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

Capital Raising Program & International Expansion are Key catalysts: Medical Developments International Limited (ASX: MVP) is in the business of pharmaceutical drug, medical and veterinary equipment. 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.

Recently, 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 price of $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. 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. Further, MVP's focus on developing product offerings for its customers augers well for the company in the long-term.

Further, the company has also appointed two highly experienced and credentialed pharmaceutical executives, namely Gordon Naylor as Non-Executive Chairman of MVP and Brent MacGregor as the Chief Executive Officer. Backed by their vast knowhow and expertise in healthcare industry, they will be responsible for the company’s growth, and will aid the company in scaling new heights.

MVP’s aims to strengthen its foothold in the Australian market with success in pain management and respiratory internationally. In the upcoming years, the company expects to grow in its Domestic Market with extended uses and higher customers for Penthrox® and Respiratory products. The company is also capitalising on growth opportunities in the Irish market, based on its robust foothold in the UK and in Ireland. The company has taken back its Europe distribution, with the vision to grow in the key markets and pursue other commercial objectives. These objectives mainly incorporate: (a) growth of its respiratory franchise in the US and in Europe, (b) progress well with the US Food and Drug Administration, and (3) conclude the human trial related to its China registration program.

Geographical Diversification (Source: Company Reports)

Higher Adoption Penthrox® Aided FY20 Results: 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. 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. In FY20, the company reported gross revenues of ~$23.64, up 10.6% year over year. Net revenue for the period increased 7.9% year over year and came in at ~$22.53 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%). 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.

Graphical Representation of Penthrox® and Respiratory Devices (Source: Company Reports)

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.

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 34.67% 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 5.22%.

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 1.78x, 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®. The company remains profitable and generates positive operating cash flows, and has considerable cash reserves, which enables the Group to meet its debts and obligations as and when they fall due.

Key Metrics (Source: Refinitiv, Thomson Reuters)

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 concern to the company’s sales of respiratory devices, going forward.  Further, sales to date for the half year remains low owing to lower community activity due to fewer ambulance movements along with Penthrox® Australia sales timing alterations related with the transition from the exiting distribution partner. Also, high operating expenses and stiff competition from peers remains a potential concern. 

Spotlight on Emerging Markets: The emerging economies have been witnessing increasing uptake in medical instruments, thanks to growing medical awareness and economic prosperity. An aging population, growing wealth, government emphasis on healthcare infrastructure and development of medical insurance exposure make these marketplaces a happy tracking ground for worldwide medical instruments players. Further, higher adoption of digital platforms within the medical device space, 3D printing, robotic surgeries, electronic health records (EHR), big-data analytics, bioprinting, predictive analytics, and revenue cycle management services instil confidence in the healthcare industry and is gaining prominence all over the world.

Outlook: The transition phase for taking back the distribution rights from MundiPharma in the EU are 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. 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.

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: At CMP of $6.68, the stock has an annual dividend yield of 0.60%. On the technical analysis front, the stock has an immediate resistance level of ~$7.27 and a support level of ~$6.05. The stock of MVP gave a positive return of ~15.1% 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. 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, capital raising program, 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 $6.68, up by ~1.829% on 16 December 2020.

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

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