Company Announcements

CHAIRMAN'S STATEMENT

 

 

DURING THE FIRST HALF OF 2022, THE COMPANY ANNOUNCED THREE NEW INVESTMENT TOTALING $526 MILLION IN FRESH COMMITMENTS

 

INTRODUCTION

I am pleased to present the Half-Yearly Report for the Company, which covers the period 1 January 2022 to 30 June 2022. In an environment where markets encountered significant volatility and strong economic headwinds, the Company's portfolio continued to perform well throughout the period and was able to grow through the execution on a strong pipeline of opportunities, with investment income increasing by 26 per cent. compared to the same period of 2021.

 

INVESTMENTS

Over the first six months of 2022, the Company and its subsidiaries invested $463 million, comprised of $325 million for the new Collegium loan, $100 million for the Coherus loan and $38 million for the UroGen loan. These investments have additional unfunded commitments totaling $63 million that may be funded over the next twelve months. The portfolio diversification increased during 2021 and this continued into 2022, with eleven total investments as of 30 June 2022.

 

The Company, including assets and liabilities from its financing subsidiary, BPCR Limited Partnership, ended the year with total net assets of $1,384 million, comprising $1,478 million of investments, $62 million of cash less $138 million from its debt facility and $18 million of other net liabilities.

 

The Company and its subsidiaries saw a $181 million increase in cash flow in the first six months of 2022 due to the early repayment of the 2020 Collegium loan, the early repayment of the BDSI loan and the cash consideration received related to the tender offer on the remaining BDSI shares and the scheduled amortization payments from the BMS purchased payments.

 

In subsequent events, Akebia made a $12.5 million pre-payment on 15 July 2022, reducing the outstanding balance to $37.5 million and generating a 2 per cent. prepayment fee, and Ipsen closed on its acquisition of Epizyme, triggering a $110 million prepayment on 12 August 2022 plus $9 million in prepayment and make whole fees realizing a gross IRR of 15.2 per cent. Furthermore, on 8 August 2022, Pfizer announced an agreement to purchase GBT which, upon closing, would trigger a $132.5 million prepayment to the company plus fees which will be dependent on the timing of the closing.

 

DEBT FACILITY

On 10 September 2021, the Company renegotitated and amended the JPMorgan Chase Bank revolving credit facility that was originated with JPMorgan Chase Bank in 2020. On 21 March 2022, the Company through its subsidiary, BPCR Limited Partnerships, drew down $138 million on its credit facility with a remaining $162 million available under the accordion feature.

 

SHAREHOLDER RETURNS

The Company and its subsidiaries combined cash balance decreased by $112 million during the first six months of 2022 from $174 million at 31 December 2021 to $62 million at 30 June 2022. On 30 June 2022, the Company's Ordinary Shares closed at $0.9400, below the closing price on 31 December 2021 of $0.9680. Net Asset Value ("NAV") per Ordinary Share increased over the same timeframe from $0.9926 to $1.0072.

 

The Company made two dividend payments over the period totaling $0.0350 per share, referencing net income for the quarters ending 31 December 2021 and 31 March 2022. The Company is currently paying and continues to target a 7 cent annual dividend per share.

 

The average discount to NAV over the 3 month period ending 30 June 2022 was 2.4 per cent. The Company announced on 1 July 2022 that it has the authority to repurchase up to 205,952,416 ordinary shares under its share buy-back programme. The Company repurchased 1,496,317 shares between 5 July 2022 and 8 July 2022 at an average price of $0.9392 and a total cost of $1,415,865.

 

ESG

The Board has supported the Investment Manager's Environmental, Social and Governance ("ESG") programme over the first six months of 2022, with progress made in embedding ESG as an integral part of the investment process. The key areas are described in more detail in the full Half-Yearly Report available online.

 

OUTLOOK

The COVID-19 pandemic is continuing to affect the movement of people and cause disruption to business operations. Pharmakon and the Company's third-party service providers have hybrid and well established virtual working arrangements that have not impacted operations. Our investment manager believes that, while the COVID-19 pandemic has temporarily affected the sales of some of the Company's borrowers, it has not had a material impact on the credit quality of the Company's loans. The effects of other geopolitical and social risks, including the invasion by Russia of Ukraine, may have economic consequences that extend beyond the short term. The Company does not have any direct investments with Russia. We will continue to monitor the situation and will inform shareholders of any material changes to this assessment.

 

The Company started 2022 strongly, having announced three transactions that represent $526 million in commitments to be funded this year, a greater than three fold increase from the $150,000,000 committed during the same period of 2021. In comparison, global equity issuance by life science companies decreased by 85 per cent. during the same time periods. The Investment Manager continues to develop a pipeline of additional potential investments and, as a consequence, we expect to be evaluating a number of potential alternatives to fund future growth and further diversify our portfolio. On behalf of the Board, I should like to express our thanks to Pharmakon, the Company's Investment Manager, for their continued achievements on behalf of the Company in 2022 and to our shareholders for their continued support.

 

 

 

Harry Hyman

Chairman

13 September 2022

 

 

 

 

INVESTMENT MANAGER'S REPORT

 

Pharmakon is pleased to present an update on the Company's portfolio and investment outlook. The Company's existing portfolio investments continue to perform well.

 

Pharmakon's engagement with potential counterparties during the period resulted in $463 million of new investments for the Company out of the total $925 million executed. During the period, the Company announced the repayment of the BDSI loan, and the sale of its remaining BDSI shares, and the repayment of the Collegium 2020 loan as a part of Collegium's acquisition of BDSI. The Company and its subsidiaries earned an 11.9 per cent. internal rate of return on both its Collegium 2020 and BDSI loans. The Company earned an 11.6 per cent. internal rate of return on the BDSI equity investment.

 

Collegium 2022

On 14 February 2022, the Company along with BioPharma Credit Investments V, a private fund also investing in life sciences debt managed by Pharmakon Advisors ("BioPharma-V"), provided Collegium Pharmaceutical, Inc. (Nasdaq: COLL), a biopharmaceutical company focused on developing and commercialising new medicines for responsible pain management ("Collegium"), with a commitment to enter into a new senior secured term loan agreement for $650 million. On 22 March 2022, proceeds from the new loan were used to fund Collegium's acquisition of BDSI as well as repay the outstanding debt of Collegium and BDSI.

 

At closing, the Company and its subsidiaries invested $325 million in a single drawing. The four-year loan will have $100 million in amortisation payments during the first year and the remaining $550 million balance will amortize in equal quarterly installments. The loan will mature in March 2026 and bears interest at 3-month LIBOR plus 7.50 per cent. per annum subject to a 1.20 per cent. floor along with a one-time additional consideration of 2.00 per cent. of the loan amount paid upon signing and a one-time additional consideration of 1.00 per cent. of the loan amount paid at funding.

 

Collegium currently markets Xtampza ER, an abuse-deterrent, extended-release, oral formulation of oxycodone and Nucynta (tapentadol), a centrally acting synthetic analgesic.

 

Investment type	Date invested
Secured loan	22 March 2022
Total loan amount	Company commitment
$650m	$325m
Maturity
March 2026

 

 

UroGen

On 7 March 2022, the Company and BioPharma-V entered into a definitive senior secured loan agreement for up to $100 million with Urogen Inc (Nasdaq: URGN), a biopharmaceutical company dedicated to creating novel solutions that treat urothelial and specialty cancers ("Urogen").

 

The Company and its subsidiaries funded $37.5 million of the first tranche of $75 million on 16 March 2022. The remaining $25 million may be drawn by 31 December 2022. The Company's share of the final tranche is $12.5 million.

 

The loan will mature in March 2027 and bears interest at 3-month LIBOR plus 8.25 per cent. per annum subject to a 1.25 per cent. floor along with a one-time additional consideration of 1.75 per cent. of the total loan amount payable upon funding of the first tranche.

 

UroGen markets JELMYTO (mitomycin), a prescription medicine used to treat adults with a type of cancer of the lining of the upper urinary tract including the kidney called low-grade Upper Tract Urothelial Cancer (LG-UTUC).

 

Investment type	Date invested
Secured loan	16 March 2022
Total loan amount	Company commitment
$100m	$50m
Maturity
March 2027

 

Coherus

On 5 January 2022, the Company and BioPharma-V entered into a definitive senior secured loan agreement for up to $300 million with Coherus BioSciences, Inc. (Nasdaq: CHRS), a biopharmaceutical company building a leading immuno-oncology franchise funded with cash generated by its commercial biosimilars business ("Coherus").

 

Coherus drew down $100 million at closing and an additional $100 million on 31 March 2022. The remaining $100 million may be drawn by 17 March 2023 subject to regulatory approval of two additional pharmaceutical products.

 

The Company and its subsidiaries funded $100 million across the first two tranches. The loan will mature in January 2027 and bears interest at 3-month LIBOR plus 8.25 per cent. per annum subject to a 1.00 per cent. floor along with a one-time additional consideration of 2.00 per cent. of the total loan amount payable upon funding of the first tranche.

 

Coherus markets UDENYCA® (pegfilgrastim-cbqv), a biosimilar of Neulasta in the United States, and expects to launch the FDA-approved Humira biosimilar YUSIMRY (adalimumab-aqvh) in the United States in 2023.

 

Investment type	Date invested
Secured loan	5 January 2022
Total loan amount	Company commitment
$300m	$150m
Maturity
January 2027

 

 

 

Evolus

On 14 December 2021, the Company and BioPharma-V entered into a definitive senior secured loan agreement for up to $125 million with Evolus Inc (Nasdaq: EOLS), a biopharmaceutical company that develops, produces, and markets clinical neurotoxins for aesthetic treatments ("Evolus").

 

The Company and its subsidiaries funded $37.5 million of the first tranche of 

$75 million on 29 December 2021. The remaining $50 million may be drawn by 31 December 2022. The Company's share of the final tranche is $25 million.

 

The loan will mature in December 2027 and bears interest at 3-month LIBOR plus 8.50 per cent. per annum subject to a 1.00 per cent. floor along with a one-time additional consideration of 2.25 per cent. of the total loan amount payable upon funding of the first tranche.

 

Evolus currently markets Jeuveau (prabotulinumtoxinA-xvfs), the first and only neurotoxin dedicated exclusively to aesthetics.

 

Investment type	Date invested
Secured loan	14 December 2021
Total loan amount	Company commitment
$125m	$63m
Maturity
December 2027

 

 

LumiraDx

On 23 March 2021, the Company and BioPharma-V entered into a definitive senior secured loan agreement for $300 million with LumiraDx Investment Limited and LumiraDx Group Limited (collectively "LumiraDx").

 

The Company and its subsidiaries funded $150 million of the $300 million loan on 29 March 2021.

 

The loan will mature in March 2024 and bears interest at 8.00 per cent. per annum along with an additional consideration of 2.50 per cent. of the loan amount paid upon funding and an additional 1.50 per cent. of the loan payable at maturity. On 28 September 2021, LumiraDx became public via a SPAC transaction with CA Healthcare Acquisition Corp. and began trading on NASDAQ under the ticker LMDX. The Company and BioPharma-V both received 742,924 warrants exercisable into common stock of LumiraDx under the terms of the transaction.

 

On 25 July 2022, LumiraDx raised $100 million in a follow-on offering at a price of $1.75. As part of the financing, Pharmakon re-tiered its sales covenants, received a facility fee, and was issued new five-year warrants at the offering price of $1.75, with the original warrants being canceled.

LumiraDx is a UK based, next-generation Point of Care, or POC, diagnostic company addressing the current limitations of legacy POC systems by bringing performance comparable to a central lab to the POC in minutes, on a single instrument for a broad menu of tests with a low cost of ownership. To date, LumiraDx has developed and launched twelve diagnostic tests for use with its platform, three of which have been approved in the United States under an Emergency Use Authorization and in the EU under a CE mark: a SARS-CoV-2 ("COVID-19") antigen test, a COVID-19 antibody test, and a COVID-19 Surveillance test. The nine other tests are currently approved only in the EU under a CE mark.

 

LumiraDx has also used its technology to develop two rapid COVID-19 reagent testing kits for use on open molecular systems, LumiraDx SARS-CoV-2 RNA STAR and SARS-CoV-2 RNA STAR Complete, both of which obtained Emergency Use Authorization by the FDA.

 

Investment type	Date invested
Secured loan	23 March 2021
Total loan amount	Company commitment
$300m	$150m
Maturity
March 2024

 

 

GBT

On 17 December 2019, the Company and BioPharma-V entered into a definitive senior secured term loan agreement for up to $150 million with Global Blood Therapeutics (Nasdaq: GBT), a biopharmaceutical company focused on innovative treatments that provide hope to underserved patient communities ("GBT").

 

GBT drew down $75 million at closing and an additional $75 million on 20 November 2020. On 14 December 2021 the loan agreement was amended and restated. The amendment increased the aggregate principal amount of the loan to $250 million through a $100 million third tranche, which was drawn on 22 December 2021.

 

The Company and its subsidiaries funded $133 million across all three tranches. The loan will mature in December 2027 and bears interest at three-month LIBOR plus 7.00 per cent. per annum subject to a 2.00 per cent. floor along with a one-time additional consideration of 1.50 per cent. of the total loan amount paid upon funding and an additional 2.00 per cent. payable upon the repayment of the loan. The third tranche also incurred additional consideration of 1.50 per cent. at the time of funding. As a part of the amendment in 2021, the Company and its subsidiaries received a one-time fee equal to 1.25 per cent. of the first two tranches and the three-year make-whole period was reset to December 2021. On 8 August 2022, Pfizer announced a definitive agreement pursuant to which Pfizer will acquire GBT. Upon closing, GBT will be required to repay its $250 million senior secured loan, of which the Company holds a $132.5 million balance. Assuming the prepayment occurs on 1 October 2022, the Company would be expected to receive approximately $38 million in paydown, prepayment and make-whole fees.

 

GBT manufactures and sells Oxbryta (voxelotor) for the treatment of sickle cell disease in adults and pediatric patients 4 years of age and older.

 

Investment type	Date invested
Secured loan	17 December 2019
Total loan amount	Company commitment
$250m	$132.5m
Maturity
December 2027

 

 

Sarepta

On 13 December 2019, the Company and BioPharma-V entered into a definitive senior secured term loan agreement for up to $500 million with Sarepta Therapeutics (Nasdaq: SRPT), a fully integrated biopharmaceutical company focused on precision genetic medicine ("Sarepta").

 

On 24 September 2020 the Sarepta loan agreement was amended, and the loan amount was increased to $550 million. Sarepta drew down the first $250 million tranche at closing and an additional $300 million on 2 November 2020.

 

The Company and its subsidiaries funded $175 million of each tranche for a total investment of $350 million. The first tranche will mature in December 2023 and the second tranche in December 2024. The loan bears interest at 8.5 per cent. per annum along with a one-time additional consideration of 1.75 per cent. of the first tranche and 2.95 per cent. of the second tranche paid upon funding and an additional 2 per cent. payable upon the repayment of the loan.

 

Sarepta currently markets Exondys 51 (eteplirsen), Vyondys 53 (golodirsen) and Amondys 45 (casimersen) in the US for the treatment of Duchenne muscular dystrophy (DMD).

 

Investment type	Date invested
Secured loan	13 December 2019
Total loan amount	Company commitment
$550m	$350m
Maturity
December 2024

 

 

Akebia

On 11 November 2019, the Company and BioPharma-V entered into a definitive senior secured term loan agreement for up to $100 million with Akebia (Nasdaq: AKBA), a fully integrated biopharmaceutical company focused on the development and commercialisation of therapeutics for people living with kidney disease ("Akebia").

 

Akebia drew down $80 million at closing and an additional $20 million on 10 December 2020.

 

The Company and its subsidiaries funded $50 million across both tranches.

 

The loan will mature in November 2024 and bears interest at LIBOR plus 7.5 per cent. per annum along with a one-time additional consideration of 2 per cent. of the total loan amount paid upon funding.

 

On 20 July 2022, the Akebia loan agreement was amended and as a result, Akebia made a $25 million pre-payment, of which $12.5 million went to the Company, as well as a 2 per cent. prepayment fee. The Company's outstanding balance as of 30 June 2022 is $37.5 million. The amendment provided Akebia certain waivers including 1) Allowing Akebia to make certain payments under its Second Amended and Restated Vifor License Agreement with Vifor (International) Ltd., 2) waive the requirement that the Company's Quarterly Reports on Form 10-Q for the fiscal quarters ending 30 June 2022 and 30 September 2022 not be subject to any qualification as to going concern, and (3) waive certain payments payable under the Loan Agreement, other than prepayment fees.

Akebia currently markets Auryxia® (ferric citrate) 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 not on dialysis.

 

Investment type	Date invested
Secured loan	25 November 2019
Total loan amount	Company commitment
$100m	$50m
Maturity
November 2024

 

 

Epizyme

On 4 November 2019, the Company and BioPharma-V entered into a definitive senior secured term loan agreement for up to $70 million with Epizyme (Nasdaq: EPZM), a late-stage biopharmaceutical company developing novel epigenetic therapies for cancer.

 

On 3 November 2020 the Epizyme loan agreement was amended, and the loan amount was increased to $220 million. Epizyme drew down $25 million at closing and an additional $195 million during 2020.

 

The Company and its subsidiaries funded a total of $110 million of the Epizyme loan. The loan was originally due to mature in November 2024 and bore interest at LIBOR plus 7.75 per cent. per annum along with a one-time additional consideration of 2 per cent. of the total loan amount paid upon funding.

 

Epizyme's lead product, TAZVERIK (tazemetostat), is a first-in- class, oral inhibitor that received FDA approval for epithelioid sarcoma on 23 January 2020 and follicular lymphoma on 18 June 2020.

 

On 27 June 2022, Ipsen announced a definitive agreement pursuant to which Ipsen will acquire Epizyme. On 12 August 2022, Epizyme repaid its $220 million senior secured loan. The Company received its $110 million of principal and $9 million in prepayment and makewhole fees.

 

Investment type	Date invested
Secured loan	18 November 2019
Total loan amount	Company commitment
$220m	$110m
Maturity
November 2026

 

 

Optinose

On 12 September 2019, the Company and BioPharma-V entered into a definitive senior secured note purchase agreement for the issuance and sale of senior secured notes in an aggregate original principal amount of up to US$150 million by OptiNose US, a wholly-owned subsidiary of OptiNose (Nasdaq: OPTN), a commercial-stage specialty pharmaceutical company.

 

Optinose drew a total of US$130 million in three tranches: $80 million on 12 September 2019, $30 million on 13 February 2020 and $20 million on 1 December 2020. There are no additional funding commitments.

 

The Company and its subsidiaries funded a total $72 million across all tranches. The notes mature in September 2024 and bear interest at 10.75 per cent. per annum along with a one-time additional consideration of 0.75 per cent. of the aggregate original principal amount of senior secured notes which the Company was committed to purchase under the facility and 445,696 warrants exercisable into common stock of OptiNose at a strike price of $6.72.

 

On 2 March 2021, the sales covenants in the notes were reduced by 16 per cent. for 2021 and 3 per cent. thereafter to allow for slower growth due to the temporary impact of COVID 19 from reduced patient visits. The revised covenant for 2021 of $80 million still represents growth of 65 per cent. from 2020.

 

On 18 November 2021, OptiNose raised $46M in a follow-on offering at a price of $1.60. As part of the financing, Pharmakon re-tiered its sales covenants, amended the amortisation and make-whole provisions, and were issued new three-year warrants at the offering price of $1.60, with the original warrants being canceled.

 

OptiNose's leading product, XHANCE (fluticasone propionate), is a nasal spray approved by the U.S. Food and Drug Administration (FDA) in September 2017 for the treatment of nasal polyps in patients 18 years or older. XHANCE utilises a novel and proprietary exhalation delivery system to deliver the drug high and deep into the sinuses, targeting areas traditional intranasal sprays are not able to reach.

 

Investment type	Date invested
Secured loan	12 September 2019
Total loan amount	Company commitment
$130m	$72m
Maturity
September 2024

 

 

Bristol-Myers Squibb, Inc.

On 8 December 2017, the Company's wholly-owned  subsidiary entered into a purchase, sale and assignment agreement with a wholly-owned subsidiary of Royalty Pharma Investments ("RPI"), an affiliate of the Investment Manager, for the purchase of a 50 per cent. Interest in a stream of payments (the "Purchased Payments") acquired by RPI's subsidiary from Bristol-Myers Squibb (NYSE: BMY) through a purchase agreement dated 14 November 2017.

 

As a result of the arrangements, RPI's subsidiary and the Company's subsidiary are each entitled to the benefit of 50 per cent. of the Purchased Payments under identical economic terms. The Purchased Payments are linked to tiered worldwide sales of Onglyza and Farxiga, diabetes agents marketed by AstraZeneca, and related products. The Company was expected to fund $140 million to $165 million during 2018 and 2019, determined by product sales over that period, and will receive payments from 2020 through 2025. The Purchased Payments are expected to generate attractive risk-adjusted returns in the high single digits per annum. The Company funded all of the Purchased Payments based on sales from 1 January 2018 to 31 December 2019 for a total of $162 million.

 

REALIZED INVESTMENTS

 

Collegium 2020

On 7 February 2020, the Company and BioPharma-V entered into a definitive senior secured term loan agreement for $200 million with Collegium Pharmaceutical, Inc. (Nasdaq: COLL), a biopharmaceutical company focused on developing and commercialising new medicines for responsible pain management ("Collegium 2020").

 

The Company and its subsidiaries funded $165 million of the $200 million loan on 13 February 2020.

 

The secured loan began amortising immediately and was due to fully mature in February 2024. The loan bore interest at three-month LIBOR plus 7.50 per cent. per annum subject to a 2.00 per cent. LIBOR floor with a one-time additional consideration of 2.50 per cent. of the loan amount paid upon funding. The loan was repaid in its entirety on 22 March 2022. The Company and its subsidiaries earned a 11.9 per cent. internal rate of return on its Collegium 2020 investment.

 

Biodelivery Sciences

On 23 May 2019, the Company entered into a senior secured loan agreement for up to $80 million with BioDelivery Sciences International (Nasdaq: BDSI), a commercial-stage specialty pharmaceutical company ("BDSI"). In addition, the Company acquired 5,000,000 BDSI shares at $5.00 each for a total cost of $25 million in a public offering that took place on 11 April 2019.

 

The first tranche of the loan for $60 million was funded on 28 May 2019 and the second $20 million tranche was funded on 22 May 2020. The loan was due to mature in May 2025 and bore interest at LIBOR plus 7.50 per cent., along with 2.00 per cent. additional consideration paid at closing. On 23 September 2021, BDSI made an early prepayment of $20 million, and made its final payment for the remainder of the loan on 22 March 2022. The Company earned a 11.9 per cent. internal rate of return on the BDSI loan. The Company sold 46 per cent of its BDSI shares during 2019 at an average price of $6.50 and received $5.60 per remaining shares on the date of the M&A Transaction. The Company earned a 11.6 per cent. internal rate of return on the BDSI equity investment.

 

MARKET ANALYSIS

The life sciences industry is expected to continue to have substantial capital needs during the coming years as the number of products undergoing clinical trials continues to grow. All else being equal, companies seeking to raise capital are generally more receptive to straight debt financing alternatives at times when equity markets are soft, increasing the number and size of fixed-income investment opportunities for the Company, and will be more inclined to issue equity or convertible bonds at times when equity markets are strong. A good indicator of the life sciences equity market is the New York Stock Exchange Biotechnology Index ("BTK Index"). While there was substantial volatility during the period, the BTK index decreased 16 per cent. during the first six months of 2022, compared to a 3 per cent. increase during the same period in 2021. Global equity issuance by life sciences companies during the first six months of 2022 was $11 billion, an 85 per cent. decrease from the $73 billion issued during the same period in 2021. This dynamic contributed to additional deal flow for the Company during the recent period from 4Q 2021 through 2Q 2022, as we deployed $463 million across four new investments. We anticipate a continued slowdown in equity issuance coupled with greater appetite for fixed income as a source of capital during the remainder of 2022.

 

Acquisition financing is an important driver of capital needs in the life sciences industry in general and a source of investment opportunities. An active M&A market helps drive opportunities for investors such as the Company, as acquiring companies need capital to fund acquisitions.

 

Global life sciences M&A volume during the first six months of 2022 was $26 billion, a 72 per cent. decrease from the $93 billion witnessed during the same period in 2021, driven mainly by the impact of global inflation post Covid-19. We anticipate M&A opportunities to eventually ramp up once the economy stabilizes.

 

USD LIBOR
On 5 March 2021, the Financial Conduct Authority ("FCA"), the regulatory supervisor of USD LIBOR's administrator ("IBA") announced in a public statement the future cessation of the 3-month USD LIBOR tenor setting. As of 30 June 2023, all available Tenor of USD LIBOR must have either permanently or indefinitely ceased to be provided by IBA or have been announced by or on behalf of the FCA pursuant to public statement or publication of information to be no longer representative, a replacement benchmark will be used in the absence of USD LIBOR. If the benchmark replacement is daily simple Secured Overnight Financing Rate ("SOFR"), all interest payments will be calculated with SOFR beginning on the effective date on a quarterly basis. The Company has seven loans with coupons that reference 3-month USD LIBOR and three have a 2.00 per cent. floor and four have a floor ranging from 1.00 per cent. to 1.25 per cent. As of 30 June 2022, the 3-month LIBOR rate was 2.29 per cent, slightly above the floors in the seven loans. The Investment Manager will continue to monitor the news on the replacement benchmark and will take steps to update its interest payments as of the effective date.

COVID-19
The easing of Covid-19 restrictions during the beginning of 2022 following the deployment of vaccination campaigns has resulted in the adoption of hybrid schedules for both the Company's operations and its service providers, which has not affected any technical or operational functions during the pandemic. Covid-19 continues to cause major disruptions across the globe however we have confidence in the performance of our loans and there has not been a material impact on the credit quality of the Company's investments. We will continue to monitor the pandemic and will inform investors of any material changes to this assessment.

INVESTMENT OUTLOOK
We expect our investment pipeline to grow as new products and companies enter the market during the remainder of 2022 and beyond. Pharmakon's extensive network and thorough approach will continue to identify strong investment opportunities. We remain focused on our mission of creating the premier dedicated provider of debt capital to the life sciences industry while generating attractive returns and sustainable income to investors. Furthermore, Pharmakon remains confident of our ability to deliver its target dividend yield to its investors.

Pedro Gonzalez de Cosio

Co-founder and CEO, Pharmakon

13 September 2022

 

 

CASE STUDY - COHERUS

 

DEDICATED TO IMPROVING THE AVAILABILITY OF HIGH-VALUE, HIGH-QUALITY THERAPEUTICS. COHERUS' PIPELINE SPANS MULTIPLE THERAPEUTIC AREAS INCLUDING ONCOLOGY, IMMUNOLOGY, AND OPHTHALMOLOGY.

 

The Company's first FDA-approved and commercial product, UDENYCA® (pegfilgrastim-cbqv), is a biosimilar to Amgen's product Neulasta which supports white blood cell growth in cancer patients and had peak US commercial sales of .-$4bn. In December 2021, the company received FDA approval for its second product, YUSIMRYTM (adalimumab- aqvh), a biosimilar to Abbvie's auto-immune product Humira which had US sales of .-$17bn in 2021. Coherus anticipates launching YUSIMRY in July 2023. Most recently, in August 2022, the company received FDA approval for its third product, CIMERLITM (ranibizumab-eqrn), a biosimilar to Roche/Genentech's product Lucentis for macular degeneration and other ophthalmic indications that is anticipated to launch later this year. In 2021, the company expanded into novel immuno-oncology therapeutics with its collaboration agreement with Junshi Biosciences. Its lead product, toripalimab, is a PD-1 antibody that is currently on file with the FDA for nasopharyngeal carcinoma. Toripalimab is being studied across multiple tumor types including cancers of the lung, esophagus, bladder, stomach, breast, liver, and skin. Coherus' strategy is to invest cash flows from their commercial biosimilar business to build an immuno-oncology franchise that will be synergistic with their proven commercial capabilities.

 

CASE STUDY - BIOSIMILARS

 

DEVELOPING COMPLEX BIOSIMILARS REQUIRES A HIGHLY-TRAINED TEAM AND STATE-OF-THE-ART PROCESSES.

 

In order to meet the challenges of biosimilar development, the Company developed a scientific platform that incorporates cutting-edge analytics, clinical and regulatory expertise, and process and manufacturing quality. Coherus believes its platform has been essential in its success in developing and commercializing biosimilars, and that key aspects of the platform will translate to its immuno-oncology program.

 

The FDA approval process for biosimilars is rigorous and requires a team of individuals with a diverse set of competencies to optimize outcomes. For a biosimilar to be approved by the FDA, the product needs to be highly similar to the reference product regarding purity, molecular structure, bioactivity, safety, and efficacy.

 

Strong interactions with the agency are required throughout the drug approval process to ensure success. To date, the Company has efficiently designed and conducted clinical studies in line with the latest regulatory guidance meeting all FDA requirements as seen with the approval of UDENYCA®, YUSIMRYTM and CIMERLITM.

 

In addition to the clinical and regulatory expertise, Coherus prides itself on its commercial operations that can meet market demand while also balancing reimbursement and patient access.

 

Expansion into Immuno-oncology

 

IMMUNO-ONCOLOGY HAS REVOLUTIONIZED CANCER TREATMENT.

 

The successful development of immuno-oncology medicines, such as anti-PD-1 monoclonal antibodies, has significantly improved the prognosis for many patients with cancer.

 

Focused on broadening its business, in February 2021, Coherus entered into a collaboration agreement with Junshi Biosciences for the development and commercialization of toripalimab in the United States and Canada. This collaboration provides Coherus with a late-stage anti-PD-1 antibody, as well as options on other novel immuno-oncology molecules.

 

Toripalimab, approved in China for the second-line treatment of melanoma, urothelial cancer and nasopharyngeal carcinoma, has been evaluated in more than 2,500 patients across 29 completed or ongoing clinical trials in various tumor types including cancers of the lung, nasopharynx, esophagus, bladder, stomach, breast, liver, and skin.

 

In addition to the US rights to toripalimab, Coherus has also acquired options and first negotiation rights to four of Junshi's novel oncology molecules, including an option to an antibody targeting TIGIT, a clinically validated immune inhibitory checkpoint, and an option to a next-generation engineered IL-2 cytokine. The Company may develop toripalimab in combination with one or more of these compounds, or potentially with other cancer drugs. The Company opted to exercise its option for the TIGIT targeted antibody in January 2022.

 

Coherus believes that toripalimab, if approved in the United States and Canada, will be synergistic with its core competencies in oncology commercialization.

 

What is a biosimilar?

 

A biosimilar product is a biologic product that is approved based on demonstrating that it is highly similar to an FDA‐ approved biologic product, known as a reference product, and has no clinically meaningful differences in terms of safety and effectiveness from the reference product. Only minor differences in clinically inactive components are allowable in biosimilar products.

 

How are biosimilars different from generic medicines?

While identical generic versions of small molecules can be chemically synthesized, it is not possible to create identical versions of reference biologic medicines, due to the fact that they are derived from living organisms. As a result, the processes used to develop generic medicines is not applicable to the development of biosimilars.

 

Biosimilars are different from generics due to their molecular size and structure, and the complexity and cost of their development. Biosimilars are significantly more costly and complex to manufacture than a traditional tablet generic medicine. Biosimilar development may take five to nine years and cost more than $100 million. A generic, however, costs $1-2 million and takes approximately two years to develop. (Source: Pfizer - https://www.pfizer.com/sites/default/files/investors/financial_reports/annual_reports/2018/our-innovation/progressing-our-science/biosimilars-vs-generics/index.html)

 

CASE STUDY - COHERUS

 

UROGEN IS A BIOTECH COMPANY DEDICATED TO DEVELOPING AND COMMERCIALIZING INNOVATIVE SOLUTIONS TO TREAT UROTHELIAL AND SPECIALTY CANCERS.

 

The Company's approved breakthrough therapy and innovative clinical pipeline aims to maximize the potential benefit of local delivery. Its novel RTGelTM technology provides a transformative, nonsurgical treatment for challenging urothelial and bladder cancers.

 

JELMYTO® (mitomycin) for pyelocalyceal solution, is the first and only FDA-approved nonsurgical therapeutic of its kind. JELMYTO uses Urogen's RTGel^TM reverse-thermal hydrogel technology to increase the effectiveness of mitomycin, a well-known chemotherapeutic agent. Now, UroGen is building upon its novel delivery technology by exploring ways to harness the immune system to fight solid tumors in urothelial and bladder cancers.

 

 

RTGELTM REVERSE-THERMAL HYDROGEL TECHNOLOGY IS TRANSFORMING MEDICINE DELIVERY IN UROLOGY.

 

RTGel, unlike most forms of matter, is liquid at lower temperatures and converts into gel form when warmed to body temperature. This technology promotes ease of delivery and retention of drug in body cavities, including the bladder and upper urinary tract, forming a transient reservoir of drug that disintegrates over time while preventing rapid excretion. The gel leverages the physiologic flow of urine to provide a natural exit from the body.

 

THERAPEUTIC POSSIBILITIES

 

The RTGel platform has the potential to advance the treatment of urological conditions by:

·      Increasing dwell time and exposure of active drugs, potentially improving the therapeutic effects of existing products

·      Potentially increasing the viability of organ-sparing techniques and providing alternatives to radical surgery

 

PHARMAKON ADVISORS' ESG POLICY

 

Pharmakon Advisors' ESG Policy can be found set out in the full Half-Yearly report.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

INTERIM MANAGEMENT REPORT

The important events that have occurred during the period under review, the key factors influencing the financial statements and the principal factors that could impact the remaining six months of the financial year are set out in the Chairman's Statement and the Investment Manager's report above.

 

The Directors and the Investment Manager have considered the adverse impact of potential changes in law, regulation and taxation and the matter of foreign exchange risk.

 

The Directors have considered the principal risks facing the Company and there have not been any material changes to the principal risks and uncertainties and approach to mitigating these risks since the publication of the Annual Report and Financial Statements for the year ended 31 December 2021, and expect that, for the remainder of the year ending 31 December 2022, these will continue to be as set out on pages 24 to 30 of that report.

 

Risks faced by the Company include, but are not limited to:

·      Failure to achieve target returns;

·      The success of the Company depends on the ability and expertise of the Investment Manager;

·      The Company may from time to time commit to make future investments that exceed the Company's current liquidity;

·      The Investment Manager's ability to source and advise appropriately on investments;

·      There can be no assurance that the Board will be able to find a replacement investment manager if the Investment Manager resigns;

·      Concentration in the Company's portfolio may affect the Company's ability to achieve its investment objective;

·      Life sciences products are subject to intense competition and various other risks;

·      Investments in debt obligations are subject to credit and interest rate risks;

·      Risk that a counterparty is unable to honour its obligation to the Company;

·      Sales of life sciences products are subject to regulatory actions that could harm the Company's ability to make distributions to investors;

·      Net asset values published will be estimates only and may differ materially from actual results;

·      Changes in taxation legislation or practice may adversely affect the Company and the tax treatment for shareholders investing in the Company;

·      COVID-19 may affect the Company's ability to continue operations; and

·      Changes to accounting regulation may require the Company to make a change in accounting policy that could have a material impact on its reported results including its net asset value, net income and distributable reserves.

 

GOING CONCERN

The financial statements continue to be prepared on a going concern basis. The Directors have reviewed areas of potential financial risk and cash flow forecasts.

 

No material uncertainties have been detected which would influence the Company's ability to continue as a going concern 12 months from the date of this report. Accordingly, the Board of Directors continue to adopt the going concern basis in preparing the financial statements. The important events that have occurred during the period under review, the key factors influencing the financial statements and the principal factors that could impact the remaining six months of the financial year are set out in the Chairman's statement and the Investment Manager's report above.

 

DIRECTORS' RESPONSIBILITY STATEMENT

The Directors confirm that to the best of their knowledge:

·      this set of condensed financial statements has been prepared in accordance with UK adopted International Accounting Standard ("IAS") 34, 'Interim Financial Reporting', and gives a true and fair view of the assets, liabilities, financial position and profit of the Company; and

·      the full Half-Yearly Report includes a fair review of the information required by:

a)   DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b)   DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position or performance of the Company during that period; and any changes in the related party transactions that could do so.

 

The full Half-Yearly Report was approved by the Board of Directors on 13 September 2022 and the above responsibility statement was signed on its behalf by Harry Hyman, Chairman.

 

On behalf of the Board

 

 

Harry Hyman

Chairman

 

13 September 2022

 

 

 

 

 

 

 

 

 

 

 

CONDENSED STATEMENT OF COMPREHENSIVE INCOME

For the period ended 30 June 2022

(In $000s except per share amounts)

		Period ended 30 June 2022 (Unaudited)			Period ended 30 June 2021 (Unaudited)
	Note	Revenue	Capital	Total	Revenue	Capital	Total
Income
Investment income	3	68,832	-	68,832	74,679	-	74,679
Other income	3	25	-	25	12	-	12
Net gains/(losses) on investments at fair value	7	-	7,085	7,085	-	(22,702)	(22,702)
Net currency exchange (losses)/ gains		-	(31)	(31)	-	1	1
Total income		68,857	7,054	75,911	74,691*	(22,701)	51,990
Expenses
Management fee	4	(6,860)	-	(6,860)	(6,866)	-	(6,866)
Directors' fees	4	(207)	-	(207)	(198)	-	(198)
Other expenses	4	(679)	-	(679)	(679)	-	(679)
Total expenses		(7,746)	-	(7,746)	(7,743)	-	(7,743)
Return on ordinary activities after finance costs and before taxation		61,111	7,054	68,165	66,948	(22,701)	44,247
Taxation on ordinary activities	5	-	-	-	-	-	-
Return on ordinary activities after finance costs and taxation		61,111	7,054	68,165	66,948	(22,701)	44,247
Net revenue and capital return per ordinary share (basic and diluted)	11	$0.0445	$0.0051	$0.0496	$0.0487	($0.0165)	$0.0322

 

 

The total column of this statement is the Company's Condensed Statement of Comprehensive Income prepared in accordance with UK-adopted International Accounting Standards. The supplementary revenue and capital columns are presented for information purposes as recommended by the Statement of Recommended Practice ("SORP") issued by the Association of Investment Companies ("AIC").

All items in the Condensed Statement of Comprehensive Income derive from continuing operations.

There is no other comprehensive income, and therefore the return on ordinary activities after finance costs and taxation is also the total comprehensive income.

The notes below form part of these financial statements.