Medical Developments International Ltd (ASX: MVP) delivered a 75% increase in net profit after tax following a transformational year for the specialised healthcare company and the future looks bright.
Overall sales grew 24% to $11.6 million which delivered a net profit of $1.53 million, however, the critical area for Medical Developments (which is currently trading on a price-earnings multiple of 100) is the high-margin Penthrox business.
Penthrox sales of $7.1 million increased 32% compared to FY2014 and accounted for around 85% of total earnings before interest, tax, depreciation and amortisation (EBITDA).
Penthrox is a fast-acting emergency pain relief drug delivery system which is delivered via a custom inhaler, often referred to as the green whistle.
During the year, Medical Developments completed construction of a new commercial plant which uses a newly developed process to produce methoxyflurane – the active drug in Penthrox. The new process was jointly developed with the CSIRO and is expected to "revolutionise our manufacturing process and transform the cost base for Penthrox".
The business is currently completing or has completed numerous clinical trials to expand Penthrox into additional markets. For example, sales into the dental industry increased by 67% whilst a new clinical study is expected to prove that patients can drive themselves home safely just 30 minutes after the administration of Penthrox – a distinct advantage over its narcotic competitors.
In FY14, Medical Developments entered into an exclusive agreement with pharmaceutical company Galen to distribute Penthrox throughout the United Kingdom and Ireland. Another contract with a "significant pharmaceutical company" is currently being finalised to distribute Penthrox throughout the rest of Europe and the announcement is expected soon.
Penthrox is already approved and is sold in New Zealand, South Africa, the United Arab Emirates, Qatar, Moldova and Kazakhstan whilst there are pending registrations in Israel, Singapore, Mexico, Malaysia, Iran and Iraq.
Respiratory division sales increased 42% with standout performers being a 593% increase in North America (albeit off a low base), 172% in Europe and 17% in New Zealand.
Veterinary sales decreased 11% in FY15 although the company reported an increase in sales in the second half after opening new markets in China and South East Asia.
No dividend was declared and the business is paying off debt and focusing on long-term global growth before short-term returns to shareholders – a good strategy considering the global market potential for its products. International revenue surged 96% to $2.6 million in FY15 and now accounts for 23% of total revenue.
Management stated that the key priority for the upcoming year will be achieving approval to sell Penthrox in the lucrative US market.
Medical Developments is hitting all of its targets and looks set to achieve rapid global growth in the coming years. The current price of $2.40 may appear expensive but the international market for Penthrox is large. If the company is able to achieve penetration in the new markets similar to that here in Australia and New Zealand whilst branching into new areas such as dental and medical clinics, the current price could be an attractive entry point.
With high expectations already factored into the share price, this is definitely a higher risk investment. For those interested in further information, I wrote a detailed article a few months ago on Medical Developments.
