Medical Developments International Limited

Company Overview: Medical Developments International Limited (ASX: MVP) is engaged in the manufacturing and distribution of pharmaceutical drugs, as well as medical and veterinary equipment. MPV identifies new markets and applications for the flagship brand Penthrox®, which is used for Emergency relief of mild to severe pain in adult patients with trauma and related pain.

MVP Details

MVP Rides on Geographical Expansion & Robust Product Adoption: The company remains on track to build its preliminary sales and distribution network for its key product, Penthrox®. In turn, this is expected to aid MVP in safeguarding a smooth transition of sales activities in the European markets. MVP’s business has experienced success in the domestic market and the international markets. Notably, the company has unveiled its hybrid plan in Europe, France, Germany, Italy, and Spain, focusing on developing 9 Key Account Managers in France and Belgium.

Digging Into FY21 Key Highlights:

• Achieving Notable Growth in Top-Line: In FY21, the company recorded gross revenues of ~$25.7 million, which comprised $10 million of contract income related to its separation from Mundipharma. Notably, MVP reclaimed the distribution rights for Penthrox® from Mundipharma for marketing in Europe. Top-line was up 9% year over year.
• Bottom-Line Details: Net loss after tax for FY21 stood at $12.6 million, compared to a profit of $0.4 million recorded in the year-ago period. The FY21 results contained the non-cash impairments relating to the CSIRO Technology Project & Medical Devices business.
• Higher Investments to Support Future Growth: In FY21, MVP increased its investments in Penthrox® European sales and distribution infrastructure. Notably, investment in the European business totalled $9.5 million in FY21, which consisted of $4.8 million paid to Mundipharma for services related to the transition activities. Notably, in FY21, the company witnessed a rise of 41% in its in-market sales, with the UK being the key growth driver.
• High Gross Profit: The company’s total gross profit came in at $19.1 million, up from $14.99 million reported in FY20, mainly due to robust gross margins on product sales.
• Distribution Deals: It is worth mentioning that ~14,000 units of Penthrox® had been sold in July 2021. The company has also entered into a distribution deal with Medis in five Central European markets (i.e., Czech Republic, Slovakia, Slovenia, Hungary, and Croatia). Further, the company’s partner, Galen, continues to make good progress in the UK and the Republic of Ireland.
• Decent Liquidity Position: At 30 June 2021, the company’s cash reserve stood at $36.3 million, up from $15.54 million at the end of FY20. It completed a capital raise during the year and raised $36.7 million. The company plans to use the raised funds to accelerate commercialisation of Penthrox® in the EU.  Notably, the capital raising program will improve MVP’s balance sheet.

Key Strategies; Analysis by Kalkine Group

Key Metrics: In FY21, gross margin of the company stood at 75.6%, higher than the year-ago figure of 67%.  EBITDA margins for FY21 stood at 29%, compared to 13.3% reported in FY20. Debt-to-equity ratio in FY21 came in at 0.04x, lower than the industry median of 0.05x.

Profitability & Liquidity Profile; Analysis by Kalkine Group 

Top 10 Shareholders: The top 10 shareholders together form around 33.87% of the total shareholdings, while the top 4 constitutes the maximum holding. Williams (David John) is the entity holding maximum shares in the company at 13.35%. M & G Investment Management Ltd. is the second-largest shareholder, with a holding of 4.98%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis:

• Losses: MVP’s losses in FY21 may throw tough challenges at the company’s overall functioning and may dampen margins in the future.
• Forex Headwinds:Any adverse movement in foreign exchange price may impact the company's financial performance.
• Lower demand for Respiratory Products: Sales from respiratory products dipped slightly in FY21, owing to milder cold and flu season, decreased community movement, and continued hygiene practices by the community.
• The company is also exposed to a complex regulatory landscape in the healthcare space.

Outlook: The company expects to grow its revenue in FY22. In addition, it remains on track to launch its pharmaco-kinetic study in China, followed by the first patient recruitment of the trauma and bone marrow biopsy studies. The company is confident of establishing a new partner in the Canadian market. For the US market, it plans to submit clinical trials based on protocol set by FDA in the 1HFY22. Growth is expected to augment considering the expanding international revenue, on the heels of Penthrox® development and acquisitions synergies in international markets. In addition, a healthy balance sheet and capital raising program will help the company to attain its long-term objectives of expanding the business via delivering continued growth in shareholders’ returns.

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

 Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of the company has been corrected by ~26.42% in the past year. Currently, the stock is trading below the average of its 52-weeks’ high and low levels of $7.24 and $3.21, respectively. The stock of the company has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount compared to its peers, considering risks related to COVID-19, foreign currency risk, lower sales from respiratory products, etc. For the purpose of valuation, peers such as Clinuvel Pharmaceuticals Ltd (ASX: CUV), Mesoblast Ltd (ASX: MSB), Neuren Pharmaceuticals Ltd (ASX: NEU) and others have been considered. Taking into account of aforesaid fact, diversified portfolio, geographical expansion, capital raising program, a rising top-line, robust adoption of Penthrox® in the EU, partnership synergies, decent long-term outlook, current trading levels, indicative upside in valuation, and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of $4.74 as on 12 January 2022, 12:30 PM (GMT+10), Sydney, Eastern Australia.

MVP Daily Technical Chart, Data Source: REFINITIV 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Disclaimer

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