DRI Healthcare Trust T.DHT.UN

Alternate Symbol(s): DHTRF

Healthcare

DRI Healthcare Trust is an open-ended trust that provides unitholders with differentiated exposure to the anticipated growth in the global pharmaceuticals and biotechnology markets. Its business model is focused on managing and growing a diversified portfolio of pharmaceutical royalties to deliver attractive growth in cash royalty receipts over the long term. Geographically, it has a presence in the United States; European Union; Japan, and Rest of the world.

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DRI Healthcare Trust

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Post by retiredcfon Nov 05, 2024 8:31am

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Post# 36296666

RBC Report

Their upside scenario target is now $21.00. GLTA

November 4, 2024

Outperform

TSX: DHT-U; CAD 14.03

Price Target CAD 17.00 ↑ 16.00

DRI Healthcare Trust

Higher-risk royalty acquisition asset offset by LT duration and high multiple; Q3/24 preview

Our view: While the announced royalty acquisition on sebetralstat revenues has a higher risk profile than the usual royalty transactions undertaken by DRI, we find the long duration of the asset (royalty receipts are anticipated to be collected through at least 2041, according to management) and strong cash-on-cash multiple (~3.49x; RBCe) along with a 13.6% IRR (RBCe) as attractive attributes. Overall portfolio duration is expected to increase from ~9.9 years to ~10.8 years. Ahead of the Q3/24 results (AMC 06-November), we have also updated our estimates to reflect changes to the outlook for assets held within DRI's portfolio.

Key points:

We estimate an IRR of ~13.6% and 3.49x cash-on-cash multiple. DRI announced the acquisition of a royalty interest in the worldwide net sales of all formulations of sebetralstat from KalVista Pharmaceuticals for an aggregate purchase price of up to $179MM, including a $100MM upfront payment. Based on Visible Alpha consensus forecasts for the drug to 2032E and modest growth assumptions thereafter (+5% y/y) to 2041E, we estimate an IRR of 13.6% and 3.49x cash-on-cash multiple on this transaction (excluding the equity investment). The royalty acquisition will likely extend the duration of DRI's royalty portfolio from 9.9 years to 10.8 years, a material improvement given the current size of the portfolio.

Expecting y/y growth in key financial metrics. We forecast total revenues of $40.9MM (vs. FactSet consensus of $40.0MM; $34.1MM reported in Q3/23), adj. EBITDA of $31.9MM (FactSet consensus $33.0MM; $20.3MM reported in Q3/23) and cash royalty receipts of $36.8MM in Q3/24 (Visible Alpha consensus estimate of $38.0MM; $25.2MM in Q3/23).

Takeaways from Q3/24 results reported thus far. For Vonjo (~9% of RBCe gross NAV), we note SOBI (covered by RBC analyst Alistair Campbell) reported Q3/24 Vonjo revenues that were 7% below RBCe and 4% below consensus (here). On the earnings call, SOBI management noted material progress over the last two quarters following internal challenges and a new competitive launch. We note that the competitor drug from GSK (Ojjaara) has significantly outperformed Vonjo. DRI had earned $5MM in Vonjo milestones in Q4/23, and we previously forecasted $15MM each in milestone payments to DRI in 2027E and 2031E from Vonjo that we no longer expect given the challenging Vonjo trajectory. We note that RBC forecasts for Vonjo are ~35% below Visible Alpha consensus. For Orserdu (~28% of RBCe gross NAV), marketed by the subsidiary of a private company (Menarini), data from IQVIA and Symphony Health suggest continued uptake of the drug. For Omidria (~22% of RBCe gross NAV) marketed by Rayner Surgical (pvt.), IQVIA data suggests an 18% y/y sales decline in Q3 following +5% y/y growth in H1/24. Similar trends were observed in the Institutional sales data from Symphony Health which show an 11% y/y decline in Omidria sales in Q3 (+10% y/y in H1/24).