Medical Developments International Limited

Company Overview: Medical Developments International Limited (ASX: MVP) is an Australian company, which is engaged in offering emergency medical solutions devoted to enhancing patient outcomes. The company is engaged in identifying new markets and applications for the flagship brand Penthrox®. Penthrox® is used for Emergency relief of moderate to severe pain in conscious adult patients with trauma and associated pain. The company remains on track to focus more on the Australian Ambulance services, thereby maintaining its strong foothold in the market with its Penthrox® brand.

MVP Details

Strengthening International Foothold & Higher Adoption of Penthrox® Brand Aids MVP: Medical Developments International Limited (ASX: MVP) is in the business of pharmaceutical drug, medical and veterinary equipment. The company remains on track to negotiate with interested parties across the globe in terms of registering and selling Penthrox®. Concurrently, the company also follows other important international regulatory proposals and arrangements in countries including the USA, Iraq, Thailand, China, Russia, Iran, and South Korea.

During FY20, the company reported an increase of 10.6% in gross revenues. Respiratory sales were an all-time high in FY20 growing by 61% year over year. This was partly attributed to COVID-19 related purchasing but predominately related to new product launches and new pharmacy channel success in multiple markets. Respiratory sales in Australia grew by 43%, and sales in North America increased by 88%. Recently, the company also stated that it is taking back ownership of the Penthrox® EU distribution rights and growing into this important market will be a primary focus in FY21 with plans already well advanced. Recently, the company also stated that it has received approval for the sales of Penthrox® in the Netherlands and Bosnia & Herzegovina. Previously, the company had received approval for Penthrox® in Thailand.  MVP continues to negotiate with interested parties in regard to selling Penthrox®, whilst concurrently pursuing other important international regulatory submissions and arrangements in countries including the USA, China, Russia and South Korea.

In the days ahead, the company expects to roll out Penthrox® in remaining European Union countries, Mexico, Iran, Jordan, and South Korea. Over the next few years, the company expects to offer robust growth for Penthrox®, owing to the global market approvals and “indication extensions”. The company also remains on track to commercialise products from its continuous flow of technology and expects to deliver decent growth, going forward.

The company witnessed a compound annual growth rate of 11.18% in revenue in the time span of FY16 – FY20. Growth strengthened as the company expanded its international revenue, on the heels of Penthrox® expansion and acquisitions synergies in international markets. It is worth noting that the company witnessed a 15% growth of Penthrox® sales (excluding UK/Ireland) in the European in-market, amid stringent regulatory delays. UK and European sales increased a whopping 128% in FY20. With initial orders placed for several countries, the company remains on track to launch Penthrox® in countries like Germany, Italy, and Spain. Currently, the company has ~1,238 customers buying Penthrox® in Europe and expects the number to increase as Penthrox® becomes a mainstream painkiller in every European market.

Customers in Europe (Source: Company Reports)

FY20 Key Financial Highlight: The company has recently released its full-year results for the period ended 30 June 2020, wherein it reported an increase of 10.6% in gross revenue to $10.8 million. Net revenue for the period came in at $22.5 million, up 7.9% year over year. Net profit after tax came in at $379k, down 63.5% year over year. This resulted in a decrease in EPS, which came in at 0.58 cents, as compared to $1.61 per share reported in FY19. EBITDA was down 22% to $2.69 million. During the period, the company witnessed higher sales growth in respiratory devices which went up 61% year over year driven by the performance of North America (up 88%), Australian business (up 43%) and USA (up 98%). Penthrox® revenue however declined by 8%, owing to decreased sporting and outdoor activity, as well as reduced population movements,

Operating expenses in FY20 went up 15%, owing to higher ‘pharmacovigilance’ cost as a result of expanding geographic sales for Penthrox® and Medical Devices. Further, higher marketing expenses as a result of growth in Penthrox® and Breath-A-Tech® sales in Australia also elevated total operating expenditure. The company also increased investment in R&D, to achieve its growth plan.

FY20 Key Highlights (Source: Company Reports)

Key Developments of Penthrox® Brand: Penthrox® is a market leader for trauma pain, demonstrating safety and efficacy profile for more than 30 years. In the USA market, Penthrox® is progressing USA IND submission aimed for 2021. In China, the company concluded a significant transaction with Daiichi Sankyo for the Chinese, Thai, and Vietnamese markets in 2018. Further, it received an upfront payment of circa $21 million for the commercialisation rights. The China IND was approved in November 2019. Further, the company expects NDA approval by 2022 in China. In Australia, Penthrox® sales grew 3% year over year, with further growth into the GP & Hospital market. In-market sales increased 23% in UK, with around 145 hospitals using Penthrox® brand in the country. In-market European sales increased by approximately 15%. The number of customers in France, the rest of Europe, and the UK and Ireland, using the brand were ~386, 182, and 670 customers, respectively.

Australian Penthrox Highlight (Source: Company Reports)

Improving Liquidity Position: The company reported $25.9 million of total current assets, including cash amounting to $15.5 million and trade and other receivables at $4.1 million. Goodwill and intangibles were valued at ~$54 million while total equity stood at $43.3 million as on 30 June 2020. Total debt stood at $3.36 million, at the end of the period. Net cash inflow from operating activities came in at $173K while net cash outflow from investing activities was at $8.5 million.

Other Key Aspects: In October 2019, the company entered into a new 5 year ‘global exclusive’ agreement with the CSIRO to further expand its continuous flow of manufacturing technologies, which is currently being utilised in the company’s Scoresby production site in Victoria. This initiative marked the potential to provide large commercial benefits over traditional ‘batch’ API manufacturing methods, thereby reducing the overall cost of manufacturing APIs and delivering significant improvements in process and quality.

Key Update: The company recently announced that it has appointed Mr Stefaan Schatteman as Head of its European business, effective immediately. Stefaan will lead MVP’s direct push into the 27 member states in the EU and Switzerland.

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 35.98% of the total shareholding. Williams (David John) is the entity holding maximum shares in the company at 14.71%. M & G Investment Management Ltd. is the second-largest shareholder, with a holding of 5.02%.

Top Ten Shareholders (Source: Refinitiv, Thomson Reuters)

Key Metrics: In FY20, the company had a current ratio of 3.16x, higher than the industry median of 1.84x, representing a decent liquidity position. Debt to Equity ratio for the same time span stood at 0.08x, in line with the industry median. The company is optimistic about business growth, looking at the potential contribution from its flagship brand and lower debt levels.

Key Metrics (Source: Refinitiv, Thomson Reuters)

Risk Analysis: The company’s financial instruments comprise mainly of receivables, payables, bank loans and overdrafts, finance leases, loans from related parties, cash, and short-term deposits. The main risks MVP is exposed to through its financial instruments are foreign currency risk, interest rate risk, liquidity risk and credit risk. Also, stiff competition from peers remains a potential concern. Also, COVID-19 related uncertainties and higher operating expenditure may weigh on financial performance, doing forward.

What to Expect: The company aims to globalise Penthrox® and make it the mainstream analgesic of choice all over the world. Going forward, the company aims to launch Penthrox® into the remaining European Union countries, Mexico, Iran, Jordan, and South Korea and Thailand. The company also expects to consolidate and expand Respiratory Device sales in the USA, and Europe. It also aims to take back Europe Distribution, and grow into existing markets and roll out its key products into main markets Italy, Germany, Spain, and The Netherlands.

Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of MVP gave a positive return of 17.14% in the past one year but went down by 11.33% in the past one month. The stock of the company is currently trading below the average of its 52-week trading range of $3.76 - $11.78. At CMP of $5.340, the stock has an annual dividend yield of 0.74%. On the technical analysis front, the stock has a resistance level of ~$6.057 and a support level of ~$3.626. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). For that purpose, we have considered peers such as Starpharma Holdings Ltd (ASX: SPL), AFT Pharmaceuticals Ltd (ASX: AFP) and Suda Pharmaceuticals Ltd (ASX: SUD), to name few. Considering the current trading levels, decent liquidity position, robust adoption of its new products and technologies, and positive long-term outlook, we recommend a “Buy” rating on the stock at the current market price of $5.34, down by ~1.11% on 9 September 2020.

MVP Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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