Page 43 - DIY Investor Magazine | Issue 31
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   Pharmakon gets a base fee of 1% of net assets. There is also a performance fee which works out at 10% of returns over 6% per annum. Half of this gets paid in shares if the fund is trading at a discount. An average 5% discount over any three-month period would trigger share buy backs at a 1% discount (but only if there is cash available from income and capital profits after meeting the dividend target). There is also a discount triggered continuation vote if the shares trade at a 10% discount or more on average for a year. Loans are secured against existing revenue streams for proven products. However, the nature of this industry is that a company’s fortunes can change pretty much overnight as a product’s license is revoked or a new therapy comes along that is more effective/cheaper. Pharmakon earns its fee with the due diligence that it does on the companies and their products, and with its negotiating skills when it comes to the paperwork. The structure of these loans varies but a typical structure might involve a high-ish coupon and upfront fees. It is quite common that the borrower repays a loan early. In those cases, Biopharma Credit is compensated handsomely. The loans may be at fixed or floating rates. The fund is unlikely to be much affected by a modest rise in interest rates. AN EXAMPLE It might be worth looking at the example of Sarepta, which makes treatments for neuromuscular diseases. It has three main licensed products for the treatment of Duchenne muscular dystrophy. The Sarepta loan was made in April 2019 and upsized in May 2020. Biopharma lent the money alongside other funds – its share of the overall $550m loan is 64%. The loan is due for repayment in one lump sum (a bullet repayment) in December 2024. Sarepta had $1.7bn of cash on its balance sheet at the end of June 2021, so hopefully this will not be a problem. DON’T BET THE PHARM! I am very pleased that ordinary investors can now invest in Biopharma Credit more easily. I hope that many other funds in the Specialist Funds Segment follow suit, as Oakley Capital Investments said it plans to do in a recent QuotedData interview. I think Biopharma Credit makes an interesting diversifier for a portfolio of funds. However, this is, I would suggest, not a fund to put too much of your investing pot in. James Carthew, head of investment companies, QuotedData   MAKE SURE YOU DON’T MISS AN ISSUE; CLICK HERE TO RECEIVE DIY INVESTOR MAGAZINE TO YOUR INBOX 43 Diy Investor Magazine · Nov 2021 

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