DJ DRI Healthcare PLC: Proposed listing on the London Stock Exchange
DRI Healthcare PLC (DHP)
DRI Healthcare PLC: Proposed listing on the London Stock Exchange
12-Feb-2020 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
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DRI Healthcare Plc
Proposed listing on the London Stock Exchange
Publication of prospectus in relation to the Initial Placing, Offer for
Subscription and Intermediaries Offer targeting the issue of 350 million
ordinary shares at US$1.00 per Ordinary Share
12 February 2020
DRI Healthcare plc (the "Company"), a closed-ended investment company
focused on investments in healthcare Royalty Assets, today announces the
publication of a prospectus in relation to an initial public offering
("IPO") of shares on the premium segment of the main market of the London
Stock Exchange.
The Company is seeking to raise US$350 million by way of an Initial Placing,
Offer for Subscription, Intermediaries Offer and certain direct placings by
the Company as principal of Ordinary Shares, forming part of a Share
Issuance Programme of up to 1,000 million Ordinary and/or C Shares
(including any Ordinary Shares issued pursuant to the Initial Issue) (see
note 1). The Company will seek to generate attractive, risk-adjusted total
returns by predominantly investing in a diversified portfolio of healthcare
Royalty Assets, concentrating on investments in best-in-class pharmaceutical
Products indicated for treatment of serious and chronic conditions and
marketed by high quality Marketers.
The Company is targeting in respect of its first financial year after
Initial Admission, an initial annual dividend on the Ordinary Shares of 5.5
cents and, thereafter, a Target Dividend on the Ordinary Shares of 7.0 cents
for each financial year with the intention to progressively grow the Target
Dividend over the medium term (the "Target Dividend"). Additionally, the
Company is targeting the potential for Ordinary Shareholders to receive 8 to
10 per cent. base case net total NAV return on the Initial Issue Price
(inclusive of the Target Dividend), with upside potential, based on the
performance of the Assets over the long term (the "Target Return"). (See
note 2).
The Company will be managed by Toronto-based DRI Capital, Inc. ("DRI" or the
"Investment Manager") and intends to acquire a seed asset portfolio
consisting of twenty cash flow generating healthcare Royalty Assets with an
aggregated net asset value of US$290 million following the completion of the
Initial Issue. DRI intend to invest up to US$20 million in the Initial
Issue.
Numis Securities Limited ("Numis") is acting as Sponsor and Joint Bookrunner
and Jefferies International Limited ("Jefferies") is acting as Global
Coordinator and Joint Bookrunner in relation to the IPO.
The prospectus is available to download at https://www.drihealthcare.com/
and from the National Storage Mechanism (www.morningstar.co.uk/uk/NSM).
Paul Mussenden, chair of DRI Healthcare Plc, commented:
"Today represents a landmark for DRI Healthcare, providing investors with
the opportunity to gain global exposure to our portfolio of leading
pharmaceutical royalties. With diversified, tier-one assets, the Company
provides the potential for significant returns, including a sustainable
income target with limited downside risk. Investors will benefit from DRI
Capital's 17 years of market-leading experience, led by its dedicated team
who will target further investment opportunities, underpinned by a
differentiated sourcing model, rigorous due diligence and disciplined
investment strategy. Listing on the London Stock Exchange provides the ideal
platform for DRI Healthcare to continue to grow its long-dated assets and
deliver on its strategic objectives".
Behzad Khosrowshahi, CEO of DRI Capital, Inc., added:
"DRI Healthcare's intention to float will enable us to bring our deep
expertise and significant experience in pharmaceutical royalty investment to
global investors. By using its established and disciplined investment
strategy, DRI Capital focuses on sustainable royalties on proven and
speciality medicines that benefit from strong intellectual property and
regulatory protection. With global healthcare spending expected to reach
US$1.5 trillion by 2023, we continue to see compelling growth opportunities
in the pharmaceuticals sector and associated increases in sales, development
and the approval of new drugs. This has driven a corresponding rise in life
sciences royalties, and DRI Capital remains uniquely positioned to leverage
these trends, with its unparalleled track record and a compelling investment
proposition. Our activities and investments in the sector also continue to
support wider R&D activities and the further development of pioneering new
drugs."
Investment Highlights
Attractive Industry Fundamentals
· The pharmaceutical market has grown steadily, even in the face of
recessions and other market downturns. This is demonstrated in the US by
the growth in prescription drug sales that is largely uncorrelated to the
stock market performance.
· The worldwide pharmaceutical market is expected to experience steady
growth over the next five years, propelled in part by penetration of
existing pharmaceutical products in developed markets and the introduction
of additional products.
· DRI believes that there will continue to be a stable, inelastic demand
for the products in which it invests, namely drugs with a meaningful value
proposition for patients, payers, and physicians.
Predictable and Uncorrelated Cash Flow Generating Investment Strategy
· Cash flows that are derived from sales of underlying pharmaceutical
products without exposure to the risks of clinical development and the
costs of marketing or manufacturing the product.
· Returns from royalty investments are uncorrelated to other asset classes
or macroeconomic trends.
· Pharmaceutical products generate predictable cash flows due to the
highly regulated nature of the pharmaceutical industry.
· Approved drug products benefit from regulatory and patent protection
that prevents direct competition from generic or biosimilar products.
· Due to the lengthy and transparent clinical trial process required to
develop a drug, there is visibility into the potential future competitors
that may take market share.
· Debt assets will allow the Company to pursue investment opportunities in
products with compelling value propositions where there may not be a
royalty entitlement to purchase.
Differentiated Sourcing Model
· DRI has developed a systematic and repeatable approach to sourcing
transactions from inventors, academic institutions, small biotechnology
companies and large PharmaCos.
· The Company will benefit from DRI's unparalleled ability to identify and
execute royalty transactions as a result of (i) the relationships with key
decision makers that DRI has built and maintained at academic and
corporate institutions over the last two decades and (ii) DRI's
proprietary database that tracks over 6,500 known or potential royalty
entitlements on approximately 2,000 drugs.
· Furthermore, through asset diligence and continual review of the
pharmaceutical market, the Investment Manager is actively identifying
pharmaceutical products that it believes to have compelling value
propositions for patients, payers, and physicians.
· The Investment Manager intends to leverage these product insights and
its relationships to source debt transactions from companies that may have
a need for capital but do not have a royalty asset to divest.
Rigorous Due Diligence Process
· DRI's comprehensive due diligence process has been developed over 17
years of evaluating and forecasting sales of life sciences products.
· DRI's team operates in a highly integrated manner to conduct due
diligence that incorporates a detailed scientific, financial, intellectual
property, regulatory, and legal review.
· The diligence process that the Investment Manager undertakes for each
transaction is performed internally and complemented by external expert
advice.
· The Investment Manager leverages insights from its extensive experience,
proprietary data sources, and historical analyses to perform a rigorous
and disciplined due diligence on potential transactions.
Track Record
· DRI has raised US$2.6 billion across three funds and a co-investment
vehicle, generating a projected gross unlevered IRR of 20.2 per cent. and
gross multiple of 1.8x, and a projected net IRR of 21.9 per cent. and net
multiple of 1.8x, on an aggregate basis. (See note 3 below).
· DRI has acquired 62 royalty streams on 40 products that are estimated to
generate in excess of US$3.5 billion in revenue.
Investment Objective
The Company will seek to generate attractive, risk-adjusted total returns,
primarily through the distribution of income to Shareholders.
Investment Policy
The Company will seek to achieve its Investment Objective through investing
in a diversified portfolio of investments, predominantly through direct or
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indirect exposure to Royalty Assets and also through Debt Assets (each, as
defined below).
The Company may acquire Royalty Assets from an entity which directly or
indirectly holds a Royalty Asset (a "Royalty Owner"), which may be: (i) a
company, a charity or any other entity operating in the life sciences
industry (a "LifeSci Company"); (ii) an individual inventor; (iii) an
academic or research institution; (iv) an investment vehicle or special
purpose vehicle; or (v) an entity selling Royalty Assets in the secondary
market.
The Company may acquire Debt Assets from the entity issuing the Debt Asset
which is entitled to receive the Royalty Collateral (a "Borrower"), which
may be: (i) a LifeSci Company; (ii) a Royalty Owner or; (iii) an entity
selling Debt Assets in the secondary market.
The Company may also, in order to gain exposure to Royalty Assets and/or
Debt Assets, invest in equity securities issued by a LifeSci Company or a
company that directly or indirectly holds Royalty Assets and/or Debt Assets.
The Company may also invest in, or come to own, other assets, such as
intellectual property and other obligations, through the management of its
investments or in connection with the making of an investment in Royalty
Assets or Debt Assets.
"Royalty Assets" will typically comprise:
· "Royalties", meaning the right to receive, directly or indirectly,
royalties or other sales or revenue-based payments derived from the sale
of, or revenues generated by, life science products (including,
pharmaceuticals, medical devices, diagnostics, animal health products and
delivery technologies) (each, a "Product") pursuant to licence agreements,
collaboration agreements, joint venture agreements, academic and research
institution policies and other contractual arrangements; and
· "Other Performance-based Payments", meaning the right to receive,
directly or indirectly, milestones or other rights to payments that are
based on the achievement of financial or developmental targets for
Products pursuant to licence agreements, collaboration agreements, joint
venture agreements, academic and research institution policies and other
contractual arrangements.
"Debt Assets" will typically comprise:
· "Royalty Debt", meaning Debt issued by a Borrower where the Borrower's
obligations in relation to the Debt are secured as to repayment of
principal and/or payment of interest by, or otherwise linked to, Royalty
Collateral; and
· "Other Secured Debt", meaning Debt issued by a LifeSci Company, which is
secured as to repayment of principal and/or payment of interest by a lien
on some or all of such LifeSci Company's assets, which may include: (i)
Royalty Collateral; (ii) other intellectual property and marketing rights
to the Products of that LifeSci Company; or (iii) other assets of the
LifeSci Company.
"Royalty Collateral" means, with respect to a Debt Asset: (i) future
payments receivable by the Borrower in respect of one or more Products in
the form of Royalties or Other Performance-based Payments; or (ii) future
distributions receivable by the Borrower based on Royalties or Other
Performance-based Payments generated from one or more Products.
"Debt" means loans, notes, bonds, other debt instruments and securities,
including convertible debt and other payment obligations.
Borrowers will predominantly be domiciled in the US, Europe and Japan,
though the Company may also acquire Debt Assets issued by Borrowers in other
jurisdictions.
Investment Restrictions and Portfolio Diversification
The Company will seek to create a diversified portfolio of investments. The
Company intends to invest in Royalty Assets relating to a variety of
Products and therapeutic areas. The Company's investment in Debt Assets is
intended to be across a range of different forms of Debt Assets issued by a
variety of Borrowers and secured by Royalty Collateral relating to a variety
of Products and therapeutic areas.
In particular, the Company will observe the following restrictions when
making investments in accordance with its Investment Policy:
· no more than 25 per cent. of the Company's Gross Asset Value will be
invested in Royalty Assets that relate to any one Product (save for the
exception described below in relation to the Company's acquisition of the
Seed Assets on Initial Admission);
· no more than 25 per cent. of the Company's Gross Asset Value will be
exposed to any single Borrower; and
· no more than 15 per cent. of the Company's Gross Asset Value will be
invested in equity securities issued by LifeSci Companies.
The Drug Royalty III Seed Assets include a single large Royalty Asset
deriving from the sale of Spinraza which will be approximately 28.3 per
cent. of the Company's Gross Asset Value if only the Minimum Gross Initial
Proceeds are raised. The Company's gross asset exposure to this single
Royalty Asset is expected to decrease as its value diminishes over time and
the gross assets of the Company increase.
Each of these investment restrictions will be calculated as at the time of
investment and, solely in the case of Debt Assets, on a fully drawndown
basis. In the case of certain Royalty Assets, where the Company could be
obliged to make payments that are contingent on certain performance-based
milestones being met, the restrictions will be calculated at the time of
investment but gross of any such contingent payments to the extent and in
such amount that the Investment Manager reasonably believes are likely to be
paid. In the event that any of the above limits are breached at any point
after the relevant investment has been made (for instance, as a result of
any movements in the value of the Company's total gross assets), there will
be no requirement to sell any investment (in whole or in part).
Leverage and Borrowing Limits
The Company will target long term leverage of 25 per cent. of its Gross
Asset Value, and in all cases the combined short term and long term leverage
will not exceed 50 per cent. of the Company's Gross Asset Value, in each
case, calculated at the time of drawdown.
The Investment Manager's powers to incur indebtedness on behalf of the
Company within such limit shall be subject to any restrictions set out in
the Investment Management Agreement, as amended from time to time. Where the
Company invests in any Royalty Assets or Debt Assets through any wholly
owned subsidiary, leverage at the subsidiary level will apply towards the
restrictions on the Company's overall indebtedness set out above.
Where the Company invests in Royalty Assets or Debt Assets indirectly
through any collective investment undertakings alongside other co-investors
or investment partners, notwithstanding the previous sentence, indebtedness
in such collective investment undertakings will not count towards the
indebtedness of the Company, provided that the Investment Manager ensures
that there will be no recourse to the Company in respect of leverage at the
level of such underlying collective investment undertakings.
Use of Derivatives
The Company may, from time to time, enter into such hedging or other
derivative arrangements as may be considered appropriate for the purposes of
efficient portfolio management and managing any exposure through its
investments or leverage to currencies other than US Dollar and/or interest
rates.
Cash Management
The Company's assets that have not been invested in Royalty Assets and/or
Debt Assets may be invested in cash equivalent instruments or bank deposits
for cash management purposes.
Seed Asset Portfolio
The Company intends that its Portfolio will initially consist of twenty cash
flow generating healthcare Royalty Assets (the "Seed Assets") immediately
following the completion of the Initial Admission. The acquisition of the
Seed Assets is conditional on the Initial Admission, the Gross Initial Issue
Proceeds being US$325 million and the Company being in receipt of all
necessary approvals and authorisations ("Initial Acquisition Conditions").
It is intended that the Portfolio will consist of thirteen Seed Assets from
Drug Royalty III (the "Drug Royalty III Seed Assets") four Seed Assets from
Drug Royalty I (the "Drug Royalty I Seed Assets"), and three Seed Assets
from Drug Royalty II CIF ("CIF Seed Assets") all of which will be acquired
upon the completion of the Initial Acquisition Conditions by US HoldCo 1, a
wholly owned subsidiary of US HoldCo 2, whose sole shareholder is the
Company. The Company is the ultimate beneficial owner of the US
Subsidiaries.
Subject to the Initial Acquisition Conditions and the terms of the relevant
sale and purchase agreement, the Company will use the Net Initial Issue
Proceeds to acquire all: (i) the Drug Royalty I Seed Assets for US$90.1
million; (ii) the Drug Royalty III Seed Assets for US$357.3; and (iii) the
CIF Seed Assets for US$11.4 million, for an aggregate purchase price of
US$458.8 million.
If the Company satisfies the Initial Acquisition Conditions on the
assumption that the Company only raises US$325 million, the Drug Royalty I
Seed Assets, the Drug Royalty III Seed Assets and the CIF Seed Assets in
aggregate will be approximately 94.1 per cent. of the Gross Asset Value of
the Company.
An independent valuation opinion on the purchase price of the Seed Assets
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