CIBC Report EQUITY RESEARCH
June 30, 2023 Earnings Update
DRI HEALTHCARE TRUST
Acquiring Royalty On Orserdu For $85 Million
Our Conclusion
DRI announced that it has acquired an uncapped mid-single-digit tiered
royalty on the worldwide net sales of Orserdu for $85 million. Orserdu is an
oral Selective Estrogen Receptor Degrader (SERD) and is the first drug
approved targeting ESR1-mutated advanced or metastatic breast cancer.
Orserdu was FDA approved in January 2023 and is under review by the
European Medicines Agency for potential approval. This deal comes shortly
after the sale of the TZIELD royalty and DRI expects Orserdu to have a
similar cash flow profile, reaffirming its expectations that 2030 cash flows
would be flat to slightly up relative to 2022. The uncapped nature of the deal
allows DRI to share in the upside of a drug that appears to have solid
potential. Due to the lack of publicly available forecasts for Orserdu, we have
used management’s 2030 target to estimate the cash contribution, resulting
in a mid-teens IRR above the trust’s typical 12% target. After adding Orserdu
to our model, we increase our price target from C$15.50 to C$18.50.
Key Points
About Orserdu: Orserdu is marketed by Stemline Therapeutics, a private
subsidiary of Italian pharmaceutical company Menarini Group. The drug was
FDA approved in January 2023 and is the first approved drug specifically for
use in the treatment of ER-positive, HER2-negative, ESR1-mutated
advanced or metastatic breast cancer in postmenopausal women or adult
men following at least one line of endocrine therapy. The approval is backed
by results from a Phase 3 trial of 478 patients that showed it reduced the risk
of disease progression by 45% vs. standard-of-care endocrine therapies in
patients whose tumors had ESR1 mutations. About 80% of all breast cancers
are ER-positive, and ESR1 mutations are present in up to 40% of ER+,
HER2-advanced or mBC cancers. There is an injectable treatment in the
market targeting HR-positive and HER2-negative breast cancer that at one
point was doing $1 billion in sales, but Orserdu is the first and only targeted
therapy approved for treatment of ESR1-mutations. Other large
pharmaceutical companies are working towards a similar product, but DRI
management does not expect these to enter the market until 2025-2026.
Royalty Details And NAV Impact: DRI is acquiring an uncapped mid-single-
digit royalty on worldwide sales of Orserdu. It will receive quarterly royalty
payments on a one-quarter lag, with the first payment expected in Q3/23.
Further to the royalty payments, DRI is also entitled to receive milestones
based on the achievement of regulatory approvals and sales performance
thresholds. Orserdu is patent protected to 2038.
Cash Receipt Outlook Maintained: With the announcement of the deal,
DRI reaffirmed its cash receipts outlook, expecting cash receipts to be flat or
grow slightly through 2030, without considering potential transactions
generated by the pipeline. The projection that cash receipts remain flat
through to 2030 was similarly made on the acquisition of TZIELD, and our
model is based on cash receipts from Orserdu replacing those from TZIELD.