Dri Healthcare Trust T.DHT.UN

RBC

[retiredcf]

October 31, 2023

DRI Healthcare Trust
Announced upsized $500MM debt capacity - provides incremental flexibility

TSX: DHT-U | CAD 10.80 | Outperform | Price Target CAD 18.00

Sentiment: Neutral

Our view: This morning, DRI announced upsizing of its debt capacity to $500MM. The increased debt capacity complements the equity raises that the company has completed in 2023. DRI management also noted a robust $3B pipeline of opportunities (up from $2.8B in potential opportunities as of mid-August at the time of the Q2/23 earnings call). In our view, DRI continues to enjoy the favourable deal environment for royalty transactions. There remains significant interest for royalty financing primarily due to the state of the public markets today. Many biotech companies went public over the last five years are in need for cash. DRI management had previously noted ~2/3rds of non-profitable biotechs have less than 2 years of cash runway and there is a need for financing but equity markets are currently not conducive to providing that capital. As such, these companies are approaching DRI for non-dilutive funding at relatively attractive terms for DRI.

Debt capacity increased to $500MM: This morning, DRI announced that it has entered into an amendment agreement to its existing credit agreement providing up to $500MM of debt capacity. Prior to today's announcement, DRI had a debt capacity of $338.75MM (including a $25MM working capital facility). The increased debt capacity complements the equity raises that the company has completed earlier this year. DRI has deployed $421MM in royalty acquisitions in the past twelve months, significantly improving its total income profile through 2030. DRI management noted a robust $3B pipeline of opportunities (up from $2.8B in potential opportunities as of mid-August at the time of the Q2/23 earnings call).

Takeaways from reported Q3/23 results: Below, we highlight takeaways from Q3/23 results of companies that have reported Q3 earnings and where DRI has meaningful royalty exposure. For Orserdu (~32% of RBCe gross NAV), which is marketed by a subsidiary of a private company, data from Symphony Health and IQVIA suggest robust uptake of the drug as noted in Exhibits 1 and 2. According to management, it simply appears that Symphony Health is over-reporting while IQVIA is under-reporting actual revenues. Management remains confident in its guidance of at least $175MM in 2023 Orserdu revenues (RBCe: $186MM). For Vonjo (~21% of RBCe gross NAV), we note that SOBI (covered by RBC analyst Alistair Campbell) reported Q3/23 Vonjo revenues that were below consensus (-2%) and RBCe (-7%, link). In our view, this could be due to transition as SOBI closed the acquisition of CTI. SOBI management, on the Q3/23 earnings call, noted smooth integration of the sales force and expectation of strong y/ y growth for Vonjo next year. Regarding competition from GSK's recent approval of Ojjaara (momelotinib), SOBI management pointed to a strong dataset for Vonjo especially as it relates to the treatment of patients with low platelet count (below 50,000). Roche reported Xolair (~5% of RBCe gross NAV) revenues that were in-line with consensus estimates. Sanofi reported Xenpozyme (~4% of RBCe gross NAV) revenues that were 11% ahead of consensus estimates.