TSX:DHT.UN - Post by User
Post by
retiredcfon Nov 29, 2022 9:51am
222 Views
Post# 35136351
RBC
RBCTheir upside target is $19.00. GLTA
Outperform
TSX: DHT-U; CAD 7.04
Price Target CAD 14.00
DRI Healthcare Trust
Fourth royalty deal this year - on enzyme replacement therapy, Xenpozyme with 15 year life
Our view: DRI announced an attractive fourth royalty deal of 2022 for enzyme replacement therapy, Xenpozyme (olipudase alfa). An upfront payment of $30MM was paid to secure the royalty. The company has deployed $214.5MM on royalty acquisitions this year, surpassing the $150MM annual target of capital deployment. Based on our expected ramp-up of the drug, we estimate an IRR of ~11.9% on this transaction. We have incorporated Xenpozyme royalties in our model and have reflected updated consensus/RBC forecasts for the existing portfolio. Our price target remains unchanged at C$14.00.
Key points:
Xenpozyme royalty transaction. DRI announced the acquisition of a royalty interest in Xenpozyme for an upfront payment of $30MM with additional performance based milestones of up to $26.5MM. Xenpozyme is an enzyme replacement therapy designed to replace deficient or defective acid sphingomyelinase (ASM), an enzyme that allows for the breakdown of the lipid sphingomyelin. Xenpozyme is administered intravenously every two weeks. Its administration requires a dose escalation phase in the first year followed by a maintenance phase. Xenpozyme was approved in Japan in Mar-22, by the EC in Jun-2022, and more recently by the US FDA in Aug-22 and is marketed worldwide by Sanofi.
Transaction details. The upfront payment of $30MM entitles DRI to royalties equal to ~1% of worldwide net sales of Xenpozyme. Additional performance-based milestones of up to $26.5MM will be paid by DRI if the sales of the drug outperform expectations. DRI will receive semi-annual royalty payments in respect of net sales of Xenpozyme on a two-quarter lag; for sales made in the Q1 and Q2, DRI expects to receive its royalty payment in the Q4. For sales made in the Q3 and Q4, DRI expects to receive its royalty payment in Q2 of the following year. The Trust expects to receive royalties for ~15 years.
We estimate an IRR of ~11.9% without milestone payments. We estimate an IRR of 11.9% based on our expected ramp-up with peak sales of $750MM for the drug. We note that consensus drug revenue forecasts are not yet available for Xenpozyme and our discussions with DRI management indicate the sales could ramp-up to US$700MM in US and EU geographies. Our expected sales ramp-up will not likely trigger the milestone payment. DRI management noted a significant ramp-up is required for milestone payments (milestone payments expire in end-2026).
Incorporating Xenpozyme royalties in our model. We incorporate Xenpozyme royalties in our model and have reflected updated consensus/ RBC forecasts for the existing portfolio. Xenpozyme now represents 7% of our gross asset value. Our price target remains unchanged at C$14.00.