Q2 2026 BioPharma Credit PLC Earnings Call
Speaker #2: Perfect.
Speaker #3: Good afternoon and welcome to the BioPharma Credit PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time via the Q&A tab situated in the right-hand corner of your screen.
Speaker #3: Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself; however, the company can review all questions submitted today and publish responses where it's appropriate to do so.
Speaker #3: Before we begin, I'd like to submit the following poll. And I'd like to...
Speaker #4: Handgrove, thank you to the company for their presentation. Pedro, good afternoon, sir.
Speaker #5: Thank you very much, and thank you all for joining us. This is the presentation for the half-yearly results that were announced yesterday for BioPharma Credit PLC.
Speaker #5: The slides are on the website bpcruk.com, as well as the full results for the half year. Just a brief comment on the disclaimer: most importantly, we will be making some forward-looking statements that you should read the notes on.
Speaker #5: Briefly, as a reminder of what we do, BioPharma Credit is an investor in debt issued by life sciences companies. For the most part, it's going to be small to mid-sized life sciences companies with products that are primarily drugs, but we can also invest in companies that have devices and diagnostics.
Speaker #5: But the majority of the business will be in loans to companies that have pharmaceutical products. As you can see from the team, it's highly specialized in the life sciences.
Speaker #5: The investment team is made up of ten professionals, including Martin and myself, who are the key partners. The rest of the investment team—all the line in the middle—at the most junior level, they need to have at least two to three years of healthcare investment banking expertise before joining us.
Speaker #5: Some of our more senior VPs have PhDs or advanced degrees in scientific research, and they also have a lot of expertise in banking. So, not only do they understand the science, but they also understand how the science translates to sales and to dollars, and ultimately to credit quality.
Speaker #5: The benefit of having a large team, as we do, is that we track over 300 companies every year. We like to see them multiple times per year, so we attend most of the important healthcare banking conferences.
Speaker #5: There are about 14 per year, as well as most of the important scientific conferences. Having a large team that can be present, talking to these companies—even years before they might be in a position to borrow from us—is critical.
Speaker #5: The results for this period, again, are available in the half-yearly. I would say a couple of things—a couple of key points here. The share price closed December 2025 at $91.
Speaker #5: It went up to $95 by the end of the period. As of yesterday, it was hovering around $97, so there has been some improvement.
Speaker #5: As a result, during this period, we bought back fewer shares than during the previous period. We are no longer within the range that triggers the discount control mechanism.
Speaker #5: So, at $0.97 per share, we have not had to buy back shares. With regards to the net income per share for the period, it was slightly below 4.5 cents.
Speaker #5: That is trailing behind the equivalent number for last year. There are a couple of key points to that: it's not a deterioration in the portfolio or the quality, or anything.
Speaker #5: It's mainly that during the first half of 2025, we had three fairly substantial prepayments that triggered significant prepayment premiums. Also, when we prepay a loan, we release all of the unamortized upfront fees, so all of that gets recognized during the period.
Speaker #5: Last year, we had—by this—by the—in the first half of last year, we had about three large prepayments. This time around, we had two smaller ones.
Speaker #5: And also, in the results of last year, that incorporated a very large $8 million-plus settlement payment from Biogen as a result of our transaction.
Speaker #5: With Reata, that was a one-time payment that, obviously, we did not get this time around. So anyway, for the first six months, we're already at about 4.5 cents per share.
Speaker #5: Important updates since the half-yearly, since June 30th: We have been selling down our convertible position in Senas. The shares had appreciated significantly, so we do not intend to hold these converts for long periods of time once they start trading.
Speaker #5: Significantly above par value, we look at them closely. And in the case of Senas, we've sold the majority of the position at a price of $1.
Speaker #5: $132 when we acquired them at $100. Then we entered into a new loan with Kestrel Medical Technologies, which I will discuss in more detail in a few minutes.
Speaker #5: And we funded the tranche A of the Archimedes loan. And then, something that we announced also a couple of months ago was the final completion of the sale of all of our interests in LumiraDx, which was an equity stake in a company called Lumira Colombia.
Speaker #5: With that sale, and again, as a reminder to everyone, this is the first and only default that Pharmakon has encountered in 17 years. With the sale of Lumira Colombia, we have now recovered about 101% of our initial investment.
Speaker #5: So that
Speaker #6: that we
Speaker #5: The portfolio as of—this is as of September. This is our current portfolio, not as of June. It's substantially invested, as we would call it, and it is fairly well diversified.
Speaker #5: This is the most diversified that the portfolio has been since IPO in 2007. Insmet, which is expected to be repaid in October of next year, is the largest position.
Speaker #5: Once that investment gets repaid, the portfolio will continue to diversify. The reason why I mentioned that Insmet is likely to be repaid in October of next year is that this is a $550 million loan to a company with a market cap close to $30 billion, and we're senior secured by all assets.
Speaker #5: Insmet is expected to generate well over $1.5 billion in sales this year, with gross margins in the 90s. They're sitting on over $1 billion in cash.
Speaker #5: So, it would make sense to refinance the debt. Why October of next year? That’s when we did our last refinancing. We were able to get a three-year make-whole, meaning the company has to pay us interest through October of 2027.
Speaker #5: So it doesn't really make financial sense to repay us before that. Last comment on this slide: when you see the projected IRR to maturity, that's pretty much in the low double digits.
Speaker #5: This is assuming that loans go to maturity, and it also assumes that the floating rates—that is, the risk-free rates—remain constant as they were in September 2020.
Speaker #5: 2026, or the sulfur curve. As you are probably aware, rates have been increasing slightly, so the expectation is that as sulfur goes up, these returns will be higher.
Speaker #5: And also, the expectation is that most, if not all, of these loans will be prepaid early. That always results in higher IRRs, because we get to amortize the upfront fees over a shorter period of time, and we do get prepayment fees, et cetera.
Speaker #5: To date, we've only had one loan go to maturity. I mentioned briefly the SANEAS converts. Again, this is an activity that we do just to be opportunistic.
Speaker #5: These are companies that we know very well, that we follow very closely, and that, in fact, we try to convince not to issue convertible bonds, because their equity is undervalued.
Speaker #5: Sometimes they don't listen to us, and they ultimately do decide to issue convertible bonds if they are a company that we feel there is real upside to the equity.
Speaker #5: We consider these convertible investments because our downside is protected since it's debt, right? We can get good allocations from time to time because of our relationships with these management teams.
Speaker #5: So, even when there are bonds that are highly sought after, highly oversubscribed, we can get good positions. As you can see here, as of—I believe this was September 22nd—all of our positions were positive, right?
Speaker #5: We were making money in all of the loans. It is still a very small portion of the portfolio, just 2.2%. Now, I will move on to the transactions—the investments that we have made since our last annual report, as well as the presentation we made to you back in April.
Speaker #5: So, we will not go over the entire portfolio, but just brush over the newest investments. Starting with the most recent one, which is Kestra Medical Technologies.
Speaker #5: Kestra is a company that developed a device that helps monitor and provide therapy to patients who are at risk, or at high risk, of having a heart attack.
Speaker #5: This is a defibrillator that you are wearing on yourself as a vest, and it's monitoring your heart. In the event that it senses that you might be having a heart attack, or a strange arrhythmia, a very loud alarm will sound.
Speaker #5: And unless you turn it off within a few seconds, it will give you the shock that would hopefully revive you in the event that you were having a heart attack.
Speaker #5: So, thankfully, it's not something that people have to wear for long periods of time. It's only for a few weeks while they get additional surgical procedures.
Speaker #5: But there is a very large market for this type of therapy. Kestra is the second device to market. The first one has been around for a number of years and has sales that are about three times what Kestra does currently.
Speaker #5: Now, the competing product has not been approved or really updated in many years. So, Kestra has several advantages over the existing product, including comfort for women, because the competing product does not have a product designed for females.
Speaker #5: And also a lower rate of—sorry—a lower rate of false alarms, which can be important. This is—this loan, we were able to do it at SOFR plus 550.
Speaker #5: And it also has very attractive fees. Endorsia is another recent loan. This is the first loan that we have made in Swiss francs, meaning it's the first loan that we have made in Switzerland.
Speaker #5: It's the first loan that we made in a currency that is not the US dollar. The reason why we did this in Swiss francs is that Endorsia is a Swiss company, and they do not have dollar revenues, and they did not want to deal with hedging dollar debt.
Speaker #5: So, we decided to— we agreed to do the loan in Swiss francs, and we ourselves, the fund, hedged the FX risk through forwards with a highly— with a well-known investment bank.
Speaker #5: The rate of the loan seems low—7% fixed—but that's because it's in Swiss francs. There's a very big differential in interest rates between dollars and Swiss francs, which means that the equivalent coupon, once you hedge it, is closer to 10.8% in dollars.
Speaker #5: So, pretty good return. Endorsia is a company that has one approved drug called Cubivic. Cubivic is a drug that's approved to treat sleep disorders, specifically insomnia.
Speaker #5: It's approved in Europe and the US, but the vast majority of its sales are coming from Europe, where it has achieved reimbursement from pretty much all of the important European governments.
Speaker #5: As you might be aware, it's pretty hard to get European governments to agree to pay for branded drugs, starting with the UK. Cubivic is a very important drug.
Speaker #5: The reason why Cubivic is important is that, even though there are many other cheaper generic drugs to treat insomnia—like melatonin that's over the counter, the Z-drugs, or Ambien—they either, they don't have, they're not very effective.
Speaker #5: Or the ones that are more effective have very severe side effects, including being drowsy the next day, which isn't great for productivity. But also, some patients report having episodes of sleepwalking and even sleep driving, which, as you can imagine, can be quite dangerous.
Speaker #5: And as a result, there is a very large portion of the population that cannot sleep, yet they cannot take any agents because of the side effects.
Speaker #5: Cubivic is a new class of sleep drug called DORAs, and the key attribute is that it has much lower side effects than other drugs.
Speaker #5: You're not drowsy the following day, and you do not have the sleepwalking or sleep-driving episodes. So it's a much safer drug. It is more expensive because it's branded.
Speaker #5: So, if you go to your physician tomorrow for the first time and claim that you have a problem sleeping, he will not be able to get you on Cubivic, day one.
Speaker #5: You will have to go through the other agents, because if you can get control of those, then it would be much cheaper. It's only once you have failed those other agents and you continue to have problems that Cubivic will be available to you.
Speaker #5: Having said that, they've already achieved significant sales and are growing very fast. They sold around 134,000 Swiss francs last year. They're expected to be over 200 million Swiss francs this year.
Speaker #5: Our loan to date is for 150 million Swiss francs. But, based on certain outcomes, the loan can increase all the way to 250 million. Mineralis is a US-based company.
Speaker #5: This is an investment that we made—of a kind that we do from time to time—which are called pre-approval investments. Meaning, at the time of our loan, the Mineralis drug already had Phase 3 data. Phase 3 data is what you need to go and file for approval with the regulatory agencies.
Speaker #5: And Mineralis had already filed, and the FDA had already accepted the filing for their drug. The FDA had also set an action date of December 22, meaning by that date, the FDA has to respond on whether they want to approve the drug or if they need additional data.
Speaker #5: Now, the reason why we're comfortable doing pre-approval investments is that, so far, we've only invested $100 million, and the company is sitting on over $600 million in cash.
Speaker #5: And as a reminder, in all of these loans, we have the company's cash, as well as the rights to their products, as collateral.
Speaker #5: So, for $100 million in debt, we have $600 million in cash collateral. The company is free to invest that cash. However, up to the point of approval, they are obligated to have cash that's well in excess of the amount of the debt.
Speaker #5: And in the event that the drug doesn't get approved by a certain date, then the loan amortizes fairly quickly. We know that there's cash to repay the debt, which means that there's really not much credit risk up to approval.
Speaker #5: The credit risk really begins after approval, when there is no longer this obligation to hold more cash than the amount of debt.
Speaker #5: We are very comfortable with the launch of this drug upon approval because it treats a very important condition. The Mineralis drug—its chemical name is lorundrostat—is used to treat high blood pressure.
Speaker #5: High blood pressure is one of the leading causes, or is the leading cause, of heart disease in the US, and it's the leading cause of strokes and heart attacks.
Speaker #5: There are many drugs available to treat high blood pressure, thankfully. Sadly, a large percentage of patients with high blood pressure are not controlled, even at the highest doses of the existing drugs. This means that even though they're taking the drugs they're supposed to, they are still well beyond the range where they should be, and therefore they're exposed to having a heart attack or a stroke.
Speaker #5: Lorundrostat is a new class of drugs that you take on top of your existing treatment, and it's demonstrated the ability to take a large portion of these patients who were uncontrolled and get them controlled, get them within the range.
Speaker #5: So a really important drug for patients and for society. The loan, again, was $100 million that we funded initially. Upon approval, we will fund another $150 million, and then over time, based on certain milestones, the company will have access to additional capital.
Speaker #5: Finally, Esperion is an investment that we made with a French private equity firm called Arkane. Esperion was a publicly traded company that was taken private by Arkane earlier this year at a valuation of around $1 billion.
Speaker #5: $1.2 billion, and that was funded with around $800 million in equity and $400 million in debt, so a pretty low loan-to-value. The key products marketed by Esperion are drugs that are used to treat high cholesterol.
Speaker #5: Again, high cholesterol is another big problem for heart disease. There are several very cheap drugs that treat high cholesterol, mainly called statins. And statins work pretty well for most people in reducing high cholesterol.
Speaker #5: Sadly, there is a large portion of patients who do not tolerate statins because they can have some severe side effects. For those patients, there are limited alternatives.
Speaker #5: There are either the very expensive injectable PCSK9s or the Esperion drugs. So, the Esperion drugs are again a very good alternative to statins and do not have the side effects.
Speaker #5: They are pretty effective in reducing high cholesterol. They are obviously more expensive than statins, but they are quite necessary.
Speaker #6: Sorry.
Speaker #5: So, with that, I will finish my initial comments on the slides, and I would like to open it up for questions.
Speaker #7: Thanks, Pedro. We do have some questions here on the ledger, and we'd encourage more. If you'd like to submit a question, please just type it into the bar.
Speaker #7: At the bottom right-hand side of the screen. To loan quality, Pedro.
Speaker #5: So, it's the value. We are lenders against products, right? Our key focus is understanding what's the value of our collateral. And the reason why we have done very well, even when the equity valuations of these companies—in some cases, they've done extremely well, in other cases not very well.
Speaker #5: The reason why we have been able to do okay is that the value of the underlying products is worth a lot more than the debt, right?
Speaker #5: Now, the biggest worry is, would there be something in the product itself that results in a value that is lower than our debt, right?
Speaker #5: And that's where we spend most of our time in diligence, right? Ahead of making an investment. That's why we typically make investments after having talked to these companies and followed these products for a number of years.
Speaker #5: And when we get close to making an investment, we will have calls with dozens of physicians who treat this particular disease. So, it's a very in-depth diligence process.
Speaker #5: We hire analysts, IP counsel, et cetera, to make sure that we have a product that is going to be worth more than our debt, so that in the event that the company encounters difficulties in servicing the debt, we know that there's more value to the company and the product than to our debt, so we'll be able to recover.
Speaker #5: Once we have made the loan, we track these companies closely. Most of the time, there is pretty good visibility as to how the products go.
Speaker #5: So again, as you can see from our track record, we have been correct—not in determining exactly how much a drug will sell. If I had that ability, I would be an equity investor and I would be doing really well.
Speaker #5: But we do have this ability to get a sense as to, on a downside case—on a pessimistic case—what can, if the things that can go wrong do go wrong, right?
Speaker #5: Do we still have value? And so far, we've been able to demonstrate that we've been successful in doing that. Exactly. Well, I think that's...
Speaker #6: pretty, pretty comprehensive.
Speaker #7: Going somewhere quite different, the next question. We've got a holder here of the Sterling line of shares. He comments on whether the Sterling line is perhaps disadvantaged when it comes to the dividend payment due to currency conversion.
Speaker #7: Are you able to make it more equitable or comment further on that?
Speaker #5: So, we do recognize that there are expenses in the exchange. We are talking to the registrar to see what can be done. This is a little bit out of our hands, but we do recognize this concern and will continue to talk to the registrars to see if we can find a solution.
Speaker #7: Yeah, yeah, we'll look into that. Tom F. asks, how are you comfortable your unfunded commitments can be covered by cash, or if you expect prepayments, that the prepayments will come down before the loan is drawn down on?
Speaker #5: Sure. So first of all, we have a very good dialogue with our borrowers, meaning we are never surprised by a company saying, "Oh, I want to draw X amount of money tomorrow," right?
Speaker #5: So we do have very good lead time into knowing when people might be drawing the next tranche. And also, we have a pretty long timeline between when a company can elect to draw a tranche and the time that we actually have to fund.
Speaker #5: So, we do have that lead time. And finally, many of the additional tranches...
Speaker #6: require
Speaker #5: Sorry, many of the additional tranches require a minimum number of sales, right? So we know that the company hasn't achieved a certain number of sales.
Speaker #5: We know they cannot draw that tranche. Having said that, with all of this information, we track our cash balance very closely, and we are in discussions with companies, knowing when we might need to fund.
Speaker #5: We do not count on prepayments because prepayments, unless the company has already made the election, right? It's uncertain, so I cannot be certain of that.
Speaker #5: And finally, and quite importantly, the portfolio itself is very attractive to other lenders. So if I wanted to sell a slice of the portfolio, or a particular loan, or a slice of a particular loan, there's definitely interest.
Speaker #5: Almost every time that we announce a loan, we get emails from our competitors asking for pieces. So, we know that there's a way to sell it, even at par.
Speaker #5: And then finally, we currently have about $45 million of publicly traded securities that can also be sold, so there are multiple ways to access the capital.
Speaker #5: We do want to keep cash to make sure that we're not keeping this too close, right? But not too much cash.
Speaker #7: Yeah, there are levers you can pull on. Um, yes, question here on Insmed representing 19% of assets. How do you think about concentration?
Speaker #7: Concentration risk—and is there a level to a single borrower that you would think would be too high?
Speaker #5: Yes, I think right now our limit is about 20%. I do think anything above 20%, unless it's for a very short period of time, would not be ideal, right?
Speaker #5: In the case of Innsmed, also keep in mind that the concentration has been increasing because of the buybacks, right? So while the dollar amount—the loan amount—hasn't changed, the size of the fund has shrunk a little bit.
Speaker #5: So, that has increased the concentration. As I mentioned earlier, Insmed—we have no concerns from a credit perspective. It's a company with two drugs.
Speaker #5: They are going to be selling, as I said, well over $1.5 billion this year. With gross margins in the 90s, so there's absolutely no concern there from a credit perspective.
Speaker #5: There is concern with the reinvestment risk, right? Because once they repay us, we need to start thinking now, right? How are we going to manage that to make sure that we're not sitting on too much cash for a long period of time?
Speaker #7: Great. And Gordon asks, where are you seeing opportunities for future lending?
Speaker #5: So nothing's changed. Our market continues to grow every year. Again, we are lending to small and mid-sized companies with approved drugs. Every year, the FDA approves 40 to 50 new drugs.
Speaker #5: A large one in Europe, right? So, the market for the number of potential borrowers just continues to grow year after year after year, and we do not see any slowdown to that.
Speaker #5: I'm going to combine. Sorry, I saw there was a question on sleep driving, and let me address it. It is a real concern. Drugs like Ambien, in some cases, after people have been taking them for some time, people can end up doing certain things while asleep that could be deemed dangerous, including sleep driving.
Speaker #5: Just as with sleepwalking, there have been cases of people who crash and then wake up afterward, because they've been driving asleep. Very concerning.
Speaker #5: Two that I might put together here.
Speaker #7: Have other competitors—and this questioner mentions Blue Owl as an example—reduced their willingness to lend to the sector? Do you notice any sort of change there?
Speaker #7: And perhaps another question: do you partner with other lenders to fund a product or company as part of a co-investment? Sure, so
Speaker #5: Let me address the first question first. No, I do think they would be very willing to lend in the sector. What has probably changed is their willingness to buy transactions by going to ultra-low yields just to buy market share, right?
Speaker #5: We saw them do that a few years ago. And again, we obviously did not follow them. I think more recently, because of what's going on with the rest of their portfolio and their business, etc., they have been a lot less willing to just buy market share by offering yields that do not make sense, right?
Speaker #5: So they're still there, right? And we need to assume that our prices need to— our rates need to continue to be sensible, right? With regards to sharing, yes, we're open to sharing, particularly in large transactions, right?
Speaker #5: For example, we have a loan in the portfolio for a company called ParaTec, which totaled $1.2 billion. This was the third time we were involved with those assets.
Speaker #5: ...of a group of four lenders. We took a very small $100 million piece across the two funds. The reason why we did that was we wanted to remain involved with the story.
Speaker #5: But yes, if there's another billion-dollar, even $800 million deal in the near term—or, sorry, at some point in time—then yes, we're definitely open to working with others.
Speaker #7: One of those levers available to you, isn't it? Yes. Question here on currency: how do you approach currency allocation? Are you concerned about any particular currency at the moment?
Speaker #5: I suppose you're probably mostly focused on the one, aren't you? Yes, we're focused on the dollar because we do want to give good returns in the dollar.
Speaker #5: On the side, we do focus a little bit on the sterling because I recognize, we recognize, that many of you are looking at the results in sterling. But no, we don't view that as a risk.
Speaker #5: We're just focused on the dollar. The only time we've done a non-dollar investment, which was Eidosia, we hedged it back to dollars.
Speaker #7: Question here on rates: We should probably cover this as well. How would the company be affected if the Fed, ECB, or other central banks raise interest rates?
Speaker #7: rates.
Speaker #5: Sure. So about half of our portfolio is floating—slightly over half of it is floating. So as they raise rates, then our returns are going to be higher, right? Proportionately, right?
Speaker #5: And the other important piece is that the portfolio that is fixed has a fairly short duration, again with the largest component being IntMed, which again is expected to be repaid next year.
Speaker #5: So, even if rates rise, we'll be able to redeploy that capital at higher rates—again, assuming rates continue to increase, which is probably my expectation.
Speaker #7: There are two questions here that I'll sort of combine on growing the company. How do you grow the size of the fund if...
Speaker #5: Are there good opportunities ahead? Sure. Great question. I mean, we would have loved to have grown it before, right, as opposed to shrinking it with buybacks.
Speaker #5: In 2019, we launched a private fund that is investing side by side with the Trust. That private fund has continued to grow.
Speaker #5: Right now, it's at around $1.9 billion. It's expected to be well above $2 billion by the end of the year. So, we continue to have access to capital to fund opportunities.
Speaker #5: I would love if BioPharma Credit were able to grow by itself and take a larger share of investments. In order to do that, we need the share price to recover even more, right, so that we can issue additional equity.
Speaker #7: Yeah, brilliant. Perhaps just one more question—a very good one here from Neil: How much of the market that you would like to lend to have you lent to?
Speaker #5: This year, about 100%. Um, 24, 25—about 50 to 70%. Again, there were a couple of really good companies, from a credit perspective, that ultimately funded with Blackstone and Blue Owl at submarket rates, so we passed on that.
Speaker #7: I suppose the other way of thinking about that question would be, sort of, how big is the universe you look at?
Speaker #5: I mean, I say that roughly $4 to $5 billion a year. Now, that doesn't mean that I want to do $4 to $5 billion.
Speaker #5: I would probably want to do $1.5 to $2 billion of that. We say no very often.
Speaker #7: Brilliant. I think that covers all the questions that we've had in, so perhaps I'll pass across to you, Pedro, for any closing remarks.
Speaker #5: Thank you all again for your interest and for participating. The first six months of the year again demonstrate the type of returns that we seek: attractive returns, above-market returns with little volatility and no surprises.
Speaker #5: Just boring returns. That's the way we like it, and that's the way we hope to keep it. We do have a couple of interesting transactions in the pipeline.
Speaker #5: We'll have to manage the cash accordingly to continue to, for the meantime, diversify the fund and make sure that we have enough duration, hopefully with floating.
Speaker #7: Of course. Thank you very much, indeed. That concludes today's call. I believe you'll be redirected to a poll on your screen, and I'm sure the company would be very grateful if you filled it out for us.
