2nd Sep 2019 10:56
(Alliance News) - Burford Capital Ltd on Monday published a chronology of its investment in Napo Pharmaceuticals since 2011, after several investor enquiries following the short attack by US research firm Muddy Waters in early August.
Shares in the litigation finance firm were up 0.1% at 700.23 pence on Monday.
Napo Pharmaceuticals is a small botanical-focused pharmaceutical company, which is engaged in the development of a drug called crofelemer, intended for the treatment of diarrhoea.
In a report written by Muddy Waters, one of its claims was that Burford had misled investors over its investment into Napo, making a loss seem like a significant return after Napo's merger with Jaguar Health Inc in 2017 that led to a fall in the share price of the merged entity.
Muddy Waters claimed that Burford had reported the loss as a "net loss on equity securities" instead of writing down the recovery for the case, in order to inflate its return on invested capital.
Burford explained that since entering a financing agreement with Napo in 2011, its total investment into the firm totalled USD7.4 million.
In 2017, Napo merged into Jaguar Health Inc, which was formed from the Animal unit of Napo and listed in 2015 on Nasdaq.
Following several discussions, Burford received USD8 million in cash, as well as 43 million in shares in the merged entity, paid in several tranches This marked Napo as the only investment where Burford received public shares as well as cash.
The USD8 million received, Burford said, reflected a profit on its entire USD7.4 million investment into Napo.
However, Burford noted that the market had not reacted well to the merger, leading to a fall in the merged company's share price, restraining its access to capital and limiting its drug development activities.
The firm used the information to claim that the negative events at Napo were out of its hands and despite the disappointing performance of its investment, Burford was still able to generate a 27% return on invested capital, following a sale of USD625,000 in Jaguar Health shares in 2018.
"So, after seven pages of detailed explanation, we trust the answer is now clear: we accounted for Napo appropriately and conservatively; we made no effort to inflate its value; Invesco had nothing to do with our position; and even if one thinks we should have adjusted the concluded investment table earlier, there was no meaningful impact from not doing so," Burford said in a statement.
"While the equity performance has been disappointing, we nonetheless turned a healthy cash profit of 27% ROIC and own shares that may one day recover some value," the company added.
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