Annual Financial Report

BIOPHARMA CREDIT PLC

(THE "COMPANY")

ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018

SUCCESSFULLY INCREASING THE SCALE AND DIVERSITY OF THE PORTFOLIO

BioPharma Credit PLC (LSE: BPCR), the specialist life sciences debt investment trust, is pleased to present the annual results of the Company for the period ended 31 December 2018.

The full Annual Report and Financial Statements can be accessed via the Company's website at www.bpcruk.com or by contacting the Company Secretary by telephone on 01392 477500.

INVESTMENT HIGHLIGHTS

· A landmark year of investment activity including three new investments totalling $494m which significantly increased the scale and diversity of the portfolio:

o $194m deployed as lead investor and collateral agent for a $316m loan to Sebela BT Holdings, a subsidiary of Sebela Pharmaceuticals, a private speciality pharmaceutical company focused on gastro-intestinal medicines, dermatology and women's health.

o $150m senior secured loan agreement with NovoCure Limited (NASDAQ: NVCR), a commercial stage oncology company. 

o $150m senior secured loan agreement with Amicus Therapeutics, Inc. (NASDAQ: FOLD), a rare metabolic disease-focused biopharmaceutical company.

o A further $164m was deployed to support existing investment commitments.

· In December 2018 and January 2019, GlaxoSmithKline plc announced and subsequently completed the acquisition of Tesaro Inc. (NASDAQ: TSRO), then the Company's largest portfolio holding, for $5.1 billion in cash, triggering a repayment, make-whole and prepayment premium payment to the Company of $369.9m on its $322.0m investment generating a 28.8% IRR.

· Additionally, $216m was received by the Company from payments of principal derived from other investments in the portfolio.

· The scale of the investment activity provided the opportunity for further issuance of shares in two separate highly successful capital raises:

o In April 2018, the Company successfully raised $164m in a placing of C Shares at $1.00 each. These shares were invested efficiently and conversion into 162 million Ordinary Shares was achieved in October 2018.

o In November 2018, the Company announced an oversubscribed, upscaled placing of $305m Ordinary Shares.

· During the twelve-month period, the Company made five dividend payments totalling 7.94 cents per Ordinary Share in respect of the five quarters ending 30 September 2018 including a special dividend of $0.011 related to the period ended 31 December 2017. For each of the last two quarters ending on 30 June 2018 and September 2018, the Company has declared a dividend of 1.75 cents per Share, in line with the expectation set out in the IPO prospectus of paying a dividend yield of 7% on the IPO price, once the Company's assets were substantially invested.

· The Board was delighted to appoint Stephanie Léouzon as a non-executive Director of the Company on 5 December 2018 contributing additional transactional and financing expertise across the pharmaceutical sector.

FINANCIAL HIGHLIGHTS

PORTFOLIO HIGHLIGHTS

The above table excludes maximum unfunded commitments for the following investments:

1) Lexicon sales covenants necessary to drawdown the Tranche B commitment of $41.5 million have not been met. As at 31 December 2018, no outstanding commitment to Lexicon exists.

2) Bristol-Myers Squibb priority royalty tranche: $76 to $96 million.

See the Investment Manager's report for additional information on Tesaro and Lexicon senior security notes.

PERFORMANCE

1 As set out in the IPO Prospectus the opening NAV per Share was 98 cents on the date of IPO.

Pedro Gonzalez de Cosio, CEO and co-founder of Pharmakon Advisors L.P., the Investment Manager of BioPharma Credit PLC said:

“This has been a landmark year for the Company with significant progress achieved in securing major new investments, highly supportive fundraising activity and delivering a robust income dividend to shareholders. Our investment activity has meaningfully increased both the diversity and scale of our life sciences debt portfolio backed by industry leading players in the life sciences industry. GSK’s acquisition of Tesaro for $5.1 billion, more than 10 times the amount of the secured debt, demonstrates the extensive collateral value provided by approved life sciences products. Pharmakon’s investment flexibility, expertise and broad industry relationships were essential for the successful execution of this investment that generated a 28.8% IRR to the Company. We start the 2019 financial year with significant investment capital to deploy towards a healthy pipeline of attractive debt investment opportunities. We look forward to another productive year of supporting shareholder returns predominantly through continuing income distributions, uncorrelated to traditional equity market movements, from unique debt investment exposure to the life sciences industry.”

Results Presentation

As announced on 27 February 2019, a presentation for analysts will be delivered via conference facility today at 2:00pm. To request dial-in details, please contact Buchanan.

Enquiries:

Buchanan

David Rydell / Mark Court / Jamie Hooper / Henry Wilson

+44 (0) 20 7466 5000

[email protected]

Notes to Editors:

BioPharma Credit PLC is London's only listed specialist debt investor to the life sciences industry and joined the LSE in March 2017. The Company seeks to provide long-term shareholder returns, principally in the form of sustainable income distributions from exposure to the life sciences industry. The Company seeks to achieve this objective primarily through investments in debt assets secured by royalties or other cash flows derived from the sales of approved life sciences products.

Corporate Summary

Investment Objective

The Company aims to generate long-term shareholder returns, predominantly in the form of sustainable income distributions from exposure to the life sciences industry.

Structure

The Company is a closed-ended publicly limited company incorporated in the United Kingdom. It was registered in England and Wales under the Act on 24 October 2016. The Company is listed on the Specialist Fund Segment (SFS) of the London Stock Exchange.

Investment Adviser

Pharmakon Advisors, the Company's Investment Manager, was founded in 2009 and has invested $3.0 billion in 32 transactions across four private funds and BioPharma Credit PLC to 31 December 2018. The first four funds are now fully invested. Drawing upon the expertise and successful track record of Pharmakon Advisors, the Company enjoys access to its extensive, industry-focused knowledge and contacts to source, analyse and structure attractive investment opportunities.

Through a shared services agreement with Royalty Pharma, founded in 1996, the Investment Manager is able to rely on the complementary expertise of the team behind the market leading investor in pharmaceutical royalties.

INVESTMENT

CHAIRMAN'S STATEMENT

Increasing the diversification and scale of our portfolio

2018 was the Company's first full year of operations and was marked by a number of significant achievements both in terms of new investments and capital raising.

Over the course of the year, we announced three new investments totaling $494 million which, when combined with funding existing commitments of $164 million, led to total new investments of $659 million. This investment activity was funded in part by the scheduled repayments of $216 million of original seed assets.

This level of new investment activity, together with the development of a pipeline of additional opportunities, led the Board to seek additional support from the equity markets through two new issues. On 13 April 2018, the Company announced the completion of the Placing and Offer for Subscription of 164 million c shares at $1.00 each, which were converted into 162 million ordinary shares on 29 October 2018. Subsequently, on 1 November 2018, the Company announced the successful placing of 298 million new ordinary shares at a price of $1.025 each, raising gross proceeds of $305 million.

Shareholder Returns and Investment Performance

On 31 December 2018, the Company's shares closed at $1.0650 and its NAV at $1.0044, compared with a closing price of $1.0470 and NAV of $1.0091 on 31 December 2017. Over the twelve-month period, the Company made five dividend payments totalling 7.94 cents per ordinary share in respect of the five quarters ending 30 September 2018 including a special dividend of $0.011 related to the period ended 31 December 2017. For each of the last two quarters, ending on 30 June 2018 and 30 September 2018, the Company has declared a dividend of 1.75 cents per share, in line with the expectation set out in the IPO prospectus of paying a dividend yield of 7% on the IPO price, once the Company's assets were substantially invested.

On 21 February 2019, the Company announced a dividend in respect of the quarter ended 31 December 2018 of $0.01927441 per ordinary share, comprising an ordinary dividend of $0.0175 and a special dividend of $0.00177441.

The Board

On behalf of the Board, I am delighted to welcome Stephanie Léouzon who was appointed as a non-executive Director of the Company on 5 December 2018. Stephanie has a wealth of experience working on strategic and financing transactions within the biopharmaceutical industry and we look forward to working with her.

Outlook

As at 31 December 2018, the Company had total assets of $1.39 billion, represented by $1 billion of investments, $364 million in cash and $22 million in other assets. On 22 January 2019, GlaxoSmithKline completed its acquisition of TESARO Inc ("Tesaro"), triggering the prepayment of Tesaro's $500 million senior secured loan. As a result, the Company was repaid its $322 million participation together with make-whole and prepayment fees, generating an attractive return on its investment. As a consequence, the Company's cash position has been substantially enhanced.

Pharmakon Advisors, the Company's Investment Manager, is in ongoing discussions with a number of potential borrowers and, notwithstanding the cash position following the repayment of the TESARO loan, they consider the existing pipeline of opportunities is likely to be sufficient for these resources to be deployed in the course of 2019.

In 2019, we expect there to be four quarterly dividends payable in March, June, September and December.

On behalf of the Board, I should like to express my thanks to Pharmakon for their achievements on behalf of the Company in this important year and to our shareholders for their support, whether at the IPO or at a subsequent Share offering.

Jeremy Sillem

Chairman

4 March 2019

MARKET OVERVIEW

LIFE SCIENCES IS A LARGE, VITAL INDUSTRY WITH A TRACK RECORD OF STRONG, CONSISTENT GROWTH

Size and growth dynamics of the industry

The life sciences industry consists of pharmaceutical and biotechnology firms and is a large and vital industry with a track record of strong, consistent growth. Worldwide industry revenues in 2015 were approximately $1.1 trillion and are expected to reach $1.5 trillion by 2021, reflecting a compounded annual growth rate of six per cent. While medical and scientific advances contribute to a portion of that increase, other growth drivers include more basic demographic and macroeconomic factors, such as a growing population, an ageing population and increasing prosperity in developing countries which is improving access to healthcare for millions of patients. The increase in spending is expected to be largely driven by brands and increased usage in emerging markets, offset by expiring patents.

Product lifecycle

Pharmaceutical and biotechnology products have a long life cycle, which can provide considerable downside protection for the Company. Worldwide patents can lead to more than 20 years of protection, which frequently translates into as long as 15 years of exclusivity from the time the products are first approved by regulatory agencies such as the U.S. Food and Drug Administration ("FDA"). Some governments also provide for regulatory exclusivity, which provides for six to ten years of commercial exclusivity independent of an approved patent, if an innovator performs clinical trials. On average, sales growth is very robust for the first 12 years of a product's life cycle, after which some of these products begin to lose exclusivity, and their sales growth slows and starts to decline shortly thereafter. A key driver of initial sales growth is increasing prescriptions from physicians in the early-launch markets, but subsequent commercialisation rates in additional geographic markets, as well as expanding indications, frequently drive attractive growth for more than a decade.

Market dynamics creating fragmentation of the industry and more lending opportunities

Despite growth in the pharmaceutical market, large pharmaceutical companies continue to face mounting pressure on top-line sales from patent expirations on blockbuster products and failures in their R&D pipelines. The internal R&D departments of larger pharmaceutical companies have struggled to replace lost revenue with new products. Dramatically escalating R&D costs have also put pressure on industry participants to adapt their business model and seek partners to reduce risk. The amount of R&D investment per FDA-approved product is now approximately $1.4 billion. As a result of these factors, large pharmaceutical companies are increasingly relying on in-licensing and corporate acquisitions for new products.

Over the last 30 to 40 years, the landscape of the pharmaceuticals industry has been transformed from one dominated by fully integrated pharmaceutical companies to a more dynamic and entrepreneurial R&D ecosystem comprised of thousands of participants. As a result of this R&D evolution, smaller companies, investor groups, universities and non-profit research institutes increasingly have rights to royalty streams on products that have been out-licensed to larger pharmaceutical companies. This broader shift in R&D approach provides an expanding landscape of lending opportunities for the Company, as smaller companies are increasingly partnering with large pharmaceutical companies.

The pharmaceutical and biotechnology ecosystem has evolved to one where innovation and commercialisation, which was once centralised in fewer than 100 big pharmaceuticals, has now spread among more than 5,000 academic labs, government-funded entities and more than 5,000 biotech companies. The pool of creditworthy borrowers has increased exponentially.

INVESTMENT MANAGER'S REPORT

An attractive investment environment to build on past performance

INTRODUCTION TO THE INVESTMENT MANAGER

Pharmakon Advisors, the Company's Investment Manager, was founded in 2009 and has invested $3.0 billion in 32 transactions on behalf of its clients.

Pharmakon prides itself on its ability to identify and structure investments that meet its target returns while minimising risk through its rigorous diligence process and industry expertise.

As at 31 December 2018, Pharmakon clients included four previous BioPharma Funds (I, II, III and IV) and seven managed co-investor accounts. The four BioPharma Funds have now reached the end of their investment period and are expected to generate net returns ranging from 7% to 11% with zero defaults.

The Pharmakon team has extensive expertise investing in debt and other cash flows backed by life sciences products.

Through a shared services agreement with Royalty Pharma, Pharmakon has access to the complementary expertise of the team behind the market-leading investor in pharmaceutical royalties. Royalty Pharma, an affiliate of Pharmakon, was established in 1996 and acquires revenue-producing intellectual property, with over $17 billion in royalty assets.

INVESTMENT UPDATE

Pharmakon is pleased to present an update on the Company's portfolio and investment outlook. We are delighted with the results over the past year and look forward to a productive 2019, a year that will mark Pharmakon's 10-year anniversary as the leading investor in life sciences debt. The Company's existing portfolio investments continued to perform well and in line with expectations. Pharmakon's continued engagement with multiple potential counterparties resulted in the execution of three new transactions during the year, investing $494.2 million.

In addition, BioPharma Credit disbursed an additional $164.4 million during the year in relation to prior funding commitments, bringing the total amount invested during the year to $658.6 million. The Company also raised a total of $469.4 million, consisting of 164.4 million ordinary shares converted from the C shares and 297.6 million new ordinary shares at a price of $1.025 each.

Investments

Amicus Therapeutics.

Amicus has commercial operations in the United States, Europe, Japan and several other geographies in which it currently markets Galafold® (migalastat HCl) for Fabry disease with sales of $91 million during 2018. As at 28 February 2019, Amicus had a market capitalisation of $2,707 million.

On 20 September 2018, the Company entered into a definitive senior secured loan agreement for $150 million with Amicus Therapeutics, Inc (NASDAQ: FOLD) ("Amicus"), a commercial stage, rare metabolic disease-focused biopharmaceutical company. The $150 million loan has a five-year maturity and will be interest only for the first four years. The loan bears interest at 3-month Libor plus 7.5 per cent. (subject to certain caps) and includes 2 per cent. additional consideration. Amicus can prepay the loan at any time subject to a two year make-whole premium and prepayment fees.

Sebela Pharmaceuticals, Inc.

Sebela is a private specialty pharmaceutical company focused on gastro-intestinal medicines, dermatology, and women's health with pro-forma sales of approximately $250 million for the year ended 31 December 2018. As at 31 December 2018, the principal amount outstanding of the Company's investment was $188.7 million.

On 1 May 2018, the Company was lead arranger of a $316 million senior secured term loan for Sebela BT Holdings Inc. ("Sebela"), a subsidiary of Sebela Pharmaceuticals. The Company committed to a $194 million investment, with the remaining $122 million balance coming from co-investors. The five-year senior secured loan began amortising in the third quarter of 2018 and fully matures in December 2022. The loan bears interest at 3-month Libor (uncapped) plus a single-digit spread and includes additional consideration.

NovocureTM

Novocure manufactures and sells the Optune system, a cancer treatment centred on a proprietary therapy called TTFields, which involves the use of electric fields tuned to specific frequencies to disrupt solid tumor cancer cell division. Optune is currently approved for the treatment of adults with Glioblastoma ("GBM"). On 7 January 2019, Novocure reported unaudited revenues of $248.0 million for the year ended 31 December 2018 a 40 per cent. increase over 2017. Novocure invests meaningfully in R&D and has late stage trials (Phase III pivotal studies) underway for TTFields in brain metastases, non-small cell lung cancer and pancreatic cancer. Novocure is a commercial stage oncology company with a current market capitalisation of approximately $5,102 million as at 28 February 2019.

On 7 February 2018, the Company entered into a senior secured loan agreement for $150 million with Novocure Limited (NASDAQ: NVCR) ("Novocure").

The $150 million loan will mature in February 2023 and bears interest at 9.0 per cent. per annum. Novocure used $100 million of the net proceeds to entirely prepay the $100 million, 10.0 per cent. coupon loan made by BioPharma III Holdings, LP ("BioPharma III") in 2015 that was scheduled to mature in 2020. BioPharma Credit is a limited partner in BioPharma III and therefore received a distribution of approximately $46 million from BioPharma III as a result of the prepayment from Novocure.

Lexicon Pharmaceuticals, Inc.

On 4 December 2017, the Company and BioPharma IV entered into a definitive term loan agreement for up to $200 million with Lexicon Pharmaceuticals, Inc. (NASDAQ: LXRX) ("Lexicon"), a fully integrated biopharmaceutical company with a market capitalisation of approximately $564 million as at 28 February 2019. The Company funded $124.5 million of the $150 million first tranche and Lexicon will not draw the $50 million second tranche. Lexicon markets Xermelo® (teloristat ethyl) for the treatment of carcinoid syndrome diarrhoea in the United States and has licensed Xermelo® to Ipsen Pharma SA for commercialisation in territories outside of the United States and Japan. Lexicon is also developing sotagliflozin for the treatment of type 1 and type 2 diabetes in partnership with Sanofi. The loan is secured by substantially all of Lexicon's assets, including its rights to XERMELO and Sotagliflozin. The first $150 million tranche was funded on 18 December 2017.

On 1 November 2018, Lexicon reported sales of Xermelo of $6.3 million for the quarter ended 30 September 2018. In May 2018, the FDA accepted Lexicon collaborator Sanofi's New Drug Application ("NDA") for sotagliflozin for use in combination with insulin therapy to improve glycemic control in adults with type 1 diabetes mellitus with a PDUFA date of 22 March 2019. On 17 January 2019, the Endocrinologic and Metabolic Drugs Advisory Committee of the FDA voted eight to eight on the question of whether the overall benefits of sotagliflozin outweighed the risks to support approval. While the FDA is not required to follow the committee's vote, the agency considers the committee's recommendations when making its decision, which is anticipated by 22 March 2019. In addition, Lexicon and Sanofi should be receiving feedback on sotagliflozin's potential approval from the European regulatory authorities during the first quarter of 2019.

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 is expected to fund $140 million to $160 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. As at 31 December 2018, the Company had funded three of the Purchased Payments based on sales from 1 January 2018 to 30 September 2018 for a total of $64.4 million out of the originally expected range.

Tesaro

On 21 November 2017, the Company and BioPharma Credit Investments IV, S.àr.L. ("BioPharma IV") entered into a definitive loan agreement for up to $500 million with Tesaro, Inc. (NASDAQ: TSRO) ("Tesaro"). The Company funded $222 million of the $300 million first tranche on 6 December 2017 and $100 million of the $200 million second tranche on 29 June 2018 for a total investment of $322 million.

The Tesaro loan had a term of seven years and is secured by Tesaro's US rights to ZEJULA®. The first $300 million tranche bore interest at Libor plus 8 per cent. and the second tranche bore interest at Libor plus 7.5 per cent. The Libor rate was subject to a floor of 1 per cent. and certain caps. Each tranche of the loan was interest only for the first two years, amortises over the remaining term.

Following its acquisition by GlaxoSmithKline, Tesaro repaid the $500 million loan on 23 January 2019. The Company received a payment of $370.0 million on its $322.0 million share of the loan, including the make-whole and prepayment premium totalling $45.8 million, or 14.2 per cent. of the $322.0 million investment, which is the equivalent of what the Company would have received had the loan remained outstanding for another fifteen months, approximately. The Company earned a 22.5 per cent. annualised rate of return on its Tesaro investment.

Update on seed assets

The Company acquired $338.6 million in seed assets at the time of the IPO in March 2017, consisting of a $185.1 million investment in the RPS Note and a 46 per cent. limited partnership interest in BioPharma III, valued at $153.5 million at the time of the IPO. On 15 October 2018, the Company received its final payment on the RPS Note of $20.2 million, realising a 12.9 per cent. IRR. On 29 January 2019, the Company received $7.6 million as its final payment from BioPharma III, realising a 13.6 per cent. IRR.

Investment outlook

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 2017 was a very strong year with the BTK Index rising by 37 per cent., 2018 proved to be much more volatile. Having increased 28 per cent. through September 2018, the BTK Index saw most of those gains disappear during the last quarter, ending 2018 essentially at the same levels as it started the year.

Global equity issuance by life sciences companies during 2018 was $54.9 billion, a 0.5 per cent. increase from the $54.6 billion issued during 2017. US issuance of life sciences convertible bonds increased 52.1 per cent. from $5.5 billion during 2017 to $8.3 billion in 2018. The BTK index has recovered some gains during the first few weeks of 2019 but is still well below its September 2018 highs. Given this volatility in the equity markets, we anticipate an increased appetite for fixed income as a source of capital in 2019. As a result of the downside protection embedded in the debt nature of the Company's investments, the volatility in equity prices does not affect the value or quality of the assets in the portfolio.

Acquisition financing is a very important driver of capital needs in the life sciences industry in general and a key 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. In fact, two of the Company's investments during 2018, Amicus and Sebela, were driven by the need to fund acquisitions. Global life sciences M&A volume during 2018 was $270.2 billion, 41.5 per cent. more than the $190.9 billion witnessed during 2017, driven by an increase in biotech consolidation. Life sciences M&A was robust compared to the broader market, which saw a 13.0 per cent. decline. It is widely believed that this increase in M&A activity was caused by the uncertainty surrounding US tax reform, which was resolved in December 2017. We benefited from this increase in M&A and are encouraged by the number of M&A opportunities that are starting to build up and should lead to a more active market over the coming year.

In conclusion, there continues to be a robust pipeline of investment opportunities, but as usual, the timing of their execution is not completely within our control. 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. Further, we remain confident of our ability to deliver attractive returns that will enable the Company to pay a robust dividend yield for our investors.

Pedro Gonzalez de Cosio

Co-founder and CEO, Pharmakon

4 March 2019

PORTFOLIO INFORMATION

The above table excludes maximum unfunded commitments for the following investments:

1) Lexicon sales covenants necessary to drawdown the Tranche B commitment of $41.5 million have not been met. As at 31 December 2018, no outstanding commitment to Lexicon exists.

2) Bristol-Myers Squibb priority royalty tranche: $76 to $96 million.

See Recent Investments below for additional information on Tesaro and Lexicon senior secured loans.

Performance

¹ As set out in the IPO Prospectus the opening NAV per share was 98 cents on the date of IPO.

STRATEGIC OVERVIEW

Investment objective

The Company aims to generate long-term Shareholder returns, predominantly in the form of sustainable income distributions from exposure to the life sciences industry.

Investment policy

The Company will seek to achieve its investment objective predominantly through direct or indirect exposure to Debt Assets.

The Company may acquire debt assets:

· directly from the entity issuing the debt asset (a "Borrower"), which may be: (i) a company operating in the life sciences industry (a "LifeSci Company"); or (ii) an entity other than a LifeSci Company which directly or indirectly holds an interest in royalty rights to certain products, including any investment vehicle or special purpose vehicle ("Royalty Owner"); or

· in the secondary market.

The Company may also invest in equity issued by a LifeSci Company, acquired directly from the LifeSci Company or in the secondary market.

"Debt Assets" will typically comprise:

Royalty debt instruments

Debt issued by a Royalty Owner where the Royalty Owner's obligations in relation to the Debt are secured as to repayment of principal and payment of interest by Royalty Collateral.

Priority royalty tranches

Contract with a Borrower that provides the Company with the right to receive payment of all or a fixed percentage of the future royalty payments receivable in respect of a Product (or Products) that would otherwise belong to the Borrower up to a fixed monetary amount or a pre-set rate of return, with such royalty payment being secured by Royalty Collateral in respect of that Product (or Products).

Senior secured debt

Debt issued by a LifeSci Company, and which is secured as to repayment of principal and payment of interest by a first priority charge over some or all of such LifeSci Company's assets, which may include: (i) Royalty Collateral; or (ii) other intellectual property and marketing rights to the Products of that LifeSci Company.

Unsecured debt

Debt issued by a LifeSci Company which is not secured or is secured by a second lien on assets of the Borrower.

Credit linked notes

Derivative instruments referencing Debt Assets, being a synthetic obligation between the Company and another party where the repayment of principal and/or the payment of interest is based on the performance of the obligations under the underlying Debt Assets.

"Royalty Collateral" means, with respect to a Debt Asset, (i) future payments receivable by the Borrower on a Product (or Products) in the form of royalty payments or other revenue sharing arrangements; or (ii) future distributions receivable by the Borrower based on royalty payments generated from a Product (or Products); or (iii) both limb (i) and limb (ii).

"Debt" includes loans, notes, bonds and other debt instruments and securities, including convertible debt, and Priority Royalty Tranches.

Borrowers will predominantly be domiciled in the US, Europe and Japan, though the Company may also acquire Debt Assets issued by Borrowers in other jurisdictions.

Investment restrictions and portfolio diversification

The Company will seek to create a diversified portfolio of investments by investing across a range of different forms of Debt Assets issued by a variety of Borrowers. In particular, the Company will observe the following restrictions when making investments in accordance with its investment policy:

· no more than 30 per cent. of the Company's gross assets will be exposed to any single Borrower;

· no more than 35 per cent. of the Company's gross assets will be invested in Unsecured Debt; and

· no more than 15 per cent. of the Company's gross assets will be invested in equity securities issued by LifeSci Companies.

Each of these investment restrictions will be calculated at the time of each proposed investment. In the event that any of the above limits are breached at any point after the relevant investment has been made (for instance, as a result of any movements in the value of the Company's total assets), there will be no requirement to sell any investment (in whole or in part).

Cash management

The Company's uninvested capital may be invested in cash instruments or bank deposits for cash management purposes.

Hedging

The Company does not propose to enter into any hedging or other derivative arrangements other than as may from time to time be considered appropriate for the purposes of efficient portfolio management. The Company will not enter into such arrangements for investment purposes.

Business and status of the Company

The Company is registered in England as a public limited company and is an investment company in accordance with the provisions of Section 833 of the Companies Act 2006.

The principal activity of the Company is to carry on business as an investment trust. The Company intends at all times to conduct its affairs so as to enable it to qualify as an investment trust for the purposes of Sections 1158/1159 of the Corporation Tax Act 2010 ("S1158/1159"). The Directors do not envisage any change in this activity in the foreseeable future.

The Company has been granted approval from HM Revenue & Customs ("HMRC") as an investment trust under S1158/1159 and will continue to be treated as an investment trust company, subject to there being no serious breaches of the conditions for approval. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 December 2018 so as to be able to continue to qualify as an investment trust.

The Company has a wholly-owned subsidiary, BPCR Ongdapa Limited, details of which can be found in Note 15 to the financial statements.

Key performance indicators

The Company assesses its performance in meeting its investment objectives using the following Key Performance Indicators ("KPIs"):

NAV performance

The NAV at 31 December 2018 was $1.0044 per Share, compared to $1.0091 per Share at 31 December 2017.

A full description of the Company's performance for the year ended 31 December 2018 is included in the Investment Manager's Report above.

Share price return

The Company's Share price at 31 December 2018 was $1.0650, giving a return since 31 December 2017 of 1.7 per cent.

Share price premium to NAV per Share

The Company's Share price was at a premium to the NAV per Share consistently throughout the year, ending the period at a premium of 6.0 per cent. The daily closing price of the Company's Shares ranged from $1.01 - $1.12 throughout the year.

If the Share price declines to a point where the Shares trade on average at a discount to NAV per Share in excess of 5 per cent. in any three-month rolling period, the Company has certain discount control mechanisms in place, one of which requires the Company to repurchase Shares until such time as the Share price discount to NAV per Share moves below 1 per cent.

Dividend yield

The Company declared and paid dividends during the year in line with the expected 7 per cent. annual yield as disclosed in its IPO Prospectus dated 1 March 2017.

Ongoing charges

The Company's ongoing charges ratio is shown in the table below.

* Ongoing charges are the Company's expenses (excluding performance fees) expressed as a percentage of its average monthly net assets and follow the AIC recommended methodology.

Dividends

Dividends totalling 7.94 cents per Ordinary Share, including a special dividend of 1 cent, have been paid during the year ended 31 December 2018.

RISK MANAGEMENT AND THE INTERNAL CONTROL ENVIRONMENT

Board

Responsibilities

The Board, when setting the risk management strategy, also determines the nature and extent of the significant risks and its risk appetite in implementing this strategy. A formal risk identification and assessment process has been in place since the IPO, resulting in a risk framework document which summarises the key risks and their mitigation

Audit and Risk Committee

Responsibilities

The Board undertakes a formal risk review with the assistance of the Audit and Risk Committee at least twice a year in order to robustly assess the effectiveness of the Company's risk management and internal control systems. During the course of its review in respect of the year ended 31 December 2018, the Board has not identified, nor been advised of any failings or weaknesses which it has determined to be of a material nature. The principal risks and uncertainties the Company faces are set out below.

Principal risks and uncertainties

The Board of Directors has overall responsibility for risk management and internal control of the Company. The Board recognises that risk is inherent in the operation of the Company and that effective risk management is key to the success of the organisation. The Board has delegated responsibility for the assurance of the risk management process and the review of mitigating controls to the Audit and Risk Committee.

The principal risks and the Company's policies for managing these risks are set out below and the policy and practice with regard to financial instruments are summarised in Note 17 to the financial statements.

Environmental, human rights, employee, social and community issues

The Board recognises the requirement under the Companies Act 2006 to detail information about employees, human rights and community issues, including information about any policies it has in relation to these matters and the effectiveness of these policies. These requirements do not apply to the Company as it has no employees, all the Directors are non-executive and it has outsourced all its functions to third-party service providers. The Company has therefore not reported further in respect of these provisions.

The Company is not within the scope of the Modern Slavery Act 2015 because it has not exceeded the turnover threshold and therefore, no further disclosure is required in this regard.

There are five Directors, four male and one female. Further information on the composition and operation of the Board is detailed in the full Annual Report.

The Strategic Report has been approved by the Board and signed on its behalf.

Jeremy Sillem

Chairman

4 March 2019

EXTRACTS FROM THE DIRECTORS REPORT

The Directors are pleased to present the Annual Report and financial statements for the year ended 31 December 2018.

Directors

The Directors in office at the date of this report are listed below:

Jeremy Sillem - Chairman

Colin Bond - Chairman of the Audit and Risk Committee

Duncan Budge - Director

Harry Hyman - Senior Independent Director

Stephanie Léouzon - Director

Share capital

At the general meeting held on 28 February 2017, the Company was granted authority to allot ordinary shares or C shares up to an aggregate nominal amount of $20 million on a non pre-emptive basis for a period of 5 years from the date of the resolution.

At the annual general meeting held on 29 June 2018, the Company was granted authority to purchase up to 14.99% of the Company's Ordinary Share capital in issue at that date, amounting to 137,046,499 Ordinary Shares. No Ordinary Shares have been bought back under this authority. This authority will expire at the conclusion of, and renewal will be sought at, the annual general meeting to be held on 19 June 2019.

On 14 March 2018, the Company published a prospectus in relation to an Initial Placing and Offer for Subscription of up to 500 million C Shares and a Placing Programme and Offer for Subscription of up to 2,000 million new ordinary shares and / or C shares.

On 13 April 2018, the Company issued 163,782,307 C Shares (with a nominal value of $1,637,823.07) at an issue price of $1.00 each, raising gross proceeds of approximately $164 million. The C Shares were issued to institutional investors and professionally advised private investors and were admitted to trading on the SFS of the LSE and to listing and trading on the Official List of The International Stock Exchange ("TISE") on 16 April 2018. The Company announced on 19 October 2018 that its C Shares would be converted into Ordinary Shares at a rate of 0.98984 Ordinary Shares for every C Share, resulting in 162,118,260 new Ordinary Shares. Any fractional entitlements were cancelled by the Company on the same date and accordingly, 162,118,260 new Ordinary Shares were admitted to trading on the SFS of the LSE and to listing and trading on the Official List of the TISE on 29 October 2018.

On 1 November 2018, the Company issued 297,560,976 Ordinary Shares (with a nominal value of $2,975,609.76) at a price of $1.025 each, raising gross proceeds of approximately $305 million. These Shares were issued pursuant to the prospectus published on 14 March 2018. The Shares were issued to institutional investors and professionally advised private investors and admitted to trading on the SFS of the LSE and to listing and trading on the Official List of the TISE on 5 November 2018.

As at the date of this report, the Company may allot further Ordinary Shares or C Shares up to an aggregate nominal amount of $6,244,038.87 under its existing authority.

At 31 December 2018, and as at the date of this report, there are 1,373,932,067 Ordinary Shares in issue, none of which are held in treasury. At general meetings of the Company, Shareholders are entitled to one vote on a show of hands and on a poll, to one vote for every Share held. The total voting rights of the Company at 31 December 2018 were 1,373,932,067.

Dividends

Dividends paid in respect of the year ended 31 December 2018 are set out in Note 6 to the financial statements.

Dividend policy

The Company pays dividends in US dollars or GBP Sterling, if requested by a specific Shareholder, on a quarterly basis. The Company may, where the Directors consider it appropriate, use the reserve created by the cancellation of its Share premium account to pay dividends.

The Company targets an annual dividend yield of 7 per cent. on the Ordinary Shares (calculated by reference to the issue price at IPO), together with a net total return on NAV of 8 to 9 per cent. per annum on the Ordinary Shares in the medium term.

Going concern

The Directors consider that it is appropriate to adopt the going concern basis in preparing the financial statements. After making enquiries, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion, the Directors have considered the liquidity of the portfolio and the Company's ability to meet obligations as they fall due for a period of at least 12 months from the date that these financial statements were approved.

Viability statement

The Board has assessed the principal risks facing the Company over a five-year period, including those that would threaten its business model, future performance, solvency or liquidity. The five-year period was selected to align with the average duration of the Company's existing investments. The Board has developed a matrix of risks facing the Company and has put in place certain investment restrictions which are in line with the Company's investment objective and policy in order to mitigate these risks as far as practicable. The principal risks which have been identified, and the steps taken by the Board to mitigate these risks are presented above.

The Company believes its borrowing capabilities provide further flexibility and help ensure it is in a position to finance its funding obligations in the event that internally generated cash flow in the period is insufficient to finance the unfunded portion of a lending commitment. The Board reviews the Company's financing arrangements quarterly to ensure that the Company is in a strong position to fund all outstanding commitments on existing investments as well as being able to finance new investments. In addition, the Board regularly reviews the prospects for the Company's portfolio and the pipeline of potential investment opportunities which provide comfort that the Company is able to continue to finance its activities for the medium-term future.

Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five-year period.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

In respect of the Annual Report and financial statements

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have prepared the financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· state whether applicable IFRS as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements;

· make judgements and accounting estimates that are reasonable and prudent; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmations

The Directors consider that the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's position and performance, business model and strategy.

Each of the Directors, whose names and functions are listed above confirm that, to the best of their knowledge:

· the financial statements, which have been prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

· the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

On behalf of the Board

Jeremy Sillem

Chairman

4 March 2019

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company's statutory accounts for the years ended 31 December 2017 and 31 December 2018 but is derived from those accounts. Statutory accounts for the year ended 31 December 2017 have been delivered to the Registrar of Companies, and those for the year ended 31 December 2018 will be delivered in due course. The Auditor has reviewed those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor's report can be found in the Company's full Annual Report and Financial Statements. 

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2018

(In $000s except per Share amounts)

The total column of this statement is the Company's Statement of Comprehensive Income prepared in accordance with IFRS as endorsed by the EU. The supplementary revenue and capital columns are presented for information purposes as recommended by the Statement of Recommended Practice ("SORP") issued by the AIC.

All items in the above Statement 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.

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2018

(In $000s)

* The special distributable and revenue reserves can be distributed in the form of a dividend.

The notes below form part of these financial statements.

STATEMENT OF FINANCIAL POSITION

As at 31 December 2018

(In $000s except per Share amounts)

The financial statements of BioPharma Credit PLC registered number 10443190 were approved and authorised for issue by the Board of Directors on 4 March 2019 and signed on its behalf by:

Jeremy Sillem

Chairman

The notes below form part of these financial statements.

CASH FLOW STATEMENT

For the year ended 31 December 2018

(In $000s)

The notes below form part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018

1. GENERAL INFORMATION

BioPharma Credit PLC is a closed-ended investment company incorporated and domiciled in England and Wales on 24 October 2016 with registered number 10443190. The registered office of the Company is Beaufort House, 51 New North Road, Exeter, EX4 4EP.

The Company carries on business as an investment trust company within the meaning of Sections 1158/1159 of the Corporation Tax Act 2010.

The Company's Investment Manager is Pharmakon Advisors L.P. ("Pharmakon"). Pharmakon is a limited partnership established under the laws of the State of Delaware. It is registered as an investment adviser with the SEC under the United States Investment Advisers Act of 1940, as amended.

Pharmakon is authorised as an AIFM under the Alternative Investment Fund Managers Directive ("AIFMD").

2. ACCOUNTING POLICIES

a) Basis of preparation

The Company's annual financial statements cover the period from 1 January 2018 to 31 December 2018 and have been prepared in conformity with IFRS as adopted by the EU, which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and as applied in accordance with the AIC SORP (issued in November 2014, updated in January 2017 and February 2018 with consequential amendments) for the financial statements of investment trust companies and venture capital trusts, except to any extent where it is not consistent with the requirements of IFRS. The financial statements have adopted the following accounting policies in their preparation.

The financial statements are presented in US Dollars, being the functional currency of the Company. The financial statements have been prepared on a going concern basis under historical cost convention, except for the measurement at fair value of investments designated at fair value through profit or loss.

Assessment as an investment entity

Entities that meet the definition of an investment entity within IFRS 10 'Consolidated Financial Statements' are required to measure their subsidiaries at fair value through profit or loss rather than consolidate the entities. The criteria which define an investment entity are as follows:

• an entity that obtains funds from one or more investors for the purpose of providing those investors with investment services;

• an entity that commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and

• an entity that measures and evaluates the performance of substantially all of its investments on a fair value basis.

The Directors have concluded that the Company meets the characteristics of an investment entity, in that it has more than one investor and its investors are not related parties; holds a portfolio of investments, predominantly in the form of loans, which generates returns through interest income. All investments, including its subsidiary BPCR Ongdapa Limited, are reported at fair value to the extent allowed by IFRS.

b) Presentation of Statement of Comprehensive Income

In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been prepared alongside the Income Statement.

c) Segmental reporting

The Directors are of the opinion that the Company has one operating and reportable segment being the investment in debt assets secured by royalties or other cash flows derived from the sales of approved life sciences products.

d) Investments at fair value through profit or loss

The principal activity of the Company is to invest in interest-bearing debt assets with a contractual right to future cash flows derived from royalties or sales of approved life sciences products. In accordance with IFRS, the assets are measured at fair value through profit or loss. They are accounted for on their trade date at fair value, which is equivalent to the cost of the investment. The fair value of the asset reflects any contractual amortising balance and accrued interest.

For unlisted investments where the market for a financial instrument is not active, fair value is established using valuation techniques which may include recent arm's length market transactions between knowledgeable, willing parties, if available; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models. Where there is a valuation technique commonly used by market participants to price the instrument and that technique has proved reliable from estimates of prices obtained in actual market transactions, that technique is utilised.

The fair value is either bid price or the last traded price on the exchange where the investment is listed.

Changes in the fair value of investments held at fair value through profit or loss and gains or losses on disposal are recognised in the Statement of Comprehensive Income as gains or losses from investments held at fair value through profit or loss. Transaction costs incurred on the purchase and disposal of investments are included within the cost or deducted from the proceeds of the investments. All purchases and sales are accounted for on trade date.

e) C Share financial liability

Any C Share issued that meets the definition of a financial liability under IAS 32 'Financial Instruments: Presentation', rather than an equity instrument will be recognised on issue at fair value less directly attributable issuance costs.

f) Foreign currency

Transactions denominated in currencies other than US Dollars are recorded at the rates of exchange prevailing on the date of the transaction. Items which are denominated in foreign currencies are translated at the rates prevailing on the balance sheet date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as an exchange gain or loss in the Statement of Comprehensive Income.

g) Income

There are three main sources of revenue for the Company: dividends, interest income and royalty revenue.

Dividends are receivable on equity Shares and recognised on the ex-dividend date. Where no ex-dividend date is quoted, dividends are recognised when the Company's right to receive payment is established. Dividends from investments in unquoted shares and securities are recognised when they become receivable.

Interest income is recognised when it is probable that the economic benefits will flow to the Company. Interest is accrued on a time basis, by reference to the principal outstanding and the effective interest rate that is applicable. Accrued interest is included within trade and other receivables on the Statement of Financial Position.

Any accrued income is reflected in the fair value of the Company's limited partnership interest, and is allocated to capital within the Statement of Comprehensive Income until the Company's right to receive the income is established, when it is transferred to revenue within the Statement of Comprehensive Income.

Royalty revenue is recognised on an accrual basis in accordance with the substance of the relevant agreement (provided that it is probable that the economic benefits will flow to the Company and the amount of revenue can be measured reliably). Royalty arrangements that are based on production, sales and other measures are recognised by reference to the underlying arrangement.

Some investments include additional consideration in the form of structuring fees, which are paid on execution of the transaction. Income from additional consideration is recognised up front and is allocated to revenue within the Statement of Comprehensive Income.

Bank interest and other interest receivable are accounted for on an accruals basis.

h) Dividends paid to Shareholders

Dividends to Shareholders are recognised as a liability in the year which they are paid or approved by the Board and are reflected in the Statement of Changes in Equity. Dividends declared and approved after the balance sheet date are not recognised as a liability of the Company at the balance sheet date.

The Company may, if it so chooses, designate as an ''interest distribution'' all or part of the amount it distributes to Shareholders as dividends, to the extent that it has ''qualifying interest income'' for the accounting period. Were the Company to designate any dividend it pays in this manner, it should be able to deduct such interest distributions from its income in calculating its taxable profit for the relevant accounting period. The Company intends to elect for the ''streaming'' regime to apply to the dividend payments it makes to the extent that it has such ''qualifying interest income''. Shareholders in receipt of such a dividend will be treated for UK tax purposes as though they had received a payment of interest, which results in a reduction of the corporation tax payable by the Company.

i) Expenses

All expenses are accounted for on an accruals basis. Expenses, including investment management fees, performance fees and finance costs, are charged through the revenue account except as follows:

• expenses which are incidental to the acquisition or disposal of an investment are treated as capital costs and separately identified and disclosed in Note 4; and

• expenses of a capital nature are accounted for through the capital account.

The performance fee is considered to be an annual fee and is only recognised at the end of each performance period. It is calculated in accordance with the details in note 4(b) below, any performance fee triggered whether payable or deferred is recognised in the Statement of Comprehensive Income. Where a performance fee is payable it is treated as a current liability in the Statement of Financial Position. Where a performance fee is deferred, it is treated a non-current liability in the Statement of Financial Position, it becomes payable to the Investment Manager at the end of the first performance period in respect to which the compounding condition is satisfied.

j) Trade and other receivables

Trade and other receivables do not accrue any interest and are measured at fair value through profit and loss and reduced by appropriate allowances for estimated unrecoverable amounts, where necessary.

k) Cash and cash equivalents

Cash and cash equivalents are defined as cash in hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value.

l) Trade and other payables

Trade and other payables do not carry any interest and are measured at fair value through profit and loss.

m) Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Corporation tax is recognised in the Statement of Comprehensive Income.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date and any adjustment to tax payable in respect of previous periods. The tax effect of different items of expenditure is allocated between revenue and capital on the same basis as the particular item to which it relates, using the Company's marginal method of tax, as applied to those items allocated to revenue, for the accounting year.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax basis of assets and liabilities and their carrying amount for financial reporting purposes. Deferred tax liabilities are measured at the tax rates that are expected to apply to the period when the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

n) Share capital and reserves

The Share capital represents the nominal value of the Company's Ordinary Shares (equity shares).

The Share premium account represents the excess over nominal value of the fair value of consideration received for the Company's Ordinary Shares (equity shares), net of expenses of the Share issue.

The special distributable reserve was created on 29 June 2017 to enable the Company to buy back its own Shares and pay dividends out of such distributable reserve, in each case when the Directors consider it appropriate to do so, and for other corporate purposes.

The capital reserve represents realised and unrealised capital and exchange gains and losses on the disposal and revaluation of investments and of foreign currency items. The realised capital reserve can be used for the repurchase of Shares.

The revenue reserve represents retained profits from the income derived from holding investment assets less the costs and interest on cash balances associated with running the Company. This reserve can be distributed.

o) Critical accounting estimates and assumptions

The preparation of these financial statements in conformity with IFRS requires the Directors to make accounting estimates which will not always equal the actual results. The Directors also need to exercise judgement in applying the Company's accounting policies.

This note provide an overview of the areas that involve a higher degree of judgement or complexity and of items which are more likely to be materially adjusted due to estimates and judgements included in other notes, together with information about the basis of calculation for each line in the financial statements.

In particular, judgements and estimates are made in the determining the fair valuation of unquoted investments for which there is no observable market and may cause material adjustments to the carrying value of those investments. These are valued in accordance with note 2(d) above and using the valuation techniques described in note 7 below.

Also, judgements are made when determining any deferred performance fee, this may be affected by future changes in the Company's portfolio and other assets and liabilities. Any deferred performance fee is calculated in accordance with note 4(b) below and is recognised in accordance with note 2(i) above.

These judgements and estimates are reviewed on an ongoing basis. Revisions to these judgements and estimates are reviewed on an ongoing basis. Revisions are recognised prospectively.

p) New accounting standards effective since 1 January 2018

IFRS 9 'Financial Instruments'

The Directors have considered the implications of IFRS 9 which has replaced IAS 39 'Financial Instruments: Recognition and Measurement'. IFRS 9 changes the classification and measurement of financial assets and introduces an 'expected credit loss' model for impairment of financial assets. The adoption of IFRS 9 did not result in any change to the classification or measurement of the Company's Investments in either the current or comparative financial statements, as the investments remain classified at fair value.

IFRS 15 'Revenue from Contracts with Customers'

The Directors have considered the implications of IFRS 15 and are of the opinion this does not apply to financial instruments, which comprise the business of the Company as an investment trust. Therefore, there has been no impact on the current or comparative financial statements for this accounting period.

q) Accounting standards not yet effective

The IASB and International Financial Reporting Interpretations Committee ("IFRIC'') have issued and endorsed the following standards and interpretations, applicable to the Company, which are not yet effective for the period ended 31 December 2018 and have therefore not been applied in preparing these financial statements.

Amendment to IFRS 9 'Financial Instruments' - relates to prepayment features with negative compensation and modifications of financial liabilities, and is effective for reporting periods on or after 1 January 2019.

The Directors do not expect that the adoption of the standards and interpretations will have a material impact on the financial statements.

Other future development includes the IASB undertaking a comprehensive review of existing IFRSs. The Company will consider the financial impact of these new standards as they are finalised.

3. INCOME

* The Company's senior secured loan to Sebela, the second tranche of its senior secured loan to Tesaro and its senior secured loan to Amicus included additional consideration in the form of structuring income of $2,913,000, $2,000,000 and $3,000,000, respectively, which were paid upon the completion of the transaction or funding of each tranche, and are recognised as income in the period. Refer to Note 2(g). In 2017, the first tranches of the Company's senior secured loans to Tesaro and Lexion included additional consideration of $4,440,000 and $3,112,500, respectively.

4. FEES AND EXPENSES

EXPENSES

For the year ended 31 December 2018, the Auditor was also paid $352,000 for services performed in connection with the C Share issue and conversion and additional Share issue. This total is not included within the Auditor's remuneration figure above.

For the period ended 31 December 2017, the Directors' were also paid $162,500, as detailed in Note 4(c). This amount is not included within the Directors' fees figure above. The Auditors were also paid $176,000 for services performed in connection with the IPO. This amount is not included within the Auditor's remuneration figures above.

These amounts were recognised as part of Share issue costs in the Statement of Changes in Equity above.

a) Investment management fee

With effect from the Initial Admission, the Investment Manager is entitled to a management fee (''Management Fee'') calculated on the following basis: (1/12 of 1 per cent. of the NAV on the last business day of the month in respect of which the Management Fee is to be paid (calculated before deducting any accrued Management Fee in respect of such month)) minus (1/12 of $100,000).

The Management Fee payable in respect of any quarter will be reduced by an amount equal to the Company's pro rata share of any transaction fees, topping fees, break-up fees, investment banking fees, closing fees, consulting fees or other similar fees which the Investment Manager (or an affiliate) receives in connection with transactions involving investments of the Company (''Transaction Fees''). The Company's pro rata share of any Transaction Fees will be in proportion to the Company's economic interest in the investment(s) to which such Transaction Fees relate.

b) Performance fee

Period from IPO in March 2017 to 19 September 2018

Subject to: (i) the NAV attributable to the Ordinary Shares as at the end of a performance period representing a minimum of 6 per cent. annualised rate of return annualised on the Company's IPO gross proceeds (adjusted for dividends, Share issues and buybacks as appropriate), (ii) the total return on the NAV attributable to the Ordinary Shares (adjusted for dividends, Share issues and buybacks as appropriate) exceeding 6 per cent. over such performance period, and (iii) a high watermark, the Investment Manager will be entitled to receive a performance fee equal to the lesser of: (a) 50 per cent of the total return above 6 per cent; and (b) 10 per cent. of the total return over such performance period provided always that the amount of any performance fee payable to the Investment Manager will be reduced to the extent necessary to ensure that after account is taken of such fee, condition (iii) above remains satisfied.

Where the Investment Manager is not entitled to a performance fee solely because condition (i) has not been satisfied, such fee will be deferred and paid in a subsequent performance period in which such condition is satisifed. Where condition (i) is satisfied in a performance period but the payment of a performance fee (or any deferred performance fee from previous performance periods) in full would result in that condition failing, the Investment Manger shall be entitled to such a portion of such fee that does not result in the failure of the condition (i) above and the balance would be deferred to a future performance period.

Any performance fee (whether deferred or otherwise) shall be paid as soon as practicable after the end of the relevant performance period and, in any event, within 15 Business Days of the publication of the Company's audited annual financial statements relating to such period.

Effective from 19 September 2018

The Board of Directors approved an amendment, effective 19 September 2018, to the performance fee provisions. The amendment was to provide that where the payment of performance fee (or any deferred performance fee from previous performance periods) in full would result in the failure of condition (i) above, the Investment Manager shall only be entitled to 50 per cent. of such fee that does not result in the failure of condition (i) with the balance being deferred to a future performance period.

If, during the last month of a Performance Period, the Shares have, on average, traded at a discount of 1 per cent. or more to the NAV per Share (calculated by comparing the middle market quotation of the Shares at the end of each business day in the month to the prevailing published NAV per Share (exclusive of any dividend declared) as at the end of such business day and averaging this comparative figure over the month), the Investment Manager shall (or shall procure that its Associate does) apply 50 per cent. of any Performance Fee paid by the Company to the Investment Manager (or its Associate) in respect of that Performance Period (net of all taxes and charges applicable to such portion of the Performance Fee) to make market acquisitions of Shares (the ''Performance Shares'') as soon as practicable following the payment of the Performance Fee by the Company to the Investment Manager (or its Associate) and at least until such time as the Shares have, on average, traded at a discount of less than 1 per cent. to the NAV per Share over a period of five business days (calculated by comparing the middle market quotation of the Shares at the end of each such business day to the prevailing published NAV per Share (exclusive of any dividend declared) and averaging this comparative figure over the period of five business days). The Investment Manager's obligation:

1) shall not apply to the extent that the acquisition of the Performance Shares would require the Investment Manager to make a mandatory bid under Rule 9 of the Takeover Code; and

2) shall expire at the end of the Performance Period which immediately follows the Performance Period to which the obligation relates.

c) Directors

Each of the Directors is entitled to receive a fee from the Company at such rate as may be determined in accordance with the Articles. The Directors' remuneration is $70,000 per annum for each Director other than:

• the Chairman, who will receive an additional $30,000 per annum; and

• the chairman of the Audit Committee, who will receive an additional $15,000 per annum.

In addition, in consideration for the work done between Incorporation and Admission, for the period up to 31 December 2017, each Director was entitled to an additional $35,000 other than:

• the Chairman, who received an additional $50,000 for this period; and

• the chairman of the Audit and Risk Committee, who received an additional $42,500 for this period.

Fees were paid to each Director in equal quarterly instalments for 2017 and 2018.

A breakdown of Directors' fees is provided in the Directors' Remuneration Report in the full Annual Report.

d) Finance costs

Following the conversion of the C Shares, the amortisation of the C Share liability as at the conversion date, 30 September 2018, is shown as finance costs within the Statement of Comprehensive Income, the total of this amount is shown in Note 13 below.

5. TAXATION

It is the intention of the Directors to conduct the affairs of the Company so as to satisfy the conditions for approval of the Company by HMRC as an investment trust under Section 1158 of the Corporation Tax Act 2010 (as amended) and pursuant to regulations made under Section 1159 of the Corporation Tax Act 2010. As an investment trust, the Company is exempt from corporation tax on capital gains.

The current taxation charge for the period is different from the standard rate of corporation tax in the UK of 19.00 per cent, the effective tax rate was 0.00 per cent. The differences are explained below.

* The theoretical tax rate is calculated using a blended tax rate over the period.

At 31 December 2018, the Company had no unprovided deferred tax liabilities. At that date, based on current estimates and including the accumulation of net allowable losses, the Company had no unrelieved losses.

Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Company meets (and intends to continue for the foreseeable future to meet) the conditions for approval as an Investment Trust company.

6. DIVIDENDS

Dividend paid in respect of the period under review:

Set out below are the interim dividends paid or proposed on Ordinary Shares in respect of the financial year, which is the basis on which the requirements of Section 1159 of the Corporation Tax Act 2010 are considered.

On 21 February 2019, the Board approved a fourth interim dividend, for the year ended 31 December 2018, of $0.0175 per Ordinary Share and a special dividend of $0.0017741 per Ordinary Share, both payable on 29 March 2019. In accordance with IFRS, this dividend has not been included as a liability in these financial statements.

7. INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS

Analysis of investment gains/(losses)

Transaction costs, (incurred at the point of the transaction) incidental to the acquisition of investments totalled $Nil (2017: $303,000) and the disposals of investments totalled $Nil (2017:$Nil) for the year. In addition, legal fees incidental to the acquisition of investments totalled $193,000 (2017: $471,000) as disclosed in Note 4, have been reflected in the capital column in the Statement of Comprehensive Income since they are capital in nature.

The Company is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy consists of the following three levels:

· Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

· Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

· Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The level of the fair value hierarchy, within which the fair value measurement is categorised, is determined on the basis of the lowest level input that is significant to the fair value of the investment.

A reconciliation of fair value measurements in Level 3 is set out below.

Level 3 financial assets at fair value through profit or loss

* Redemptions are the proceeds received from the repayment of investments.

There were no transfers between levels during the year.

Valuation techniques

Unrealised gains and losses recorded on Level 2 and 3 financial instruments are reported in unrealised gain/(loss) on investments on the Statement of Comprehensive Income. At the time the investments are made, the Investment Manager calculates an expected rate of return based on the purchase price and the cash flows as projected at that time. The projected cash flows are calculated at the time of the investment by estimating future product sales and applying the corresponding royalty rate for capped royalty investments. Estimates of future product sales are generated through models driven by several factors that include the potential size of the market (disease incidence and prevalence), the product's market share over time and the price of the product.

During the periods following the initial investment valued at Level 3, the Investment Manager reviews and, if appropriate, revises the assumptions in the sales models and calculates the net present value of the remaining cash flows using the expected rate of return. Inputs reflect management's best estimate of what market participants would use in pricing the assets or liabilities at the measurement date. Consideration is given to the risk inherent in the valuation techniques and the risk inherent in the inputs of the model. All investments are valued at fair value using a discounted cash flow methodology. For capped royalty investments, discount rates are applied to the consensus forecasts for sales of the underlying products to determine fair value.

The RPS Note, which was a level 2 fair value measurement, was valued using the stated 12 per cent. interest rate and Wall Street analyst consensus forecasts for products underlying the note.

The Company's unlisted investments, with the exception of the RPS Note, are all classified as level 3 investments. The fair values of the unlisted investments have been determined principally by reference to discounted cash flows. The significant unobservable input used is detailed below: