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

MVP Rides on Higher Adoption of Penthrox® Brand & International Expansion: 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.

Talking about 2019, the company reported an increase of 327% in Net Profit after Tax on a year over year basis. Revenue increased by 19% and came in at $21.4 million and EBITDA was up by 55% to $3.441 million in FY19. The robust results can primarily be attributed to the company’s continuous efforts to develop additional formulations of Penthrox® in order to provide improved convenience, utility and value for its customers. Sales of Penthrox® during FY19 soared 47% overall and sales to Australian Ambulance grew 38%. The product’s sale in Europe increased a whopping 401%. Sales of Penthrox® into the UK and Canada grew by 68% and 294%, respectively.

Moving forward, the strategy of the company is to widen the range of customers (hospitals, general practice, dental and cosmetic) domestically through its strategic alliance with Mundipharma Australia. 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 will advance its manufacturing processes and is expected to deliver decent growth.

The company witnessed a compound annual growth rate of 11.39% in revenue in the time span of FY16 – FY19. 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 401% growth of Penthrox® sales (excluding UK/Ireland) in the European market, amid stringent regulatory delays. With initial orders placed for several countries, the company remains on track to launch Penthrox® in countries like Germany, Italy, and Spain. Recently, the company announced that it has received approval for the sale of Penthrox in The Netherlands and Bosnia & Herzegovina. Previously, the company has received approval for Penthrox® in Thailand. Currently, the company has ~1,058 customers buying Penthrox® in Europe and expects the number to increase between 5,000 and 10,000 as Penthrox® becomes a mainstream painkiller in every European market.

Customers in Europe (Source: Company Reports)

Significant Growth in Revenue and Profit: The company has recently released its half-year results for the period ended 31 December 2019, wherein it reported an increase of 14.4% in revenue to $10.8 million and a growth of 81.8% in net profit after tax of $240k. Gross Revenue for the period came in at $11.2 million, up 15% year over year. This resulted in an increase in EPS by 76.2% to 0.37 cents. EBITDA was up 21% to $1.5 million. The results benefitted with continuous revenue growth from Penthrox® brand in various international markets. To date, Penthrox® has launched in-market in the UK, Ireland, France, Belgium, Slovakia, Sweden, Denmark, Norway, Finland, Poland, Switzerland, Portugal, Slovenia, Croatia, Austria, Italy and the Czech Republic. The company also witnessed higher sales growth in respiratory devices during 1HFY20, driven by the performance of North America (up 88%), Australian business (up 44%) and Europe and the UK (up 73%).

1HFY20 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 18% year over year, on the back of new Mundipharma distribution agreement. Australian Penthrox® sales to GPs increased by 54% in 1HFY20. In-market sales increased 42% in UK, with around 131 hospitals using Penthrox® brand in the country. European sales increased by approximately 35%. The number of customers in France, the rest of Europe, and the UK and Ireland, using the brand were ~386, 182, and 608 customers, respectively.

European Market Highlight (Source: Company Reports)

Improving Liquidity Position: The company reported $32.3 million of total current assets, including cash amounting to $23.2 million and trade and other receivables at $4.6 million. Goodwill and intangibles were valued at $42.4 million while total equity stood at $44.4 million as on 31 December 2019. Total debt stood at $3.55 million, at the end of the period. Net cash inflow from operating activities came in at $2.8 million while net cash outflow from investing activities was at $4.55 million.

Capital Raising a Key Catalyst: Issued capital at the end of 31 December 2019 stood at $40.8 million. The company completed a capital raising comprising of a $17m Institutional Placement and a $7.5m Share Purchase in August and September 2018, respectively. The funds are expected to cover the financial needs of the commercialisation of its Penthrox® brand. Also, the funds would be deployed towards working capital, costs of the offer, further development of business activities, and to pursue further acquisitions. Henceforth, the fund raising strengthened its liquidity position and enables the company to undertake business transactions which can prove to be beneficial over the long term.

Cash Flow Highlights (Source: Company reports)

Recent News: The company recently announced that it has received approval for the sale of Penthrox in Hungary.

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 35.95% 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 Dec’19, the company had a current ratio of 3.74x, higher than the industry median of 1.69x, representing a sound liquidity position. Debt to Equity ratio for the same time span stood at 0.08x, lower than the industry median of 0.13x. 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.

Future Expectations and Growth Opportunities: 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, South Korea, and Thailand. The company also expects to consolidate and expand Respiratory Device sales in the USA, and Europe. In the coming years, the company expects to offer robust growth for Penthrox®, owing to global market approvals and “indication extensions”. The company also remains to commercialise products from its continuous flow technology and expects to deliver decent growth, going forward.

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 5.91% in the past one year but went down by 8.56% 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. The stock has a dividend yield of 0.66%. 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). Considering the current trading levels, strong liquidity position, no material impact of COVID-19, and positive long-term outlook, we recommend a “Buy” rating on the stock at the current market price of $6.01, down by 1.314% on 29 July 2020.

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

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