus). Akebia’s management has highlighted that the new debt funding extends the company’s cash runway into 2021 (which is well past its expected data readouts for global Phase III studies for vadadustat). At end-September 2019, the company had US$145.6m in cash and marketable securities.

General disclaimer and copyright

This report has been commissioned by BioPharma Credit and prepared and issued by Edison, in consideration of a fee payable by BioPharma Credit. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

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United States of America

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Level 4, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by BioPharma Credit and prepared and issued by Edison, in consideration of a fee payable by BioPharma Credit. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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