Medical Developments draws another step closer to Penthrox distribution in the US

Medical Developments (ASX:MVP) has had a stellar share price run in the last 12 months, increasing from a low of $2.10 in August 2015 to hit a high of $6.85 in May. However, since then it has mainly traded in a tight range between $6.00 and $6.50.

Yesterday it experienced a sharp decline from the previous day’s close of $5.30 to hit an intraday low of $5.05. However, important news surfaced with an hour of trading remaining, sparking a 6% surge which resulted in it hitting a high of $5.35 before closing at $5.30.

The fact that the company only announced an important distribution deal with a leading US pharmaceutical group in the last hour of trading could suggest that the company may benefit from momentum today as the news comes to light.

However, it should be noted that share prices are subject to fluctuation and investors should take a cautious approach to any investment decision in this stock and not base their decision solely on price movements.

With regard to yesterday’s developments, further upbeat news flow came in the form of a response from the Food and Drug Administration (FDA) body in the US regarding the steps required and data needed to clear the path for its flagship Penthrox product to be approved for sale in that country.

Penthrox is well known in Australia and other countries as a self-inhaled, fast acting, non-narcotic analgesic for trauma pain relief. More than 5 million units have been sold over a period of 30 years with prominent use in investigatory medical procedures and in the fast treatment of pain relief for sports injuries.

Approval for the drug to be distributed in the UK, Ireland, France, Belgium, Singapore and South Africa is already in place and it has generally been the case that the company’s share price has responded positively as approvals have been announced.

It could be a similar story if Medical Developments is granted approval to distribute Penthrox in the large US market. Bell Potter analyst, Tanushree Jain, is encouraged by the fact that a single trial would be required in the same patient population as was the case in the successful UK study.

He expects this trial to be self-funded and occur in unison with a potential distribution partner in the US. In terms of timing, Jain said, “We conservatively assume that a partner could come on board by the end of calendar year 2017/early 2018”.

In closing, the analysts said that the most likely near term share price catalyst was the announcement of the group’s fiscal 2016 results which should occur on August 18. The broker is forecasting double-digit revenue, EBITDA and earnings growth for the 12 months to June 30, 2016.

This underpins the broker’s buy recommendation and 12 month price target of $7.72, representing a premium of approximately 45% to Tuesday’s closing price. It needs to be noted that investment decisions should not be made on the basis of share price targets as these may not necessarily be met.

Harking back to the deal that was announced late yesterday, this was in relation to the group’s Anti-static Space Chamber respiratory device. Bell Potter highlighted that the group’s new distribution partner, Cardinal Health Inc, is one of the largest healthcare supply chains in North America with a market leading position in pharmaceutical distribution serving more than 25,000 US pharmacies.

One out of every six pharmaceutical products dispensed to US patients travel through the Cardinal health network. In fiscal 2015 the group generated revenues of more than $100 billion.

This is an important development for the company as it complements the deal struck with AmerisourceBergen in May, effectively providing the group with one of the largest distribution networks in North America for its respiratory products.

While Medical Developments is expected to deliver its third consecutive year of profitability in fiscal 2016, it is shaping up as more of a 2018 story with profit expected to increase nearly four-fold over the next two years.

However, it should be noted that these estimates are based on broker forecasts which may not necessarily be met and any investment decision should not be based solely on forward looking statements or earnings forecasts.