DRI Healthcare keeps Outperform rating with Raymond James

Investors will want to own a piece of DRI Healthcare Trust (DRI Healthcare Trust Stock Quote, Charts, News, Analysts, Financials TSX:DHT.UN) as a solid play in the biotech space, according to Raymond James analyst Rahul Sarugaser, who delivered a report to clients on the company on Friday.

An open-ended biopharmaceutical royalty-holding trust, DRI Healthcare Trust announced on Friday the purchase of a royalty interest in the worldwide net sales of Orserdu from Eisai Co for US$85 million. Orserdu is an oral, selective estrogen receptor degrader (SERD) and the first and only approved, targeted therapy for 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 US FDA in January of this year and is currently under review by the EMA.

On the deal, DRI said it’s an example of how the company aims to continue redeploying its cash receipts into the purchase of new royalties to deliver returns for investors.

“Through this acquisition, we have significantly enhanced the cash flow profile of our portfolio and anticipate flat to slightly growing royalty cash receipts through 2030, without considering potential transactions generated by our active pipeline,” said CEO Behzad Khosrowshahi, CEO, in a statement.

DRI aims to expose unitholders to a diversified range of therapies while minimizing risk from the biopharma sector. The Trust is managed by DRI Capital which has over 30 years in pharma royalty monetization and has deployed over US$2.5 billion through acquiring over 70 royalty streams. 

Since its IPO in 2021, DRI has executed now eight transactions with the Orserdu deal. On Orserdu, Sarugaser said, “A key on-market reference point in the SERD landscape is Faslodex (fulvestrant)—an injectable—from AstraZeneca, which was approved in 2002 for various forms of breast cancer, and reached peak sales of $1 billion in 2018 (generics entered the market the following year, driving sales to $431 million by 2021).”

“Importantly, Orserdu won the race to be the first SERD approved in a convenient oral format, with a once-daily dose. Physician feedback on Orserdu has been enthusiastic, and we understand that there has been strong initial uptake of the product,” he said.

With the update, Sarugaser reiterated an “Outperform” rating on DHT.U while raising his target price from C$16.00 to C$18.00, which at press time represented a projected one-year return of 73 per cent.

Sarugaser said the Orserdu deal puts DRI on a firmer foundation regarding its long-duration base of royalty assets, now with an average of over ten years versus eight years at its IPO. He said the Trust should now expect to stably generate flat-to-slightly positive cash receipts through 2030, versus through 2025 previously.

“We note that DRI’s two most-recent royalty acquisitions were acquired from corporate inventors, Eisai and MacroGenics (versus DRI’s academic/foundation-oriented stronghold), highlighting to us that DRI is, indeed, in the flow among today’s most active biopharma companies,” Sarugaser wrote.