Release Date: March 04, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- DRI Healthcare Trust (DHTRF, Financial) achieved a 45% increase in normalized total cash receipts, reaching $190 million, and a 37% increase in adjusted EBITDA, totaling $156.6 million.
- The Trust completed four significant transactions in 2024, deploying $457 million in committed capital, showcasing the evolution of its investment strategy.
- DRI Healthcare Trust improved its cost of capital by refinancing preferred securities and expanding credit facilities to $632 million, securing more favorable pricing terms.
- The Trust returned $24.4 million to unit holders through unit purchases and increased quarterly distributions, demonstrating a commitment to shareholder value.
- The portfolio saw a 49% increase in total royalty receipts for the year, driven by strong performance from assets like Omidria, Xenpozyme, and Vonjo.
Negative Points
- Material weaknesses noted in the second quarterly filing required remediation, indicating previous governance and control issues.
- Eylea royalties decreased by 10% due to ongoing patent litigation, and the asset is expected to continue declining until its expiry in 2027.
- Oracea royalties decreased by 11% due to litigation outcomes favoring generic market entry, resulting in a $9.7 million impairment charge.
- Spinraza receipts declined by 12% year-over-year, aligning with expectations but indicating challenges in maintaining growth.
- The Trust experienced elevated costs in Q3 and Q4 related to legal and investigation expenses, impacting the adjusted EBITDA margin.
Q & A Highlights
Q: How is DRI Healthcare Trust responding to the internalization of a competitor's external manager, and what impact does this have on your business?
A: Gary Collins, CEO, mentioned that DRI Healthcare Trust has been evaluating the internalization process and has made significant progress. It's a complex process, but they are working towards an agreement with the manager and will update stakeholders once they reach a conclusion.
Q: Will the adjusted EBITDA margin return to historical levels in 2025 after the extra costs observed in 2024?
A: Amit Kapur, CFO, expects the elevated costs related to investigation expenses to decrease as they move into Q2 2025, which should help the margin return to more historical levels.
Q: What are your thoughts on the latest Sebetralstat data update and its impact on your internal outlook?
A: Navin Jacob, CIO, stated that the data bolsters their thesis on Sebetralstat, and the competition from Pharvaris is within their assumptions. The asset is developed for the acute setting, and they remain confident in their investment.
Q: Can you provide updates on the internal hires and the appetite for additional deals?
A: Navin Jacob, CIO, confirmed that the team is actively pursuing deals and has recently added a new member with a PhD background to the investment team. They remain aggressive in sourcing high-quality assets.
Q: What are the implications of the Orserdu II transaction and the exemption from gross to net deductions?
A: Ali Hedayat, Acting CEO, explained that the milestone payment led to a net receipt of funds and the removal of deductions, resulting in a higher effective royalty rate for Orserdu II, which will apply to future royalties and milestones.
Q: How does the internalization of the manager affect the management fees and deal investigation expenses?
A: Ali Hedayat, Acting CEO, noted that there are overlapping costs between the Trust and the Manager, which will be streamlined post-internalization. This will have a neutral to slightly positive impact on margins.
Q: What is the conversion rate from initial deal screening to completed deals, and how selective is DRI Healthcare Trust?
A: Navin Jacob, CIO, stated that the conversion rate from early-stage analysis to completed deals is approximately 7-10%, reflecting their selectivity and focus on high-quality opportunities.
Q: Are there any remaining potential milestone payments that are paired with offsetting inflows?
A: Ali Hedayat, Acting CEO, indicated that milestone payments are generally IRR accretive, meaning they are matched with returns that are the same or better, ensuring they do not detract from overall returns.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
