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®, which is used for Emergency relief of mild to severe pain in adult patients with trauma and related 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 Robust Product Portfolio & International Expansion: Medical Developments International Limited (ASX: MVP) is in the business of pharmaceutical drug, medical and veterinary equipment. MVP remains on track to achieve a pre-clinical feedback in order to initiate the study of Penthrox® in the USA by Q4FY20. Meanwhile, the company has persisted to assemble its clinical package for the FDA which was submitted in late August 2020. The company expects to address in full all the clinical issues during the 3QCY21 in order to file the IND in CY21. MVP remains optimistic to provide the FDA with the required data it requires. This confidence is based on the company’s more than 40 years of experiences, which indicates the safety profile of Penthrox® over that time. Further, the additional clinical data that the company requires to support its IND consists of its Post Authorisation Safety study, ongoing clinical development program and its accomplishments in getting Penthrox® authorised for sale in greater than 40 countries globally. The chart below depicts the foreseen USA regulatory timeline.

Penthrox® in the USA (Source: Company Reports)

Recently, the company informed the market regarding its share purchase plan (SPP) which was solidly supported by eligible shareholders. Under the SSP, MVP obtained a total application of A$11.768 million at an issue price of A$6.50 per fully paid ordinary share in MVP. In another update, the company successfully raised ~$25 million (before costs) via the placement of 3,846,154 ordinary shares in the company (Shares) to a number of institutions and sophisticated and professional investors at a consideration $6.50 per Share. The company is also seeking to raise up to $5 million under the Share Purchase Plan (SPP). The company plans to use the raised funds to accelerate commercialisation of Penthrox® in the EU, to bolster its team and to complete clinical surveys.  Notably, the Placement will improve MVP’s balance sheet. Subsequent to the Offer, MVP will have proforma net cash of ~$44.9 million. Further, MVP's focus on developing product offerings for its customers augers well for the company in the long-term. 

The company is aiming to advance its intellectual property and commercialisation program for continuous flow of manufacturing and remains well equipped to develop new devices to expand the usage of its core product portfolio. In the time span of FY16 – FY20, MVP witnessed a compound annual growth rate of 11.18% in revenue from goods and contracts. Growth boosted as the company expanded its international revenue, on the heels of Penthrox® expansion and acquisitions synergies in international markets.

Key Financial Highlight (Source: Company Reports)

MVP’s business has experienced success in the domestic market as well as in the international markets. The company has reset Europe (EU) distribution strategy and has experienced multiple growth avenues in the United States of America (US), China and Canada. MVP’s transition into international markets is a successful one, given the opportunity for the success of Penthrox® in Australia and Europe. With enhanced monetary elasticity, MVP expects to continue new product expansion, grow its customer base globally and pursue strategic deals. The company remains on track to make improvements in its organic and acquisition-driven strategies. 

Top 10 Shareholders: The top 10 shareholders together form around 28.01% 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 4.81%, as also highlighted in the chart below: 

Data Source: Refinitiv, Thomson Reuters, Chart Created by Kalkine Group

Key Metrics & Decent 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 ~$44 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. In FY20, the company had a current ratio of 3.16x, higher than the industry median of 1.67x, representing a decent liquidity position. Although, Debt to Equity ratio for the same time span stood at 0.08x, the company remains optimistic about business growth, looking at the potential contribution from its Penthrox®.

Profitability and Liquidity Profile (Source: Refinitiv, Thomson Reuters), Analysis by Kalkine Group  

Key Risks: The company might witness lower demand for its respiratory products, subsequent to an early COVID-19 pandemic gush in sales, the mild cold and flu season, as well as enhanced public cleanliness practices. This may pose a concern to the company’s sales of respiratory devices, going forward.  The company also increased investment in R&D, to achieve its growth plan. Also, stiff competition from peers remains a potential concern. 

Outlook: The company expects to witness a recovery in Australian sales in the days ahead and aims to build infrastructure for the worldwide growth of Penthrox®. The company expects to unveil its flagship product in the unlaunched markets by 2021.  Further, the transition phase for taking back the distribution rights from MundiPharma in the EU is proceeding according to the plan. The Marketing Authorisations formerly conducted by MundiPharma are being shifted simultaneously to allow MVP to presume management of sales and distribution activities on 1 March 2021. MVP 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, in the days ahead. 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.

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

Data Source: Refinitiv, Thomson Reuters, 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: Currently, the stock is trading below the average of its 52-week’s high and low level of $11.78 and $3.76, respectively. The stock of the company has corrected by ~6% in the past one month. On a technical analysis front, the stock has a support level of ~$6.11 and a resistance level of ~$7.26. 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). We believe that the company can trade at a slight premium as compared to its peer average, considering its robust adoption of Penthrox® product, geographical expansion, decent FY20 key numbers, and decent liquidity postion. For the purpose, we have taken the peer group - Mayne Pharma Group Ltd (ASX: MYX), Starpharma Holdings Ltd (ASX: SPL), and Suda Pharmaceuticals Ltd (ASX: SUD). Considering strong financial performance, augmented demand for its Penthrox® product, decent liquidity position, and encouraging long-term outlook, we recommend a “Buy” rating on the stock at the current market price of $6.33, up by ~0.316% as on 17 February 2021. 

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

Disclaimer  

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.