Release Date: May 13, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- DRI Healthcare Trust (DHTRF, Financial) reported strong portfolio performance in the first quarter, with the second highest quarterly cash receipts and adjusted EBITDA since becoming a public company.
- The internalization of the management function is expected to result in cumulative savings of over $200 million over the next 10 years, enhancing value for unit holders.
- The internalization will lead to better strategic alignment, stronger governance, and a more investor-friendly structure, potentially attracting a broader unit holder base and enhancing trading liquidity.
- The Trust has a strong cash position and flexible capital, allowing for continued acquisitions and the reactivation of the normal course issuer bid to purchase approximately 3.15 million units.
- The Trust's pipeline remains robust, with over $3 billion in potential opportunities under active evaluation, indicating strong future growth potential.
Negative Points
- Total cash receipts decreased by 2% from the first quarter of 2024, partly due to weaker than expected receipts from certain assets like Omidria.
- The macroeconomic environment, including inflation, high interest rates, and potential pricing reforms, presents challenges and uncertainties for the biopharma sector.
- The internalization process incurs additional costs, with $3.9 million in non-recurring professional fees this quarter, impacting adjusted EBITDA.
- Certain assets, such as VONJO, experienced sales declines due to factors like destocking and gross net adjustments, affecting overall portfolio performance.
- The Trust faces potential legal claims related to events from the previous year, although indemnification from the old manager mitigates direct financial impact on unit holders.
Q & A Highlights
Q: Can you clarify if the $200 million savings from internalization is gross or net, and explain the impact on ongoing expenses?
A: The $200 million is the savings from eliminating management and performance fees versus the costs of bringing employees and manager-related expenses in-house. The $49 million payment to sever the management agreement is not included in this figure. The management fee will be charged back on a cost-plus basis, with any P&L retained by unit holders. (Ali Hedayat, Acting CEO)
Q: How will your role change as you become CEO, and what is the impact of internalization on deal timing and synthetic opportunities?
A: My role will remain largely the same, focusing on investment processes. Internalization hasn't significantly impacted deal timing. We are cautious due to regulatory uncertainties but expect to see more innovative transactions like the KalVista deal. (Ali Hedayat, Acting CEO)
Q: How does the internalization compare to Royalty Pharma's recent internalization deal?
A: Our transaction is simpler, with no performance fees and all cash consideration, unlike Royalty Pharma's mix of stock and cash. Our structure is more favorable to unit holders, with no major shareholders influencing governance. (Ali Hedayat, Acting CEO)
Q: What is the impact of macroeconomic factors on your deal activity, and how are competitors responding?
A: The macroeconomic environment has slowed deal activity, but we remain focused on evidence-based investments. We expect the biotech funding landscape to shift towards more royalty-based funding, benefiting our long-term strategy. (Navin Jacob, CIO)
Q: Can you provide an update on the PDUFA date for Sebetralstat and its potential impact?
A: We anticipate Sebetralstat's approval on June 17, despite FDA changes. The review process appears clean, and we expect no significant delays. We remain long-term investors in KalVista, seeing material upside in its equity value. (Navin Jacob, CIO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
