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This ASX healthcare share skyrocketed last week. Should you invest?

The Medical Developments International Ltd (ASX: MVP) share price ended last week on a high, surging almost 9% higher on Friday to close out the day at $10.28. 

Shares in the healthcare company, which specialises in pain medication and medical devices for the treatment of respiratory illnesses, even briefly touched on an all-time high price of $10.38 in intraday trade. It caps off a period of accelerated growth for Medical Developments – since September its share price has skyrocketed over 130%.

Medical Developments shares have pulled back slightly in today’s trade and are currently trading for $10.15.

What sent the Medical Development share price soaring?

With no fresh announcements from the company this month, the Medical Developments share price was most likely still benefitting from the momentum generated by a string of positive updates released back in November and December.

Last year was a year of expansive growth for Medical Developments. Revenues for FY19 were a record high $21.4 million, while net profit after tax (NPAT) was up a staggering 327% to $1.04 million. Sales of its flagship non-opioid analgesic Penthrox increased 47% globally, driven by uplifts in key markets including Europe and the UK.

Overall sales of its respiratory devices were down slightly for the financial year, but that was mostly blamed on poor performance in its UK business where overstocking of the company’s distributor in FY18 caused FY19 sales to fall by 53%. Excluding the UK, sales of its respiratory devices increased 11% globally in FY19. The company has now restructured its UK business and expects sales to rebound in FY20, which could make it another bumper year.

Medical Developments also has a number of potentially lucrative growth opportunities still in its pipeline. It is currently working with the Food and Drug Administration (FDA) to launch Penthrox in the US. The timing of its application with the US FDA could work out favourably for Medical Developments, given the company is offering a non-opioid pain medication option to a country in the grips of a well-publicised opioid epidemic.

The year also ended with another 2 items of positive news: Medical Developments announced that the Chinese National Medical Product Administration had approved its request to conduct clinical trials of Penthrox on Chinese patients, plus the Russian Ministry of Health was reviewing its marketing application for the sale of Penthrox in Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan.

While neither of the above developments necessarily guarantees that Penthrox will be approved for sale in any of the listed countries, it shows how the product is really gaining traction as an accepted pain medication globally. In October, the European Society of Emergency Medicine entered Penthrox into its guidelines for the management of acute pain in emergency situations as the first recommended line of treatment for trauma patients experiencing moderate to severe pain.

Foolish takeaway

Unsurprisingly, Medical Development’s outlook for the next few years is bullish. The company’s stated mission is to make Penthrox the analgesic of choice globally, while consolidate and grow sales of its respiratory devices. With an expanding product portfolio that also includes devices for veterinary medicine, Medical Developments is growing into a diversified healthcare company that could one day be mentioned alongside established industry heavyweights like ResMed Inc (ASX: RMD).

The thing for new investors to take note of is Medical Development’s price-to-earnings multiple. Currently, its shares trade at nearly 640 times earnings, which is incredibly high relative to other companies in the healthcare space. By way of comparison, all three of ResMed, CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH) trade at around 50 times FY19 earnings.

And although you’d be potentially buying a higher growth opportunity with Medical Developments than these other more mature healthcare companies, it is difficult for any company to sustain that sort of inflated multiple for long.

But in my view, it’s definitely worth putting Medical Developments shares on watch: if a correction in its share price does happen soon, it could present a great opportunity to buy into a rapidly growing company that still has its best years ahead of it.

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Rhys Brock owns shares of Cochlear Ltd. and Medical Developments International Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. and CSL Ltd. The Motley Fool Australia owns shares of and has recommended Medical Developments International Limited. The Motley Fool Australia has recommended Cochlear Ltd. and ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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