BioPharma Credit — Debt investment in a COVID-19 test provider

BioPharma Credit (LSE: BPCR)

Last close As at 24/06/2024

0.96

0.00 (0.00%)

Market capitalisation

USD1,258m

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Research: Investment Companies

BioPharma Credit — Debt investment in a COVID-19 test provider

On 24 March 2021, BioPharma Credit (BPCR) announced that it has entered into a US$150m senior secured loan agreement alongside BioPharma Fund V (which provided a further US$150m) with LumiraDx – a next-generation, point-of-care diagnostic company. LumiraDx manufactures rapid diagnostics equipment, including antibody and antigen tests to detect SARS-CoV-2 infections, used by the UK National Health Service, the CVS Pharmacy chain in the US and widely deployed in Africa in cooperation with the Bill & Melinda Gates Foundation. The transaction assists BPCR in achieving full dividend cover this year.

Milosz Papst

Written by

Milosz Papst

Director, Financials

Investment Companies

BioPharma Credit

Debt investment in a COVID-19 test provider

Investment trusts
Debt: Direct lending

1 April 2021

Price

US$0.97

Market cap

US$1,338.2m

NAV*

US$1,393.1m

NAV per share*

US$1.014

Premium/(discount) to NAV

(4.3%)

*As at end-February 2021

Yield

7.5%

Shares in issue

1,373.9m

Code Ord/A-share

BPCR

Primary exchange

LSE

AIC sector

Debt – Direct Lending

52-week high/low*

US$1.03

US$0.86

US$1.01

US$1.00

*A-shares. **Including income.

Gearing

Net cash at 28 February 2021

18%

Fund objective

BioPharma Credit was incorporated in the UK in October 2016 and aims to generate predictable income for shareholders over the long term through a diversified portfolio of loans and other instruments backed by royalties or other cash flows derived from sales of approved life sciences products. This includes senior secured notes, royalty debt instruments and priority royalty tranches.

Bull points

Strong and predictable income generation.

Loans backed by approved and marketed products.

High dividend yield (7% target).

Bear points

The life sciences sector is inherently risky and characterised by high R&D spending.

Fixed income characteristic limits investor upside potential close to coupon rate.

Loans are often prepaid, creating a temporary cash drag (though normally offset by prepayment fees).

Analysts

Milosz Papst

+44 (0)20 3077 5720

Michal Mordel

+44 (0)20 3077 5720

BioPharma Credit is a research client of Edison Investment Research Limited

On 24 March 2021, BioPharma Credit (BPCR) announced that it has entered into a US$150m senior secured loan agreement alongside BioPharma Fund V (which provided a further US$150m) with LumiraDx – a next-generation, point-of-care diagnostic company. LumiraDx manufactures rapid diagnostics equipment, including antibody and antigen tests to detect SARS-CoV-2 infections, used by the UK National Health Service, the CVS Pharmacy chain in the US and widely deployed in Africa in cooperation with the Bill & Melinda Gates Foundation. The transaction assists BPCR in achieving full dividend cover this year.

Steady deployment of prepayment proceeds

Source: BioPharma Credit. Note: *Pro-forma at end-February 2021 post LumiraDx deal.

Expected IRR close to portfolio average

The LumiraDx loan offers a yield to maturity of c 10%, which is broadly in line with BPCR’s historical deals (weighted average projected internal rate of return (IRR) of 10.8% at the time of investment), as the somewhat lower coupon rate (fixed at 8.0% vs c 9% weighted average for BPCR’s portfolio) is offset by higher funding and exit fees, at 2.5% and 1.5%, respectively. The IRR will be higher if LumiraDx repays the loan prior to its maturity in March 2024 (we note that US$425m of BPCR loans were prepaid in 2020) with the loan being subject to a two-year make-whole arrangement. BPCR also received warrants that currently have no value attached in BPCR’s net asset value (NAV) and are a potential NAV kicker on LumiraDx’s IPO (its planned Nasdaq listing, through which it aims to raise US$100m, is currently in progress). No detailed terms of the warrants were disclosed though.

Dividend and ongoing charge covered

The transaction reduces BPCR’s cash drag, with its net cash currently at c 7% of NAV based on our calculations. BPCR’s investment manager has indicated that this transaction goes a long way to covering the US$0.07 annualised dividend (implying a c 7.2% yield) and while this is still contingent on future prepayments and new transactions, we believe that BPCR still has time to generate additional income in 2021 to facilitate full dividend cover.

Deal rationale

LumiraDx developed and markets the LumiraDx Platform – a portable device with replaceable tests providing results within minutes from samples with lab test accuracy. It currently markets four tests used with its device, with a total addressable market of c US$20bn in FY21 (according to company estimates):

LumiraDx SARS-CoV-2 Ab Test – for qualitative detection of SARS-CoV-2 antibodies,

LumiraDx SARS-CoV-2 Ag Test – for detection of infection with SARS-CoV-2,

LumiraDx INR Test – measuring the prothrombin time, used for monitoring patients on oral anticoagulation therapy with Vitamin-K Antagonist drugs, and

LumiraDx D-Dimer Test – used to quantify D-Dimer levels – an aid in the assessment and diagnosis of patients with suspected venous thromboembolism such as deep vein thrombosis and pulmonary embolism.

All the tests are cleared for sale in the European market, while the LumiraDx SARS-CoV-2 Ag Test is also authorised in the US (and is, for example, sold to the CVS Pharmacy chain) under the Emergency Use Authorization. Requests for clearance of the other three tests in the US are to be filed in 2021 (with LumiraDx SARS-CoV-2 Ab Test already pending approval). LumiraDx reported last 12 month revenues as at end-June 2020 of c US$25m, which only includes the sale of INR and D-Dimer tests, as both SARS-CoV-2 tests were cleared for sale in Europe in H220 and should act as a significant revenue driver going forward. As at end-December 2020, the company had placed more than 7,000 devices with over 500 customers across more than 25 countries.

Furthermore, LumiraDx also has a rich pipeline of 30 tests under development to be used with the device. In 2021, the company expects to submit six of them for regulatory certifications in the areas of infectious diseases (including flu), diabetes and cardiovascular diseases. In addition to the LumiraDx platform, the company is developing its Amira System (expected submission in 2021 as well), which is currently in the feasibility phase. The system is a high-volume, lower-cost SARS-CoV-2 mass population screening solution for potential use in home COVID-19 testing.

The company was launched in 2014 by Ron Zwanziger, Dave Scott and Jerry McAleer. The founders have extensive experience in the med-tech business, including founding Alere in 1991 (then SelfCare), a global manufacturer of rapid point-of-care diagnostic tests, which was acquired by Abbott Laboratories in 2017 for US$5.3bn. The company is supported by institutional investors, including the Bill & Melinda Gates Foundation, Morningside Ventures and U.S. Boston Capital Corporation.

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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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.

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Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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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.

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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

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60325 Frankfurt

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London +44 (0)20 3077 5700

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New York +1 646 653 7026

1185 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

1185 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 2021 Edison Investment Research Limited (Edison).

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

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

1185 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

1185 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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