TSX:DHT.UN - Post by User
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retiredcfon Feb 02, 2024 8:59am
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Post# 35859033
RBC 2
RBC 2Their upside scenario target is now $25.00. GLTA
Outperform
TSX: DHT-U; CAD 14.03
Price Target CAD 19.00 ↑ 18.00
DRI Healthcare Trust
Second Omidria transaction with upside exposure;
LT Royalty Income CAGR guidance >5%; PT to $19
Our view: DRI expanded its interest in royalties on Omidria by amending its existing agreement with Omeros for a $115MM upfront payment and up to $55MM in potential sales-based milestone payments. While the announced royalty transaction is on a mature asset, we find the significant economics to the drug (royalties at 30% of US net sales) and the cash flow visibility attractive. We estimate an IRR of ~13% in aggregate for Omidria transactions. DRI now expects royalty income CAGR of MSD-HSD (RBCe: 6.0%) between 2022A-30E.
Key points:
We estimate an IRR of ~13% on Omidria transactions including the prior $125MM capped royalty transaction completed in October 2022. We model Omidria revenues of $145MM in 2024 (vs. CY23 IQVIA sales of $141MM) and expect growth at +3.5% y/y in future years (vs. 9MCY23 growth of +4.7% y/y). Under the Consolidated Appropriations Act (CAA) of 2023, CMS is required to pay separately for Omidria in both the hospital outpatient department and ASC settings beginning January 1, 2025 and as such, DRI management anticipates Omidria sales to continue to grow in the coming years. We think our Omidria revenue forecasts could have upside risks, although we note that the growth rates have fluctuated historically, see additional details on pg2. Based on these assumptions and the prior Omidria transaction (here), we estimate an aggregate IRR of ~13% on the Omidria transactions (ex-milestone payments), suggesting the second transaction IRR was >15%.
Royalty income CAGR of MSD-HSD vs. LSD previously. After today's Omidria transaction, DRI now expects the LT royalty income CAGR between 2022 through 2030 to be MSD-HSD (RBCe: 6.0%), up from the prior guidance of LSD, excluding any new transactions. We now forecast 2030E royalty income of ~$139MM (~$108MM previously), representing a ~6.0% CAGR vs. 2022A (~$87MM).
Increased capital deployment target to >$1.25B (ending 2025): DRI increased its capital deployment target (yet again) for the five years ending 2025 to over $1.25B, up from $850-$900MM previously ($650-750MM at IPO). DRI has deployed $881MM (excluding potential milestone payments of up to $106MM) in 12 transactions to date. Management noted that it continues to see significant opportunities in the market and highlighted a robust pipeline of over $3.0B in possible transactions in the near to medium-term.
Incorporating Omidria royalties; PT increase to C$19 (from C$18). We have incorporated the new Omidria royalties into our model and have removed the existing capped royalties associated with the prior Omidria transaction. We have reflected updated consensus/RBC forecasts for the existing portfolio. Omidria now represents ~27% of our gross asset value.
Details on Omidria: Omidria was approved by the FDA in May 2014 and EMA (Europe) in July 2015 for intracameral use during cataract surgery or intraocular lens replacement. The drug is used to maintain pupil dilation and reduce postoperative pain. Omidria is marketed by Rayner Surgical.
Under the Hospital Outpatient Prospective Payment System rule issued by the CMS for 2024, Omidria is eligible for separate payment when administered in ASCs throughout 2024. Under the Consolidated Appropriations Act (CAA) of 2023, CMS is required to pay separately for Omidria in both the hospital outpatient department and ASC settings beginning January 1, 2025 and extending until at least January 1, 2028. DRI management noted that Omidria’s Separate Payment Status established in 2021, coupled with CAA, provides long-term clarity on reimbursement for the product. DRI management also anticipates Omidria sales to continue growing slightly in the coming years.
Due to a change in legislation, the reimbursement associated with Omidria fell away in 2018 resulting in a revenue decline in the first half of that year. When the company completed the first Omidria transaction (here), DRI management had noted that based on the final CMS ruling at the time, the company did not anticipate any reimbursement issues in the future.
There are currently nine patents listed in the FDA’s orange book for Omidria, including 4 patents with expiry of 01/30/2024, essentially leaving five non-expired patents, three of which are expire in 2033 (23-Oct-2033) and two in 2034 (23-Apr-2034). We note that Omeros in its press release today had noted that the last US patent currently extends into 2035. There have been para IV filings against Omidria by Par Pharma, Lupin and Sandoz. While Sandoz converted its para IV filing to a para III filing, the other generic companies have settled with Omeros. The earliest generic drug launch date is April 2032, based on the settlement agreements with generic companies. Additionally, DRI management has noted that there are no other intracameral administered mydriatic or pain management products in development.