Dri Healthcare Trust T.DHT.UN

RBC

[retiredcf]

Their upside scenario target is $23.00. GLTA

July 4, 2023

Outperform

TSX: DHT-U; CAD 10.50

Price Target CAD 17.00

DRI Healthcare Trust

Orserdu royalty deal expected to maintain cash royalties to 2030 - positive for DRI

Our view: DRI announced an attractive royalty deal for breast cancer drug Orserdu (elacestrant). As a result of this transaction, we now forecast flat to slightly increasing cash royalties to 2030E vs. 2022A. This compares to a ~25% decline in 2030E cash royalty receipts vs. 2022A previously with existing assets. We model Orserdu ramp-up and peak sales forecast conservatively and estimate an IRR of ~14% on this transaction. We note that the uncapped royalty deal structure provides upside to DRI in the event drug performs better than our estimates.

Key points:

Attractive Orserdu royalty transaction. DRI announced the royalty acquisition of Orserdu (elacestrant) for an upfront payment of $85MM to Eisai (NC, 4523-JP). The acquisition entitles DRI Healthcare to a mid-single- digit tiered royalty on the worldwide net sales of the Orserdu. Orserdu is the first and only approved targeted therapy used in the treatment of postmenopausal women or adult men with ESR1-mutated ER+/HER2- metastatic breast cancer, who have experienced disease progression despite prior endocrine therapy. Orserdu was approved by the FDA on 27- Jan-2023 and is under review by the EMA for potential approval (likely by end CY23). The drug is patent protected up to January 2038 with six patents listed in the FDA's Orange Book (here). DRI has deployed $570MM in royalty acquisitions since its IPO in Feb 2021 (excluding $55MM in potential milestones and payments) and is tracking ahead of the five-year target of $850-900MM in capital deployment by end-2025.

We estimate an IRR of ~14% on this transaction. We model Orserdu revenues conservatively and estimate peak sales of ~$460MM for Orserdu. We note that our peak sales estimate is below the peak consensus sales forecasts of other oral SERDs currently in Ph3 development, where consensus forecasts imply these drugs to become blockbuster drugs. Additionally, we forecast revenues to decline prior to patent expiry due to potential competition and/or other alternative therapies. Based on our conservative view of Orserdu, we estimate an IRR of ~14% on Orserdu royalty transaction. See additional details on pg 2-4.

Cash receipts flat to slightly increasing to 2030 vs. 2025 previously. After this transaction, we now forecast 2030E cash royalty receipts of ~$91MM (~$68MM previously). This compares to ~$91MM of reported royalty cash receipts in 2022A. As a result of this transaction, DRI has addressed the previously expected ~25% decline in 2030E cash royalties vs. 2022A.

Incorporating Orserdu royalties. We have incorporated Orserdu royalties into our model and have reflected updated consensus/RBC forecasts for the existing portfolio. Orserdu represents ~17% of our gross asset value. Our PT remains unchanged at C$17.