Company Overview: Medlab Clinical Limited is engaged in the sale of nutraceutical products and pharmaceutical research. The Company operates through two segments: Nutraceutical and Pharmaceutical Research. Its Manuka-C is scientifically formulated to support optimal immune system function and includes evidence-based ingredients containing a blend of over three ascorbates combined with glutathione and Manuka honey powder. Its NOS NITRIC OXIDE SUPPORT is a pre-exercise sports food containing a selection of evidence-based ingredients combined to support and optimize exercise performance. Its Saccharomyces cerevisiae ssp. boulardii (SB) 5B is a probiotic yeast that helps to maintain gastrointestinal function and integrity by supporting a healthy gut microbial profile; by increasing the production of secretory Immunoglobulin A (sIgA), short-chain fatty acids (SCFAs) and helping to promote the activity of brush border disaccharide enzymes. It also offers Mg Optima and BioClean EPA:DHA + CoQ10.


MDC Details

Decent Operations Update Lays Outlook for Growth: Medlab Clinical Ltd (ASX: MDC) is an ASX-listed company whose principal activities revolve around the sale of nutraceutical products and pharmaceutical research. As on August 16, 2019, the market capitalisation of Medlab Clinical Limited stood at ~A$97.99 million. The company has recently released the operations update in which the company stated that it happens to be uniquely positioned as a fundamentally corner-stoned company when it comes to medical research, but it is increasingly delivering the successful path to commercialisation for its Nutraceutical and Cannabis based products. The company also released its results for the quarter ended June 2019 in which it achieved record quarterly revenue in excess of $3 million (excluding R&D incentive and after discounts), and there was a growth of more than 140% over the corresponding period last year. The company witnessed record collections amounting to $2.589 million, which reflects a rise of around 170% over the quarter ended March. It was also added that Medlab’s research programme with respect to chronic diseases, including cancer pain and depression, has been progressing well.

As per the operations update, the company continues to move forward its research driven agenda with strong gains in core product categories. The company is committed towards converting the excellence in research and product development into commercial success. In the end, it was stated that the research has been moving forward, whether in cannabis, depression, or other areas of chronic illnesses. From the analysis standpoint, the company's revenue has grown at a CAGR of 63.6% over the period of FY15-FY18. The company has decent liquidity levels with a cash reserve of $11.442 Mn as at 30 June 2019. This might help the company in making decent deployments towards its strategic business activities, which might help it to achieve long-term growth. Additionally, there are expectations that the company’s capabilities to generate revenues would help it in the long-term. 
 

Net Cash Used in Operating Activities (Source: Company Reports)

Top 10 Shareholders: The following table provides an idea of the top 10 shareholders of Medlab Clinical Ltd:

Top 10 Shareholders (Source: Thomson Reuters)

Decent Liquidity Levels: In 1H FY19, the company posted gross margins of 65.6%, which implies a YoY growth of 5.5%. Also, the company’s current ratio stood at 9.90x, which is higher than the industry median of 4.55x and, thus, it looks like that the company has decent liquidity levels and that MDC would be able to meet its short-term obligations. Further, MDC is able to convert its stock to cash more efficiently than its peers as it has a better than industry cash conversion cycle of 23.6 days as compared to the industry median of 479.8 days.


Key Metrics (Source: Thomson Reuters)

The company’s Debt/Equity ratio stood at 0.01x in 1H FY19, which is significantly lower than the industry median of 0.25x and, therefore, it looks like that the company is possessing deleveraged balance sheet when compared to the industry and it can be said that MDC’s balance sheet is more stabilised. Generally, the lower debt on balance sheet is beneficial for the company.    

Key Takeaways from MDC’s June 2019 Quarterly Report: With respect to commercialisation, in the company’s June 2019 quarterly report, it was added that MDC had made significant progression in commercial operations with both the nutraceutical and medical cannabis businesses expanding. As at June 30, 2019, the company’s cash balance stood at $11.442 million. The global staff count happens to be at 65 people, which reflects an investment towards science and commercial teams specifically aimed at heightening MDC activities at the global scale. In the end, it was added that the Board and Senior Management are proud with respect to the company’s recent achievements, in particular, the progress which has been made commercially and they are optimistic about the next chapter.

Execution Of Heads Of Agreement In Order To Expand Nutraceutical Business: Medlab Clinical Ltd has made an announcement that it has inked a Heads of Agreement with ANC for the US market entry using Medlab’s existing nutraceuticals. It was added that several of the MDC’s current, unique nutraceuticals are well-placed for the ANC clients. The deal might witness MDC products enter both medical and consumer markets with larger, existing companies already strong in branding and distribution, in the near term.

In the release, it was stated that the commercial terms and specific distribution partners are to be finalised via execution of the definitive commercial agreement.

Announcement of Successful Completion Of Nanabidial™ Phase 1 Trial: Medlab Clinical Limited has made an announcement about the completion and independent review of second pharmacokinetic study (PK) using full completed formulation, NanaBidial, specific to MDC’s proprietary delivery platform, NanoCelle™. MDC holds PK data for NanaBis™ and NanaBidial™, for various patient cohorts, and whilst there is some inter-study variability, this was anticipated considering the candidates, which were used in various PK programs.

A Quick Look At MDC’s Core Strengths: Medlab Clinical Ltd has earlier released the investor presentation May 2019 in which the company highlighted its strategic pillars, business model as well as core strengths. The company also provided some information about the financials for the quarter ended March 2019. It was added that, at the end of March 2019 quarter, the company had cash of $13.169 million. The company also added that its balance sheet at the end of March 2019 quarter was robust and it the company was having net assets amounting to $16 million and debt amounting to $400k.


Strong Patent and IP Position (Source: Company Reports)

It was added that the company’s strengths revolve around research, innovation, clinical trial work as well as improving medicines. The company has a strong patent and IP position, and we expect that this might help the company to grow over the long-term.

What To Expect From MDC Moving Forward: It can be said that the pharmacy sales force, drug development and partnering are the primary strategic pillars of Medlab Clinical Ltd. In the investor presentation May 2019, the company stated that it is partnering in order to speed the market access. Additionally, the company stated that the research has been driving new product development, current and future revenue. At the end of December 2018, the company had a decent base of cash and short-term investments and total current assets and, thus, it looks like that the company has respectable balance sheet position which might help it in achieving long-term growth.

In the quarter ended June 2019, the company stated that research and development for a third medical cannabis product, NanoCBD™ is complete. Additionally, it was stated that NanoCBD™, which is similar to NanaBis™ and NanaBidial™ utilises MDC’s proprietary delivery platform, NanoCelle™ in order to administer a pure, standardised CBD extract from Hemp. There are expectations that NanoCBD™ would be available in the global markets by 2020 start. In the June 2019 quarter report, it was added that NanoCBD™ is being onboarded for manufacturing at licenced FDA drug facility and it complies with the US Farm Bill, which was passed in the month of December 2018.


Key Valuation Metrics (Source: Thomson Reuters)

Stock Recommendation: The stock of Medlab Clinical Ltd has delivered the return of 9.64% in the span of previous three months while, in the time frame of past six months, the stock has posted the return of 13.75%, indicating decent returns over the said period. The company has witnessed a CAGR growth of 63.6% in its top-line between the time span of FY15- FY18 and, thus, it can be said that the company has decent capabilities to generate revenues. Additionally, the company’s cash receipts have been increasing from FY15 to FY18 and, thus, it can be said that the company is possessing decent capabilities to generate cash. There are expectations that the company’s capabilities to garner revenues and generate cash might help it in achieving growth moving forward. Also, these capabilities might also help MDC in gaining traction among the market players. Recently, the company made significant progress in nutraceutical and medical cannabis categories, which might support to achieve its growth objectives in years to come. Additionally, MDC is also making efforts to improve its ROE. Currently, the stock of the company is trading slightly below the average of 52 weeks high and 52 weeks low price of $0.560 and $0.340, respectively, proffering a decent opportunity for accumulation. Hence, considering the above-stated factors and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.440 per share (down 3.297% on 16 August 2019). 

 
 
MDC Daily Technical Chart (Source: Thomson Reuters)

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