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. During FY20, the company reported an increase of ~10.6% in gross revenues. Respiratory sales were an all-time high in FY20, which skyrocketed ~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 various markets. Respiratory sales in Australia and North America grew by 43% and 88%, respectively, in FY20.

The company recently stated that it is taking back ownership of the Penthrox® EU distribution rights and growing into this important market will be a primary focus in FY21, with plans already well advanced. The company has also received approval for the sales of Penthrox® in the Netherlands and Bosnia & Herzegovina. Previously, the company had received approval for Penthrox® in Thailand. 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.

Although, Penthrox® witnessed few difficulties during the COVID-19 induced outbreak, the company took all necessary measures to maintain the convenience, utility and safety of the product within emergency services and expects to come out even stronger within these services. Moreover, as MVP is distinguished as an essential business and remains in a position to accommodate ongoing production and work from home practices, its internal and manufacturing operations had no negative impact by COVID-19 led shutdown.

In the time span of FY16 – FY20, MVP witnessed a compound annual growth rate of 11.18% in revenue. Growth boosted 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 15% growth of Penthrox® sales (excluding UK/Ireland) in the European in-market, amid stringent regulatory delays. UK and European sales increased a whopping 128% in FY20. With initial orders placed for several countries, the company remains on track to launch Penthrox® in countries like Germany, Italy, and Spain. 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 painkiller in every European market.

Customers in Europe (Source: Company Reports)

Going forward, 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 expects to offer robust growth for Penthrox®, owing to the global market approvals and “indication extensions”. 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.

Sneak Peek at FY20 Key Financial Highlights: During the period, the company reported gross revenues of $23.64 million, up 10.6% year over year. Net revenue for the period increased 7.9% year over year and came in at $22.5 million. Net profit after tax came in at $379k, down 63.5% year over year. This resulted a decrease in EPS, which came in at 0.58 cents, as compared to $1.61 per share reported in FY19. EBITDA was down 22% to $2.69 million. During the period, the company witnessed higher sales growth in respiratory devices, which went up 61% year over year, driven by the performance of North America (up 88%), Australian business (up 43%) and USA (up 98%). Penthrox® revenue however declined by 8%, owing to decreased sporting and outdoor activity, as well as reduced population movements. In FY20, the company’s operating expenses went up 15%, on the back of higher ‘pharmacovigilance’ cost as a result of expanding geographic sales for Penthrox® and Medical Devices. 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.

FY20 Key Highlights (Source: Company Reports)

Penthrox® Brand Remains a Key Catalyst: 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 completed a substantial 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 3% year over year, with further growth into the GP & Hospital market. In-market sales increased 23% in UK, with around 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.

In October 2019, the company entered a new 5-year agreement with CSIRO for continuous flow of technology and continued to invest higher in clinical development programs and trials. During the period, the company received R&D Tax Incentive concession of $431,000.

Australian Penthrox Highlights (Source: Company Reports)

Decent Balance Sheet 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.

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 35.98% 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 10 Shareholders (Source: Refinitiv, Thomson Reuters)

Key Metrics: In FY20, the company had a current ratio of 3.16x, higher than the industry median of 1.84x, representing a decent liquidity position. Debt to Equity ratio for the same time span stood at 0.08x, in line with the industry median. 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)

Key Risks: 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. Further, COVID-19 related uncertainties and higher operating expenditure may weigh on financial performance, going forward.

Future Expectations: The company aims to launch Penthrox® into the remaining European Union countries, Mexico, Iran, Jordan, and South Korea and Thailand. It also aims to globalise Penthrox® and make it the mainstream analgesic of choice all over the world. Going forward, the company also expects to consolidate and expand Respiratory Device sales in the USA, and Europe. It also aims to take back Europe Distribution, and grow into existing markets and roll out its key products into main markets Italy, Germany, Spain, and The Netherlands. The company also remains on track to advance its intellectual property and commercialisation program for continuous flow of technology. The company is taking necessary steps to finalise further distribution partnerships for Penthrox and Respiratory Devices for new countries and develop new devices to increase the use and accessibility of its core product portfolio.

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 8.04% in the past one year but went down by 5.42% 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. At CMP of $5.21, the stock has an annual dividend yield of 0.76%. On the technical analysis front, the stock has a resistance level of ~$7.171 and a support level of ~$4.994. 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). 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), to a name few. Considering the current trading levels, decent balance sheet position, robust adoption of its new products and technologies, and positive long-term outlook, we recommend a “Buy” rating on the stock at the current market price of $5.21, down by ~0.573% on 7 October 2020.

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

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