Company Overview: Medical Developments International Limited (ASX: MVP) 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 Decent Liquidity Potion & Geographical Expansion: Medical Developments International Limited (ASX: MVP) is in the business of pharmaceutical drug, medical and veterinary equipment. Although the year 2020 was marked with challenges as COVID-19 has impacted the healthcare systems around the world, MVP being an essential provider, remained operational throughout the COVID-19 led crisis and lockdowns and served patients and customers on a continuous basis. During the year, more than 1,000 customers have bought Penthrox in Europe. Besides Europe, MVP is also taking initiatives to market authorisations of Penthrox® in China, Russia, Taiwan, and Vietnam. It also remains on track to expand its footing in the USA for its respiratory devices business, which is now available in more than 20,000 pharmacies. In FY20, respiratory sales went up a whopping ~61% on a year over year basis, partially attributed to COVID-19 associated buying power and partially related to new product releases and new pharmacy channel accomplishment in the various markets.

A Quick Glance at Penthrox® Across the Globe (Source: Company Reports)

In FY20, the company’s gross revenues increased 10.6% year over year and came in at $23.64 million. Net revenue for the period increased 7.9% year over year to $22.5 million. Notably, respiratory sales in Australia skyrocketed 43% on pcp in FY20, whereas in North America respiratory sales grew 88%. During FY20, the company expanded its geographical reach and strengthened its global footprint, by making good progress in three major territories, namely China, Russia, and the USA. In China, MVP successfully opened its IND and remained on track for a prepared launch in 2022. The company has also strengthened its Penthrox brand, which will further assist MVP in establishing Penthrox as the standard of care in new and existing markets.

In the European in-market, MVP saw an increase of 15% of Penthrox® sales (excluding UK/Ireland). Growth boosted as the company expanded its international revenue, on the heels of Penthrox® expansion and acquisitions synergies in international markets. UK and Europe sales increased by 128% in FY20. As at June 30, 2020, the company had ~1,238 customers buying Penthrox® in Europe and expects the number to increase as Penthrox® becomes a mainstream drug in the European market.

In the USA market, Penthrox® is progressing USA IND submission aimed for 2021. In Australia, Penthrox® sales increased 3% on pcp, with further growth into the GP & Hospital market. In-market sales rose 23% in the UK, with ~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. The ongoing clinical development program and the recent achievements in getting Penthrox® authorized for sale in more than 40 countries across the globe.

Key Highlights (Source: Company Reports)

Capital Raising Program to Boost Liquidity Position: The company stated that qualified Shareholders in Australia and New Zealand now have the chance to subscribe for up to A$30,000 of new fully paid ordinary shares in MVP. The company had earlier successfully raised ~A$25 million via a placement buoyed by new and existing investors in Australia and offshore. The company is targeting to raise roughly A$5 million under the SPP and expects to utilise the proceeds to accelerate commercialisation of Penthrox in the EU. This in turn, will aid the company to bolster the depth and breadth of the MVP team along with completion of few clinical studies. We expect the Placement will further strengthen MVP’s balance sheet. Notably, post the offer, MVP is expected to have a proforma net cash of roughly $44.9 million.

Decent Liquidity Position: The company exited FY20 with $25.96 million of total current assets. Cash balance at the end of the period amounted to $15.5 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. During the year, the company invested $5.4 million in clinical trials for Penthrox®, $1.1 million in its manufacturing development program with the CSIRO, and $1.5 million in various manufacturing equipment and leasehold improvements. Net cash inflow from operating activities came in at $173K, while net cash outflow from investing activities was at $8.5 million. In FY20, the company had a current ratio of 3.16x, higher than the industry median of 1.62x, representing a decent liquidity position. Debt to Equity ratio for the same time span stood at 0.08x.

Key Metrics (Source: Refinitiv, Thomson Reuters)

Key Updates:

1. On 3 December 2020, the company informed the market about the updates regarding its Penthrox EU transition activities and trading conditions. The company’s decision of taking back the distribution rights for its pain relief drug Penthrox in the EU from MundiPharma remains on track. The Marketing Authorisations previously held by Mundipharma are being transferred to MVP and allows the company to assume control of sales and distribution activities effective from 1 March this year. The company’s goal is to be involved in a more direct and proactive role in the commercialisation of Penthrox to strengthen its global footprint of market authorisations.
2. On 3 December 2020, the company appointed Gordon Naylor as Non-Executive chairman of MVP and Brent MacGregor as the CEO. Both the highly experienced and credentialed pharmaceuticals executives are expected to take the company to scaling new heights. 

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 32.55% of the total shareholding. Williams (David John) is the entity holding maximum shares in the company at 13.67%. M & G Investment Management Ltd. is the second-largest shareholder, with a holding of 4.94%.

Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)

Risk Analysis: COVID-19 related uncertainties and higher operating expenditure may weigh on financial performance, going forward. 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. Also, stiff competition from peers remains a potential concern. Further, sales to date of MVP are not so encouraging and below prior year, owing to early coronavirus led pandemic surge in sales, the mild cold and flu season, along with enhanced community hygiene practices. These practices could dampen the demand for the company’s respiratory products, going forward.

Outlook: The company’s objective is to continue the domestic success in pain management and respiratory on a global basis, whilst winning a greater share of the full margin on sales. Taking back the EU distribution rights marks a key milestone in achieving its key objectives. Further, the latest clinical results indicate that Penthrox® offers superior pain relief as compared to IV morphine and other Standard of Care therapies. Thus, these results are substantial steps which are likely to aid the company in achieving its key goals. In the upcooming period, the company expects to complete the handback of the Penthrox® EU distribution rights and pursue other targeted country reimbursements, launches and expansion activity through strengthening its foothold in EU. The company also remains on track to commercialise products from its continuous flow of technology and expects to deliver decent growth, in the days ahead.

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: MVP remains on track, given the emerging economies which have been seeing increasing appreciation in medical instruments, an aging population, government importance on healthcare infrastructure and development of medical insurance exposure. The stock of MVP gave a positive return of ~23.8% in the past three months. 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 $6.33, the stock has an annual dividend yield of 0.3%. On the technical analysis front, the stock has an immediate resistance level of ~$7.287 and a support level of ~$5.952. We have valued the stock using an 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). Considering the current trading levels, decent liquidity position, robust adoption of its Penthrox® product, along with decent long-term outlook, we recommend a “Buy” rating on the stock at the current market price of $6.380, down by ~1.847% on 6 January 2021.

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

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