CIBCEQUITY RESEARCH
December 11, 2024 Earnings Update
DRI HEALTHCARE TRUST
Lowering Our Orserdu Forecast After Positive Competitor Data
Our Conclusion
Today, Eli Lilly announced data from its Phase 3 trial for imlunestrant, an oral
selective estrogen receptor degrader (SERD) for patients with ER+/HER2-
breast cancer. LLY’s drug targets the same patient population as Orserdu,
but trial data shows that when used in combination with the drug Verzenio, a
CDK4/6 inhibitor intended to slow the growth of cancer cells, it showed
improvement in progression free survival (PFS) rates regardless of ESR1
mutations. Orserdu is only approved for patients with ESR1 mutated breast
cancer. By combining with an earlier stage treatment to treat a larger
population, imlunestrant may be able to capture a larger portion of the oral
SERD market once approved. Given this, we believe our previous Orserdu
forecast may have been somewhat optimistic and we now assume that 2025
will represent peak sales. Despite the reduced forecast, both Orserdu
royalties remain on track to generate above-target IRRs, owing in part to the
front-loaded milestone payments received in Q4/23 and Q1/24. After revising
our Orserdu forecasts and making some other minor model adjustments, our
price target moves from $19.50 to $18.00. Despite the reduction, our price
target still represents 47% upside to the current unit price. Units are only 9%
ahead of the levels reached in the immediate aftermath of the former CEO’s
resignation, and we still believe the units are undervalued.
Key Points
Competitors Always Expected: Lilly’s drug is not yet approved and we
expect the competitive pressure to impact Orserdu sales beginning in 2026.
DRI management noted that new competitor drugs were factored into the
base case for the investment, and that 2025 was always expected to be the
peak sales year for Orserdu within internal forecasts. In addition to Eli Lilly’s
imlunestrant, Astra Zeneca’s camizestrant and Roche’s giredestrant are also
oral SERD’s that are currently undergoing Phase 3 trials. The presence of a
number of competitors is hardly a surprise given ER+/HER2- is the most
common type of breast cancer, making up 70% of cases. Additionally,
previous SERD treatments were administered through intramuscular
injection at doctor’s clinics, making oral treatments significant more
convenient for patients
Orserdu Remains Important: Even after the reductions in our forecast, the
two streams on Orserdu make up 29% of our NAV, down from 33% prior to
the change. The strong early performance of Orserdu and frontloaded
milestone payments already have the investment on track to generate IRR
solidly above DRI’s mid-teens forecast, with the Orserdu I royalty already
having returned 38% of the initial investment through five quarters and
Orserdu II at 36% through four quarters. The lack of publicly available sales
data for Orserdu continues to make it more challenging to analyze and
forecast relative to the majority of the drugs in the portfolio that are marketed
by publicly traded companies. Given that, we expect to continue to have to
make tweaks to our forecast in the future as the competitive environment
evolves.