Medical Developments International Limited (MVP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Medical Development International Investor Call. [Operator Instructions] I would now like to hand the conference over to Mr. Brent MacGregor, CEO. Please go ahead.

Thank you, and thanks, everyone, for coming on the call this morning. Why don't we jump right into it. Before we start really in full, just a couple of points I want to make, but let me make them on -- with Slide 5 as a backdrop. So this is a modest raise that we're seeking. It's $10 million, and it will provide us with capacity to invest in some very targeted initiatives that we believe will accelerate our growth as well as to shore up the balance sheet as we reach operating cash flow positivity by the end of FY '25, which has been our objective and continues to be our objective. So ahead of seeking this funding, we have done a lot of work internally or what we like to term self-help. We've reduced costs. We've paused investment in activities that have a longer runway to delivering returns such as the U.S. and we have reexamined our commercial approach. We're very focused on delivering positive cash flows, and we are more financially disciplined. And our results in FY '24 clearly illustrate the work that we've done in this regard. So we are going to speak to you today about the plans and the opportunities that are realistic and achievable. And also reflect our experience in learnings over the last 18 months to 2 years. So we've changed our strategy in some areas, where a more capital-light approach made sense, and you'll be hearing that phrase a few more times during this presentation. What hasn't changed, though, is our belief in what the company can achieve with our lead product, Penthrox. We continue to believe there's significant growth yet to be realized for Penthrox in existing markets as well as in new markets over time. It's a great product. It's been used over 9 million times. It's incredibly sticky, meaning once it's adopted, it stays in use. And our experience in France, where we have grown volumes despite no active commercial effort for almost 12 months is really a testament to this point. So while it's hard to embed the product, once Penthrox is being used, our customers don't let it go, which is another way of saying product loyalty is high. We're used by 100% of the ambulance bodies here in Australia. And despite an aggressive step up in price over the last year, we've seen no change in demand during this period of time. But it also has a place in the large, almost untapped market of the emergency department. And the lead indicators we've seen in Australia with respect to the opportunity in hospital EDs is encouraging and illustrates a belief in the value proposition of Penthrox in this segment as well. So as a result, our conviction in the product is strong, and our expectations for growth remain high. And this expectation is further fueled by our MAGPIE pediatric study in Europe and the doors that it may open for growth, both in international markets where we don't have a pediatric indication, but also in our home market where we do. So over the next 5 years, we see a pathway that could deliver revenue, a CAGR of up to -- a compound annual growth rate of up to 15%, and that's effectively doubling our revenues of today and at improved margins. And as I said, this is both realistic and it's achievable. And this raise will give us the funding capacity to accelerate our progress and to achieve this outcome. So let me take you through some of our successes from FY '24 and our growth drivers for FY '25 and beyond. So let's move to Slide 6 in that regard. So here on Slide 6, you'll see what I was referring to regarding the margin improvement, the impact of our cost-out efforts and the effect on our underlying EBIT and our current cash acquisition. Now as for the raise itself, I want to highlight that $6.5 million of the $10 million would be focused on investments in our growth plans, while the remaining $3.5 million will strengthen our working capital as well as cover the fees of the raise. We'll go to Slide 7. Now here on Slide 7 is a business overview and perhaps a number of you are already familiar with the business overall. This is simply to remind you the fact that our global business consists of these 2 franchises, our lead pain management franchise as represented by Penthrox and our suite of respiratory products, as you see here on the right. What you also see here is the spread of our global sales in the pie graphs below is a real testament to the diversity of our business geographically. And last thing I'll just point out here on Slide 7 is the split of revenue. It's about 65-35 in favor of Penthrox. Let's move to Slide 8. So Slide 8 shows the priorities that we set for ourselves as we began the last fiscal year, FY '24. It also is intended to what we've achieved during the past year. So I want to accentuate the progress we've made in significantly improving our margins once again, and now during FY '24. This has come through a combination of efficiencies that we've driven in our operation as well as the improved pricing that has come from our customers who recognize the inherent value that Penthrox represents. We've grown our volumes in the hospital ED setting. We have generated lead indicators in the form of new protocol listings as well as an expanded list of purchasing hospitals. That includes hospitals like the Alfred and the Austin here in Melbourne, West Mead in Sydney, to name a few. Our pediatric study, and I'll talk further to this, offers the potential to expand our market in Europe, particularly in the U.K. And by the way, we are quite pleased about the extension that we've reached with our U.K. partner and at improved terms and that's going to capitalize on a successful outcome to our regulatory submission, and this submission is due to occur in a little more than a week from now. Lastly, I would say our Respiratory business has continued to generate double-digit growth in the U.S. market where our efforts have been focused. And so overall, I want to say that we've done the hard yards in FY '24 and they have produced very encouraging results that bodes well for FY '25 and beyond. So let me switch to Slide 9. And I just wanted to amplify MAGPIE study a little bit further as a growth enabler for us going forward. So here's a bit further detail, and that's before we move into our growth drivers section of this presentation. And that since the results of this successful regulatory outcome that we anticipate in August of 2025 makes it the growth enabler for our business. So just for a bit of background on this, the current age indication is 18 years of age for Penthrox across Europe and a successful outcome for our regulatory submission could lower this age to 6 years of age. Now such an outcome would expand our addressable market across our key European countries, U.K., France, Switzerland and the Nordics, just to name a few. But there's actually a second benefit to the MAGPIE data insofar as it represents new data that unlocks Penthrox use in kids. It further strengthens the safety profile, and it supports the rollout of a broad engagement strategy here in Australia to medical experts who can speak further to the benefits of Penthrox. So the goal here is to accelerate uptake in a hospital setting that is up until now been fairly resistant to behavioral change. And on that note, let's move to our growth drivers in FY '25 in greater detail, and that starts up on Slide 11. There we are. Thank you. So we've been speaking a lot about our financial gains in FY '24 from a margin and an earnings perspective, and this effort will continue in FY '25 and forms the bedrock of our capital-light approach. There's that phrase again. We're going to continue our journey here in Australia to align Penthrox pricing with the value it represents. So our successful pricing effort in FY '24, as I mentioned, was a testament to the value it has represented in the traditional ambulance setting since the usage of Penthrox here was not impacted at all. But in the hospital ED setting, we intend to demonstrate efficiency and throughput benefits of Penthrox in the hospital as well as the core pain relief benefits at all who use it have come to appreciate. Additionally, the efficiencies we have identified and implemented in our operation is going to have, of course, an annualized effect in FY '25. So let's move to Slide 12. And here on Slide 12 is where we have focused our efforts in the Australian Penthrox market and where we're going to continue to place our efforts. Now I spoke about the learnings of the past year, and here are a few key ones. Certainly, the positive attributes were amplified in the past year. The value proposition of the product remains strong. And in fact, it's abundantly clear that once Penthrox is established in an institutional setting, it embeds as a standard of care. Furthermore, we're seeing increasing interest in other procedural settings like O&G, obstetrics and gynecology. And that, I think, is not surprising considering the growing emphasis on pain management that we're seeing now in women's health. In fact, there was a recent story about Penthrox probably some months ago now, a recent story about Penthrox use in the O&G ward at Frankston hospital, and that's a really good example of what we're talking about here. But additional to that is the focus of our Canadian partner who also has a focus on that O&G space. Now what we've also learned, though, and especially in the hospital setting is that changing long-held behaviors in favor of a well known and regarded product like Penthrox, it takes a lot of time and targeted effort. And in short, ED physicians will need to hear more from peers to shift their behavior toward Penthrox over time despite the ubiquity of the product here in the home market. So let's swing to Slide 13. Thank you. And Slide 13 is the revised approach that we're going to take in FY '25 is what we'll call our acceleration strategy. So our plan in FY '25 is going to be to pivot away from a conventional field-based sales approach toward a stronger more engagement strategy in the hospital segment. Now this strategy aligns with our capital-light approach and reflects the key learning of the past year where behavioral change in the ED has been slower than anticipated. But we have the example of the Austin where use of Penthrox has been steadily increasing, as a reminder of what our product can become in these settings. And we know FY '24 experienced that there is a belief in Penthrox in the ED. Our medical engagement approach, wherefore, facilitate the building of an expert network in Australia that can establish advocacy in key institutions and ultimately, facilitate this behavioral change. And this approach will be fueled by our MAGPIE pediatric data, which will serve as the basis upon which these engagements can occur. But it necessitates the building of a broader arsenal of evidence that can fuel the medical engagement approach and lead to accelerated Penthrox uptake going forward. Now lastly, our efforts in this regard in Australia will be leveraged in support of our partner efforts in international markets, and that bridges me to Slide 14. And speaking of international markets, this slide reflects another key growth driver for our business in FY '25, and that is our success in other markets, particularly those in Europe. Now I've already spoken to positive outcome with our partner in the U.K. and Ireland, that's Galen. By the way, they're also our partner in the Nordics. This extension that we've signed with them and had enhanced terms for us, for MVP, testament to the enduring belief in Penthrox and its growth potential. So now in its eighth year of growing the Penthrox business in the U.K., our partners keen to leverage the MAGPIE outcome to unlock further growth in what is actually our second largest market worldwide, including in the ambulance segment, where some of the largest trusts in the country have actually been reticent to adopt Penthrox until the age indication actually captures young kids. And we also anticipate a successful partner outcomes in France and in Switzerland to continue the growth trajectory for Penthrox in Europe. Let's slide to -- we'll go to Slide 16. This the last driver I wanted to speak to. This has been primarily a presentation, of course of Penthrox, but I'd be remiss if not -- speak to what we've been able to do in our respiratory franchise. Our growth of this franchise has been a 30-plus percent compounded annually since FY '21, and that's been driven primarily from our focus on the U.S. market. And in fact, if you look over on the right of the slide, that figure is 80% when looking strictly at that market. We've been very successful in building our presence in what is a multi-hundred million dollar market in the U.S. We've made considerable headway in the retail pharmacy sector, although there's still a lot of upside potential here. When you consider that an actual fact, we have not yet penetrated the 2 largest retail pharmacy chains in the country. So our growth is still coming despite being in the -- with the 2 biggest guys. Our strategy remains focused there and will continue to remain there, and we anticipate this trajectory to continue in FY '25. As we push -- we stay in retail, but we push beyond retail into institutional settings like hospital networks and group purchasing organizations. So that section that we're just through now is the growth drivers. Let me hand over to Anita now, and she's going to walk us through our results to a degree because we are going to talk to the results in greater detail in a few weeks from now. Over to you, Anita.

Yes. Thanks, Brent. Just moving to Page 17 of the deck. As Brent said, we will be releasing results in 3 weeks on the 26th of August. So I won't take up too much time talking to the numbers in detail at this time. But happy to take questions at the end of the presentation, if you wish. What I will say is we delivered in FY '24, what we set out to do, and that was to strongly improve earnings and cash flow and to set us on a pathway to deliver positive operating cash flows by the end of FY '25. Through the year, we have been very disciplined in driving financial improvements with improved volumes, reduced costs, deliver efficiency and strongly improved margins. Earnings improved by $7 million. Free cash flow improved by $10 million and revenue improved 3% despite cycling tough comps in some markets. What is most pleasing is the improving trend in earnings and cash flow over the last 6 months, which will continue to drive positive momentum in the year ahead. This includes $3 million to $4 million in earnings improvements from efficiency initiatives already implemented. We expect earnings this year to be, again, strongly improved, and we expect to achieve positive operating cash flow by the end of FY '25. I'll skip ahead to Page 20, we can touch on the revenue details a little further in 3 weeks. On our cash position. Cash at the end of the period was $9.7 million, following the raise on a pro forma basis, we expect cash reserves to be around $19 million, provide us with sufficient balance sheet capacity to implement the growth initiatives Brent has spoken to and support the company through to free cash flow positivity. So overall, we're in a good place. Our financial performance is improving. We have several levers for growth. And following the capital raise, we have a strong balance sheet to support execution of our strategy. Over to you, Brent.

Okay. Thanks, Anita. So why don't we move to let's say, [indiscernible], and we'll talk about use of funds. We're coming to the tail end of the presentation and then we'll open it up to questions. So I mentioned at the start of the presentation about the split the $6.5 million to $3.5 million, just to give you a bit further color on the targeted investment and the growth initiatives section that you see here. I mentioned earlier in the presentation about the importance of MAGPIE not just in expanding the addressable market, but also that new clinical data actually opening up our ability to build advocates, but that we needed to build out more evidence, and that's what this is about. So we're building on the MAGPIE pediatric data, which is really to stimulate greater uptake of Penthrox in a hospital setting as well as in the ambulance setting as I've said as well. But we're also looking at additional data generation over time. And that's not clinical data, just to be clear, it's investigator-initiated studies, observational studies, and these can include topics like patient throughput studies, length of stay, tolerability, data linkage and the like. So that's what an evidence generation is about, supporting local and international knowledge exchange. This is about really, again, capitalizing on the data we generate participating in targeted congresses, other key meetings for poster presentations, involvement of key opinion leaders from abroad and key meetings, et cetera. An example of this is coming up in November. Our MAGPIE study lead investigator will be presenting at the Australasian College of Emergency Medicine at which we'll be present and then conducting a speaker tour in the country thereafter. So that's an example of that. The third piece around expansion of commercial investment in Australia. As this traction -- as the advocacy strategy takes hold and we gain traction through FY '25, we'll explore and invest in other targeted investments both from a commercial personnel and tactics perspective as well as medical, that will come over time. I don't see that happening really in the current fiscal year. But that's really just to give you a bit further color on the $6.5 million that will be dedicated to the growth initiatives. So that's the final slide of our presentation. What I propose we can do right now is we can go to Q&A. And we have, I think, 2 means of doing that. I think people can ask questions either directly on the line or via the chat as well. Let me turn it over to -- Anita, where are we at with -- where should we be -- sorry, is it Melanie, are you going to walk us through the questions?

[Operator Instructions] Your first question is a webcast question from Dean Kelly, who ask, what gives the Board and leadership confidence the startup will not exploit the opportunity in the U.S. now the company has moved its entire focus away from that opportunity?

I wouldn't say we've moved our focus away. I mean, our focus is clearly, as the presentation states. But we remain very vigilant regarding the U.S. opportunity. We maintain a lot of our interactions associated with the U.S. opportunity. We monitor other entities on a regular basis. As for whether others can exploit the opportunity. We don't see that on the near-term horizon from our own monitoring, but we watch it closely. And we believe fundamentally that we are still in the driver seat to capitalize on that opportunity according to our time frame.

Your next question comes from Brett Westbury who asks, please comment on why director participation was not alongside the retail offering only?

Why it's not alongside the retail offering only? I mean this is the structure that we set up for the directors to participate. I don't know if there's anything else to say to this.

All the directors will be participating, so they'll be taking up their entitlements along with every other shareholder.

Yes.

Your next question is from Brett Westbury, who asked, how is the discount to the market price determined?

Yes. I mean, as you can well imagine, Brett, there's a variety of factors that go into this. And there was a lot of deliberation at the Board level with our advisers. That was the discount that was proposed based on these factors, and that was the discount that we ultimately accepted and felt was the discount that needed to be put in place to deliver the outcome that was -- that we needed from this raise.

Your next question is from Dean Kelly. You were driving revenue growth through increased pricing in a time of economic uncertainty when many governments will be looking to any areas to save costs. You have said to paraphrase that you are not interested in more competitive pricing, which can be achieved through improved manufacturing to drive market share. What is preventing you from exploring this path a more competitively priced whistle would be unstoppable. However, as per the recent relaunch in Canada and France sales team, failure demonstrates uptake is not where it could be. You have also referenced a slower uptake in ED, which also supports the need to improve pricing.

Yes. Well, we hold a very different view. Dean, on this point, I know we've talked to -- I know there's been talk about pricing in the past. I know I've said it a few times in the presentation, we believe the pricing of Penthrox reflects the value it represents, and we don't want to undervalue that whatsoever. I would also add, we've done market research and the market research has not shown us that pricing is the barrier to uptake. I think when we talk about the ED, let's use that as an example, that's not the feedback that -- that behavioral change that needs to occur in the ED is not pricing based. And I would just add 1 more thing. When you look at Canada and you look at France, I'll start with France. The sales team failure, I just want to amplify again, this is not a pricing failure. What -- I want to add that in the 3 years, in the 2.5 years that we had resources on the ground, we grew the business in France units from 37,000 to 49 to 65, and we finished this past year at 67, no field promotion. And what is that -- what was the issue we had in France. It was too costly to generate that growth. So that's why we're looking at other models. But the growth came. And again, even in a market like France, we did not see pricing and the fact that it was priced the way it was as the barrier. So our view is that Penthrox is priced for the value it represents, and that's a strategy we're going to continue to take.

Your next question comes from Marie Hewitt who asked, can you discuss what the old field team will look like going forward?

Yes, sure. So right now, what we've done and we've refrain how we're investing in our field effort as you heard in the presentation, more towards a medical engagement. And just as a precursor, Marie, answering your question, that was predicated also on the view that, that behavior will change that was becoming challenging, despite the fact that everyone knows Penthrox there's still a behavioral change that comes in that channel. And as a result, we've determined that a more optimal use of cash of spend is on this medical engagement. So we have right now in the field, we're revising our field effort with our national business manager who was across our key account managers, she remains as a lead person focused on the core hospitals on which we are focused, but also within the existing commercial team, that also includes me, by the way, our engagement, our external engagement with customers, whether they be hospitals or ambulances is being altered to become more cost effective. So right now, that's our field effort. It's with our lead national business manager and the involvement of others that are based here in the home office. But then as we go through the course of this year, as we see the traction we get from our medical engagement, we are in a -- we're ready to revisit what our commercial effort and engagement should be in support of the medical engagement. I hope that answers your question.

Your next question comes from Stephen Agnew, who asked, ambulance sales have always been the cornerstone of the Australian and NZD market. Why wasn't the MAGPIE study identified far earlier as the means of penetrating ambulance sales in offshore markets?

Well, I actually -- sorry, keep going.

Are the results of the MAGPIE study the only impediment to far greater offshore growth in ambulance sales?

Well, maybe the last question. No, I wouldn't say that, that necessarily cures all those challenges when it comes to behavioral change. But on the first question, the MAGPIE study, especially when you look at the U.K., the Irish, but the U.K. market, in particular, it's always been seen as a means of broadening penetration of Penthrox in the U.K. So it wasn't that we didn't know, the challenge was more about getting the MAGPIE study closed. So there was a -- the MAGPIE study started before COVID. COVID obviously hindered the progression of that study. I would add another point that challenged the progression of that study is the mere fact of trying to do a pediatric study in an emergency setting. It's a bloody hard thing to do. So -- it's not a question of, oh, we didn't realize it or our partner didn't realize it. We've always known it. The challenge was getting the study to a place where we could close the study, we could generate the data, we could package the data, and now we're in a position to preparing that data to the regulatory authorities in Europe in mid-August.

Your next question comes from Paul Higgins, who asked, over $70 million in cap raises since 2020, what does the company have to show for that? Certainly, not obvious when 1 looks at the balance sheet.

Yes. Look, there have been 2 raises since 2020. We took aggressive decisions with the support of the market and the support of our investors to grow the business in the ways that we've done. What we've seen since then, we have grown the business. If you look back on 4 years ago, the underlying business, I don't mean the milestones that were one-offs. I mean, the underlying business in FY '21 was between AUD 15 million and AUD 16 million, and as you can see here, with unaudited results, it's double that. But we anticipated it being more than that still. So I would say what we have to show, we have growth to show, we've learned a great many things. I realize it's come at a price. I won't deny that. But the business -- the underlying business is more than double what it was when we embarked upon this journey from beginning of 2021 until where we are today. And what I can also say and what I hope came through in the presentation, we've learned a great many things. We believe we're in a very strong position financially with our base. Our financial base, I should say, for more appropriate and aspirational growth going forward, but that growth is going to come in a much more let's say, prudent way financially. I don't know, Anita, if you want to add anything to that?

Yes. Look, I think, as Brent said, I think maybe growth isn't quite where we maybe anticipated it to be 3 years ago. But what we are seeing in the business are really positive lead indicators. And what the business set out to do 3 years ago, which was to grow Penthrox and penetrate effectively hospital EDs where this product hasn't had a big place previously. I think where we find ourselves is absolutely, we feel confident there is a place in the ED for this product, progress here as well as in France, as well as in other markets, U.K. and Ireland, particularly demonstrates that there is a place in the ED for Penthrox, and our challenge has been working on how to efficiently unlock the doors and grow that quickly and efficiently. And I think we've come a long way on that journey. So yes, I think that the last 3 years puts us in a place where I think the progress in the next 3 years, for example, will be a lot easier.

Your next question comes from Paul Higgins who asked, in April, you said no cap raise was intended or needed, yet now appears false or at best misleading.

I'm thinking of April, I mean, we've -- the question that's always been asked of us, you're thinking of the -- okay, you're thinking of the quarterly cash report. The question has always been asked of us if you're going to need to do another raise in order to reach your objective of positive operating cash flow by the end of FY '25. The answer to that question has been no and it is still no. I realize that perhaps for you, Paul, and for others at [ rings ] in light of this particular raise. But as I mentioned, the purpose of this raise ultimately was to accelerate some of the growth initiatives that we've identified but also to shore up the balance sheet. We recognize there was still some, I think, a lack of confidence in the market. And we believe these circumstances -- that under the circumstances with a lot of deliberation internally, we felt that this was in the best interest ultimately of shareholders over the long term, and we believe that quite strongly.

There are no further questions at this time. I'll now hand back to Mr. MacGregor for closing remarks.

Okay. I'll be quick about it. First off, I want to thank you all who came on the call today. I also want to thank you as well. We want to thank you for the candor of your questions. It's important to have the opportunity to hear that. And we've heard it through other portals as well. So it doesn't come as a huge surprise admittedly. We appreciate that you invested in us. We hope that you'll continue to be invested in us and are on the journey with us in the story that we have going forward. We've learned a lot over the last 2 years or so, as I've mentioned, as we've mentioned, and we believe very strongly in the trajectory that we're now on. So on that note, I thank you all again for coming on the call. And we'll be, of course, back online in a couple of weeks to do the full year results with audited results, and we'll see you then. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.