A Canadian pharmaceutical firm controlled by one of the country’s wealthiest families is looking to raise US$400-million in an initial public offering amid a recent craze for biotech and health care-related businesses.
Toronto’s DRI Capital, formerly known as Drug Royalty Company, has hired investment bankers to launch an IPO on the Toronto Stock Exchange for a spinoff fund known as DRI Healthcare Trust. The new trust will purchase 18 assets from its parent company, with plans to purchase more in the near future.
Parent company DRI operates as a royalty company, which means it does not engage in research and development to produce its own drugs. Instead, it acquires royalty interests in other inventors’ products, often in exchange for upfront payments. The cash is then used by pharmaceutical companies and research institutions to fund their own R&D.
Royalty streams are common in the pharmaceutical business, as well as in entertainment and natural resources, but they are assets that must be constantly replenished because the contracts have fixed timelines.
The IPO would be launching into a frothy market for tech, biotech and health care companies, with recent Canadian deals from these sectors earning intense investor interest – sometimes as much as 20 times the original deal size.
The craze has also put a rare spotlight on Canada’s biotech and pharmaceutical sectors, which rarely get attention from public investors. In December, Vancouver’s AbCellera Biologics Ltd. went public on the NASDAQ and raised US$555-million in the process. The share price has more than doubled in less than two months – at one point almost tripling after the stock first started trading.
If DRI’s public offering is successful, it will mark a return to public markets. The company, founded in 1989, was once publicly traded on the Toronto Stock Exchange but was taken private by Vancouver’s Khosrowshahi family for $133-million in 2002. The purchase was the result of a takeover battle that saw the Canadians outbid British drug developer Cambridge Antibody Technology Group PLC.
It was renamed DRI once it was privatized and is now controlled by Persis Holdings Ltd., the Khosrowshahi family’s conglomerate. Since the purchase, DRI has transitioned to a private-equity model and raised US$2.6-billion across three funds, each with its own portfolio of royalties. In total, it has acquired 62 royalty streams on 40 products.
It originally disclosed its intention to go public in February, 2020, with plans to list on the London Stock Exchange. At the time, it hoped to raise US$350-million and then use the proceeds to buy 20 assets from three of its existing funds.
A significant portion of the public company’s asset value was set to come from royalties tied to Spinraza, a spinal muscular-atrophy injection sold by Biogen and one of the priciest drugs in the world. Yet by late February, market conditions were quickly changing because of the pandemic, prompting the company to extend its IPO timeline.
“The IPO has been very well received by a large number of institutional investors and discretionary wealth managers. However, in light of current volatile market conditions, the board believes it is investors’ interests to extend the timetable,” the company said in a regulatory filing with the London Stock Exchange.
DRI is now looking to raise even more money on a different market. Its lead bankers have also changed, with Scotia Capital, UBS Securities and RBC Dominion Securities now serving as lead underwriters. The company declined to comment for this story.
In Canada, the Khosrowshahis are perhaps best known for running former Vancouver-based retailer Future Shop, which was sold to Best Buy Co. Inc. in 2001 in a deal that gave the family about $400-million. They now have investments in retail, real estate and pharmaceuticals, with DRI currently run by Behzad Khosrowshahi.
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Tim Kiladze
Sean Silcoff