Yes, the drum replacer will create MIDI for the tracks defined in the drum replacer when the audio clip is dragged to a MIDI or instrument track.
A similar process happens without the drum replacer with X3 and newer with the Melodyne VST3 installed. The difference being, the entire clip will be used to create the MIDI data. The drum replacer will only create MIDI data for the tracks and notes defined in the drum replacer.