DRI Healthcare Trust Reports Third Quarter 2022 Results
- Transactions for Empaveli, Zejula and Omidria royalties mark significant progress -
- Cash receipts expected to be flat to slightly increasing through 2025 even with no further deployment -
- Continued strong performance of existing assets and financial results -
TORONTO, Nov. 7, 2022 /CNW/ - DRI Healthcare Trust (TSX: DHT.UN) (TSX: DHT.U) ("DRI" or "the Trust") today announced its financial results for the quarter ended September 30, 2022. The Trust's third quarter 2022 financial statements and Management's Discussion & Analysis ("MD&A") have been filed on SEDAR (www.sedar.com). All dollar amounts are expressed in US dollars unless otherwise indicated.
"This has been DRI's busiest quarter since becoming a public entity, with three completed transactions," said Behzad Khosrowshahi, Chief Executive Officer of DRI Healthcare Trust. "The combination of robust expected cash flows derived from the success of Omidria, and the growth prospects for Empaveli and Zejula, demonstrates our commitment to building long-term value for our unitholders by partnering with leading inventors, companies, and institutions in the bio-pharma value chain. Importantly, the cash receipts from these assets in addition to those acquired in our previous transactions are expected to flatten to slightly increase our cash flow curve through the end of 2025".
Highlights
- Completed three royalty transactions deploying US$184.5 million;
- Total Income of US$26.5 million;
- Total Cash Receipts of US$18.8 million1;
- Adjusted EBITDA of US$15.8 million1;
- Net Earnings and Comprehensive Earnings of US$7.6 million or US$0.202 per Unit (basic and diluted);
- Adjusted Cash Earnings per Unit (basic and diluted) of US$0.571,2.
Subsequent to Quarter End
- Today, the board of trustees declared a quarterly cash distribution of US$0.075 per unit for the fourth quarter of 2022, which is payable on January 20, 2022 to unitholders of record on December 31, 2022.
- Received Toronto Stock Exchange (the "TSX") approval for normal course issuer bid to allow Trust to acquire up to 2,493,280 of its Trust units over next twelve months.
1 Total Cash Receipts and Adjusted EBITDA are non-GAAP financial measures. Adjusted Cash Earnings per Unit is a non-GAAP ratio. These measures are not standardized measures under IFRS and might not be comparable to similar financial measures disclosed by other issuers. The reconciliation of these measures can be found later in this press release and in the Trust's MD&A. |
2 The weighted average number of basic and diluted units for the three months ended September 30, 2022 were 38,657,266 units and 38,694,492 units, respectively. |
Financial Highlights
Three months ended | Nine months ended | |||
(thousands of US dollars, except per unit amounts) | September 30, | September 30, | September 30, | September 30, |
Total income | 26,471 | 23,409 | 70,392 | 59,551 |
Management fees | 1,322 | 1,113 | 4,477 | 4,163 |
Amortization expenses | 13,992 | 11,125 | 40,188 | 28,923 |
Other expenses | 3,543 | 3,536 | 9,322 | 8,264 |
Net earnings and other comprehensive earnings | 7,614 | 7,635 | 16,405 | 18,201 |
Earnings per unit – basic2 | 0.20 | 0.19 | 0.42 | 0.55 |
Earnings per unit – diluted2 | 0.20 | 0.19 | 0.42 | 0.55 |
Total Cash Receipts/ Pro Forma Total Cash Receipts3,4 | 18,844 | 15,447 | 65,082 | 79,366 |
Adjusted EBITDA/ Pro Forma Adjusted EBITDA3,4,5 | 15,814 | 11,869 | 55,068 | 68,658 |
Adjusted EBITDA Margin/ Pro Forma Adjusted | 84 % | 77 % | 85 % | 87 % |
Adjusted Cash Earnings per Unit – Basic2,3,4,5 | 0.57 | 0.48 | 1.48 | 1.44 |
Adjusted Cash Earnings per Unit – Diluted2,3,4,5 | 0.57 | 0.48 | 1.48 | 1.44 |
Asset Performance
As at September 30, 2022, the Trust's portfolio included 22 royalties and secured loans on 17 products that address medically necessary therapeutic areas, such as oncology, rare diseases, ophthalmology, endocrinology, hematology, dermatology, autoimmune diseases, and vaccines. On September 30, 2022, the royalty asset portfolio had a book value, net of accumulated amortization, of US$505.5 million, generated Total Cash Royalty Receipts3 of US$17.5 million and US$61.2 million during the three and nine months ended September 30, 2022, respectively, and earned royalty income of US$25.0 million and US$66.3 million during the three and nine months ended September 30, 2022, respectively. In addition, the Trust held a loan receivable with a gross principal outstanding balance of US$50.0 million as at September 30, 2022, which generated cash interest receipts of US$1.3 million and US$3.9 million during the three and nine months ended September 30, 2022, respectively, and earned interest income of US$1.4 million and US$4.1 million during the three and nine months ended September 30, 2022, respectively.
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1The Trust completed its initial public offering ("IPO") on February 19, 2021. The Trust had no active operations prior to February 19, 2021. |
2The weighted average number of basic and diluted units for the three months ended September 30, 2022 were 38,657,266 units and 38,694,492 units, respectively. The weighted average number of basic and diluted units for the three months ended September 30, 2021 was 40,107,407 units. The weighted average number of basic and diluted units for the nine months ended September 30, 2022 were 38,684,889 units and 38,710,064 units, respectively. The weighted average number of basic and diluted units for the nine months ended September 30, 2021 was 32,908,642 units. |
3Total Cash Receipts (including Pro Forma Total Cash Receipts) and Adjusted EBITDA (including Pro Forma Adjusted EBITDA) are non-GAAP financial measures. Adjusted EBITDA Margin (including Pro Forma Adjusted EBITDA Margin) and Adjusted Cash Earnings per Unit are non-GAAP ratios. These measures and ratios are not standardized measures under IFRS and might not be comparable to similar financial measures disclosed by other issuers. The reconciliation of these measures can be found later in this press release and in the Trust's MD&A. |
4Total Cash Receipts for the nine months ended September 30, 2021 include cash that was received by the Trust's current subsidiaries prior to the completion of the Trust's acquisition of those subsidiaries and Total Cash Receipts for the three and nine months ended September 30, 2021 include cash that was received as part of the Oracea Transaction related to royalties earned prior to the closing of the transaction. Therefore, Total Cash Receipts, along with the Adjusted EBITDA and Adjusted EBITDA Margin, are presented on a pro forma basis and are referred to as Pro Forma Total Cash Receipts, Pro Forma Adjusted EBITDA and Pro Forma Adjusted EBITDA Margin. |
5Pro Forma Adjusted EBITDA, Pro Forma Adjusted EBITDA Margin and Adjusted Cash Earnings per Unit for the three and nine months ended September 30, 2021 have been adjusted to conform with the current period's composition. The reconciliation of these measures can be found later in this press release. |
Portfolio
(thousands of US dollars) | Total Cash Receipts1 | |||||
Three months ended | Nine months ended | |||||
Product | Therapeutic Area | Marketer(s) | September 30, | Pro Forma September 30, | September 30, | Pro Forma September 30, |
Core Products | ||||||
Empaveli3 | Hematology | Apellis, Swedish Orphan Biovitrum | — | — | — | — |
Eylea I | Ophthalmology | Regeneron, Bayer, Santen | 1,318 | — | 4 4,109 | 6,0404 |
Eylea II | Ophthalmology | Regeneron, Bayer, Santen | 1,444 | — | 4 4,474 | 2,6844 |
FluMist | Influenza | AstraZeneca | — | 7 | 2,218 | 2,269 |
Natpara | Endocrinology | Takeda | 728 | 551 | 2,050 | 1,574 |
Omidria3 | Ophthalmology | Rayner Surgical | — | — | — | — |
Oracea | Dermatology | Galderma | 2,109 | 3,711 | 5,817 | 3,711 |
Rydapt | Oncology | Novartis | 2,578 | 2,313 | 7,876 | 8,770 |
Spinraza | Spinal Muscular | Biogen | 3,736 | 4,326 | 12,587 | 15,249 |
Vonjo | Oncology | CTI Biopharma | 1,184 | — | 1,404 | — |
Xolair | Respiratory | Roche, Novartis | 2,528 | 2,358 | 6,627 | 6,041 |
Zejula3 | Oncology | GSK | — | — | — | — |
Zytiga5 | Oncology | Johnson & Johnson | — | — | 8,958 | 9,498 |
Total Core Products | 15,625 | 13,266 | 56,120 | 55,836 | ||
Mature Products | ||||||
Autoimmune Portfolio6 | Autoimmune Diseases | Johnson& Johnson, Merck, | 721 | 1,493 | 3,107 | 7,601 |
Rilpivirine Portfolio7 | HIV | Johnson& Johnson, Gilead, ViiV | — | — | — | 14,368 |
Total Mature Products | 721 | 1,493 | 3,107 | 21,969 | ||
Other Products8,9 | Various | Various | 1,158 | 688 | 2,001 | 1,561 |
Total Cash Royalty Receipts1,2 | 17,504 | 15,447 | 61,228 | 79,366 | ||
Interest Receipts from Loan Receivable | 1,340 | — | 3,854 | — | ||
Total Cash Receipts1,2 | 18,844 | 15,447 | 65,082 | 79,366 |
1Total Cash Receipts and Total Cash Royalty Receipts are non-GAAP financial measures. These measures are not standardized measures under IFRS and might not be comparable to similar financial measures disclosed by other issuers. The reconciliation of these measures can be found later in this press release and in the Trust's MD&A. |
2Total Cash Receipts and Total Cash Royalty Receipts for the nine months ended September 30, 2021 include cash that was received by the Trust's current subsidiaries prior to the completion of the Trust's acquisition of those subsidiaries and Total Cash Receipts and Total Cash Royalty Receipts for the three and nine months ended September 30, 2021 include cash received as part of the Oracea Transaction related to royalties earned prior to the closing of the transaction and are presented on a pro forma basis. |
3The Trust entered into the transactions in respect of Empaveli, Omidria and Zejula during the third quarter of 2022. In accordance with the terms of the royalty agreements, the first cash royalty receipts for these assets are expected in the fourth quarter of 2022 |
4Cash royalty receipts from Eylea I and Eylea II of US$4,718 were received subsequent to September 30, 2021 |
5Cash royalties from Zytiga are received on a semi-annual basis during the second and fourth quarters of each year. |
6The Autoimmune Portfolio consists of an agreement to receive royalties on sales of Stelara, Simponi and Ilaris. The royalty assets include two royalty streams on each product, for a total of six royalty streams. |
7The Rilpivirine Portfolio consists of an agreement to receive royalties on sales of Complera, Edurant, Odefsey and Juluca. The Trust's entitlement to royalties ended during the second quarter of 2021 in accordance with the terms of the royalty agreement. |
8Other Products includes royalty income from certain other royalty assets as well as royalty assets which are fully amortized and, where applicable, the entitlements to which have generally expired. |
9For the three and nine months ended September 30, 2022, the Trust received US$750 related to the settlement of litigation on a royalty asset held by the one of Trust's current subsidiaries, which predated the Trust's acquisition of the subsidiary. |
Liquidity and Capital
On September 30, 2022, the Trust had cash and cash equivalents of US$20.5 million and an outstanding principal balance on its credit facility of US$216.9 million.
The Trust had 38,665,770 units issued and outstanding on September 30, 2022.
Distributions
On August 3, 2022, the board of trustees approved a quarterly cash distribution of US$0.075 per unit, which was paid to unitholders on October 20, 2022. The Trust also announced today that its board of trustees has declared a quarterly cash distribution in the amount of US$0.075 per unit for the fourth quarter of 2022, payable on January 20, 2023, to unitholders of record on December 31, 2022.
Recent Transactions
On July 21, 2022, the Trust completed a transaction for a royalty interest in Empaveli (pegcetacoplan) for a purchase price of US$24.5 million. The transaction entitles the Trust to a less than one percent royalty on the worldwide net sales of Empaveli, subject to a cap at net sales of US$500 million in each calendar year, above which the Trust will not be entitled to any royalty. As part of the transaction, the Trust has an option to increase the annual sales cap to US$1.1 billion in return for a one-time payment by the Trust of US$21 million.
On September 12, 2022, the Trust completed a transaction for a royalty interest in Zejula for a purchase price of US$35 million. An additional milestone payment of US$10 million will be paid by the Trust should Zejula be approved by the FDA for the treatment of endometrial cancer on or before December 31, 2025. The transaction entitles the Trust to a net 0.5% royalty on worldwide net sales of Zejula by GSK plc.
On September 30, 2022, the Trust completed a transaction for a royalty interest in Omidria for a purchase price of US$125 million. In accordance with the terms of the royalty agreement, the Trust will be entitled to receive royalties until December 2030 subject to annual caps (US$1.67 million in aggregate for the four months from September 1, 2022 through December 31, 2022; US$13, million for 2023; US$20 million for 2024; US$25 million for each of 2025 to 2028 inclusive; US$26.3 million for 2029; and US$27.5 million for 2030).
Normal Course Issuer Bid
The Trust also announced today the acceptance by the TSX of the Trust's Notice of Intention to make a normal course issuer bid (the "NCIB"). Pursuant to the NCIB, the Trust proposes to purchase, from time to time, if considered advisable, up to an aggregate of 2,493,280 of its trust units (the "Units"), being 10% of its 24,932,808 public float of Units as of November 7, 2022, through the facilities of the TSX and/or through various eligible alternative Canadian trading systems at the market price at the time of purchase.
Purchases may commence on November 14, 2022 and will conclude on the earlier of the date on which the Trust has purchased the maximum number of trust units permitted under the NCIB and November 13, 2023. The average daily trading volume of the Units over the most recently completed six calendar months was 33,117 Units. Accordingly, for purposes of the TSX rules, the Trust is entitled to purchase, on any trading day, up to 8,279 Units and to make block purchases of its Units which exceed such daily limit no more frequently than once per calendar week. Under the Trust's prior normal course issuer bid that commenced on October 5, 2021 and concluded on October 4, 2022 (the "Prior NCIB"), the Trust obtained approval from the TSX to purchase 2,500,000 Units. The Trust purchased 1,521,050 Units under the Prior NCIB through the facilities of the TSX and alternative Canadian trading systems at a weighted average price of C$6.60 per Unit (US$5.25).
The Trust remains focused on its primary strategy of acquiring new pharmaceutical royalty streams and using its capital for that purpose. The Trust's manager believes that there is a robust and growing pipeline of royalty stream acquisitions opportunities and is active in reviewing a number of potential transactions. However, it is also the opinion of the Trust's manager that, from time to time, the market price of the Trust's Units may not adequately reflect the value of the underlying assets of the Trust, and the Trust wishes to take advantage of the market trading prices of its Units in those instances. The Board of Trustees of the Trust believes that at such times the proposed purchases would be in the best interests of the Trust and would constitute an appropriate use of available funds. All Units purchased by the Trust pursuant to the NCIB will be cancelled.
In connection with the NCIB, the Trust has established an automatic purchase plan with its designated broker (the "AUPP") to allow for purchases of Units during self-imposed blackout periods, subject to certain parameters as to price and number of Units. Outside of these pre-determined black-out periods, Units will be repurchased in accordance with management's discretion, subject to applicable law. The AUPP constitutes an automatic plan for purposes of applicable Canadian securities legislation and has been pre-cleared by the TSX.
Third Quarter 2022 Conference Call & Webcast
Management will hold a conference call on Tuesday, November 8, 2022, at 8:00 a.m. (ET) to review the Trust's 2022 third quarter results. You can join the call by dialing 1-888-664-6392 or 416-764-8659 approximately 15 minutes prior to the call to secure a line.
A live webcast of the conference call, including a slide presentation, will be available at https://app.webinar.net/LdAO6J9DvJ4. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be archived on the Trust's website following the call date.
Non-GAAP Financial Measures
The reconciliations of our non-GAAP financial measures and non-GAAP ratios for three and nine months ended September 30, 2022 and 2021 to the most directly comparable measures calculated in accordance with IFRS are presented below.
Total Cash Royalty Receipts and Total Cash Receipts
Total Cash Royalty Receipts refers to all cash royalty receipts from the Trust's entire portfolio of royalty assets and Total Cash Receipts refers to Total Cash Royalty Receipts plus cash receipts for interest and principal payments collected from its loan receivable. Because of the lag between when we record royalty income and receive the corresponding cash payments on our royalties, we believe Total Cash Receipts and Total Cash Royalty Receipts are useful measures when evaluating our operations, as they represent actual cash generated in respect of all royalty assets held during a period.
Three months ended | Nine months ended | |||
(thousands of US dollars, except per unit amounts) | September 30, | Pro Forma September 30, | September 30, | Pro Forma September 30, |
Total income | 26,471 | 23,409 | 70,392 | 59,551 |
[-] Other interest income | (28) | (4) | (33) | (7) |
[+] Royalties receivable, beginning of period | 27,498 | 29,679 | 30,148 | — |
[-] Royalties receivable, end of period | (36,386) | (43,965) | (36,386) | (43,965) |
[+] Acquired royalties receivable2 | 1,366 | 2,930 | 1,366 | 58,120 |
[+] Acquired cash royalties received2 | — | 4,136 | — | 6,405 |
[-] Non-cash royalty income3 | (11) | (194) | (190) | (194) |
[+] Interest receivable, beginning of period | — | — | — | — |
[-] Interest receivable, end of period | — | (514) | — | (514) |
[-] Non-cash interest income on loan receivable4 | (66) | (30) | (215) | (30) |
Total Cash Receipts | 18,844 | 15,447 | 65,082 | 79,366 |
[-] Interest income on loan receivable | (1,406) | (544) | (4,069) | (544) |
[-] Interest receivable, beginning of period | — | — | — | — |
[+] Interest receivable, end of period | — | 514 | — | 514 |