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

Thank you for standing by. Welcome to the Medical Developments International FY '24 Full Year Results. [Operator Instructions] There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Brent MacGregor, CEO. Please go ahead.

Thank you, and good morning, everyone, and welcome to today's investor briefing for our FY '24 Full Year Results. I am Brent MacGregor, I'm the CEO, and I'm joined today by Anita James, our Chief Financial Officer. So today, I'm going to share with you an overview of our results and the company's key achievements in the year and take you through some drivers of our future growth. And then after I've done that, Anita will speak to the financials in more detail before I make some closing remarks. Today's release is in line with the results we shared with the market at the end of July and at the time of announcing a $10 million capital raise. And as mentioned, there will be plenty of time for questions at the end of the presentation. So we'll skip past the disclaimer slides, we'll move straight to slide 4. These are our key messages for the presentation today. So our financial results for FY '24 are encouraging. We've delivered strongly improved margins, earnings, and cash flow. Our group revenue was up 3%. We're not as excited about that, but our margins were improved by 5 percentage points. Our underlying EBIT was improved by $7 million and our free cash flow was improved by $10 million. Now following the recent capital raise, we have a well-capitalized and a strong balance sheet with cash on a proforma basis of close to $19 million at this stage. Regarding our strategic growth initiatives, we have made good progress in the year. We've grown Penthrox volumes in key growth markets here in Australia and in Europe, and our respiratory revenues in the U.S. are up over 30%. We transitioned to a more efficient operating model in Europe and a successful clinical outcome of our MAGPIE Study in children provides the potential to expand our addressable market into the future. We expect this positive momentum to continue in the year ahead or in the current year. Let me provide a little more detail now on the coming slides. And so on that, let's move to slide 5. And these are the strategic and operational highlights of FY '24. So in FY '24, we set ourselves 5 strategic priorities, 4 of these priorities are included on the slide here. And on these, we made great progress. So first, we targeted a step change improvement in margins through pricing and efficiency, and we have achieved this goal with over $7 million earnings benefits realized. This includes a reduction in costs in Europe, supply chain efficiency and higher pricing for Penthrox and that's particularly in Australia. Our gross margin, as I mentioned, improved 5 percentage points and our costs were reduced by $5 million. Now operational efficiency initiatives overall that we implemented in FY '24 are expected to drive a further $3 million to $4 million or so in a reduction in costs in FY '25. Now as for our second priority, this was to increase penetration of Penthrox in the Australian hospital market. And on this front, the group delivered over 30% growth in volumes into this segment with growing demand from emergency departments overall. From a small base, I grant you about 30% growth nonetheless. Some of the lead indicators. Penthrox has been listed on protocols in 44 new hospitals and the total number of purchasing hospitals has increased by 68 over the last year to a total of 244. These hospitals, of course, include major trauma centers in Melbourne and in Sydney. And in the period, Penthrox was also listed on the South Australian state formulary for use in emergency departments, so another encouraging outcome. Now our third priority was about establishing an efficient operating model to support the growth of Penthrox in Europe. Europe is the largest market for Penthrox outside of the home market here in Australia. So when you look here, cost to serve were significantly reduced in FY '24. And during the year, we transitioned to what we're referring to as a capital-light operating model, and we scale down in-market promotional activity. Now at the same time that we've done that, we are continuing to advance negotiations with partners for Penthrox distribution in France and in Switzerland. Additionally, the successful clinical study outcome of our MAGPIE Study was a highlight of the year. Now future regulatory approval of our submission of this clinical study data has the potential to accelerate growth in Europe. And expansion of the approved age indication to children would expand the addressable market and could also address a barrier to Penthrox entry into some ambulance trusts in the U.K. Now we are hopeful to gain regulatory approval in select European markets by August of 2025. Now a further highlight we announced back in July was the extension of our agreement for distribution of Penthrox in the U.K. and Ireland with one of our most experienced partners, Galen. Now support from Galen over the coming years will be invaluable in realizing the potential of this expanded age indication that I just mentioned. Our fourth priority you see here was to continue to grow our respiratory franchise. Now our key target market here is the U.S. It has been for the past 3 years, it continues to be. And here, we delivered for the third consecutive year, very strong growth, with revenue in FY '24, up 37%. Now lastly, and it's not shown here on the slide, the fifth priority for FY '24 was to advance U.S. market entry. And on this, we did make some good progress in the year, particularly learning progress. In October -- just to go back a number of months, in October, the group had a positive meeting with the U.S. FDA, where we gained a lot of clarity on the clinical pathway to U.S. market entry. From this, we have been able to develop more fully our estimates of project costs and timelines. And we announced in April 2024, however, that following further evaluation of resourcing requirements and funding options to progress these plants that we would pause the commencement of the next phase of investment in favor of focusing on our underlying business. Now aligned with the delayed commencement of further U.S. market entry activity, investment in the group's next-generation device was also paused. We referred to that as Selfie in our past presentations. Now despite this pause, the group remains confident that an attractive commercial opportunity exists for Penthrox in the U.S., and we intend to recommence plans at the appropriate time. So to summarize, a lot of work in FY '24 has created a positive momentum for the company that will continue in the year ahead. And speaking of the year ahead, let's move to our growth drivers in FY '25 in greater detail. So the next few slides, we shared them in our capital raise presentation a few weeks back, but I feel it's important to step through these again because they will underpin our continued momentum, not only in the year ahead, but in the longer term as well. So let's go to slide 7. Thank you. Margin improvement is going to continue to be a strong focus for us going forward. Now our target here is to achieve margins that fully reflect the value proposition of Penthrox in all markets. In FY '25, we're going to benefit from efficiency initiatives that we undertook in FY '24 that will drive a further $3 million to $4 million in earnings benefits in FY '25. We will also benefit from further pricing improvements. And on this point, here in Australia, the PBS accepted an increased pricing for Penthrox which has resulted in a 25% lift from the 1st of August of this year, so already a few weeks back. Where appropriate, we intend to adopt this increase in other parts of the market to align with that PBS pricing. Lastly, speaking of pricing, we will benefit from improved pricing in the U.K. and in Ireland. Now if we move on to slide 8. This is about the Australian Penthrox market. And FY '24 gave us a lot of good insights into the opportunity for Penthrox in the Australian hospital segment. Now as I already mentioned, we have made good progress with over 30% volume growth and strong lead indicators such as those new protocol listings and an expanded list of purchasing hospitals. Certainly, the positive attributes of Penthrox were amplified in the past year, which confirms that the value proposition of the product remains very strong. We have really concrete evidence that demonstrates that once Penthrox is established in an institutional setting, it embeds as standard of care. And we are seeing increasing interest on this point. We're seeing increasing interest in other procedural settings like O&G, not surprising, in fact, considering the growing emphasis on pain management in women's health. In fact, there was a story, I mentioned it a few weeks ago, I'll mention it again here. There was a story, it's probably 5, 6 weeks ago now about Penthrox use in the O&G ward at Frankston Hospital. It's such an example. The use of Penthrox in Canada and the target of our partner in Canada is another example. 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 still takes time and a targeted effort. In short, ED physicians will need to hear more from peers to shift their behavior toward Penthrox over time and addressing how to influence and shift behavior will be a key focus of our strategic efforts in this year ahead. That brings me to slide 9 and the revised approach we're taking in FY '25 as part of what we call our acceleration strategy. Now our plan in FY '25 will be to pivot away from a conventional field-based sales approach toward a stronger medical engagement strategy in the hospital segment. Now this strategy, again, aligns with our capital-light approach, and it reflects a key learning of the past year where behavioral change in ED has been slower than anticipated. But we have some examples that are very encouraging, such as the Austin Hospital here in Melbourne, where use of Penthrox has been steadily increasing as a reminder of what our product can become in these settings. We know from our FY '24 experience that there is a belief in Penthrox in the hospital ED and our medical engagement approach will facilitate the building of an expert network in Australia that can establish advocacy in key institutions and facilitate this behavioral change we're talking about. Now this approach will also be fueled by the MAGPIE pediatric data, which will serve really as the basis upon which these engagements will occur. Now a broader arsenal of evidence that can fuel the medical engagement approach will be required over time. And in fact, the recent capital raise provides us with some funding capacity to address these needs. But it is important to note as well though that the benefits of progress in Australia is not actually confined to Australia. Progress here will be leveraged in support of our partner efforts in international markets, not just those we're in now, but those that we will seek to enter at some point in the future. Now speaking of international markets, we switch here to slide 10, which reflects, of course, another key growth driver for our business in FY '25. Our success in other markets, particularly in Europe. Now I've already spoken of our positive outcome with our partner in the U.K. and Ireland. This extension that I mentioned and at enhanced terms for MVP is a testament to the enduring belief in Penthrox and its growth potential. This relationship is now in its eighth year in the U.K. and Ireland. And our partner continues to be keen to leverage the growth of Penthrox with the MAGPIE data to unlock even further growth in what is actually our second largest market worldwide. And this includes in the Ambulance segment where some of the largest trusts in the U.K. have been reticent to adopt Penthrox until the age indication captures younger kids. Just as a reminder, the age indication is at 18 years of age. And with the MAGPIE data, we're looking to lower to as low as 6. And then lastly, we also anticipate successful partner outcomes in France and in Switzerland to continue this growth trajectory for Penthrox in Europe. Now lastly, of our growth drivers you look here on slide 11, and I want to say a few words about our respiratory business. Our growth of this franchise has been at a 30-plus percent CAGR since FY '21, driven primarily by our focus in the U.S. market. And in fact, that figure, you can see on the right here is 80% when you look solely at that U.S. growth. We've been very successful in building our presence in the large and attractive U.S. spacer market. We've made considerable headway in the retail pharmacy sector and there remains a lot of upside potential here when you consider that we are -- we have not yet penetrated the 2 largest retail pharmacy chains in the U.S., that being CVS and Walgreens. Our strategy remains focused there, and we anticipate this trajectory to continue in FY '25 as we push into institutional settings like hospital networks and group purchasing organizations. So okay. On this point, let me hand over to Anita, who's going to walk you through our results of the past year in more detail. Anita?

Yes. Thank you, Brent, and good morning, everybody. Just moving ahead to slide 13. Well done. As Brent mentioned earlier, there are no surprises in today's results. They are in line with the unaudited results we shared with the market in July aside our capital raise. Just to recap on the headlines, though. At the topline, we delivered 3% growth with both pain management and respiratory, up slightly on the prior year. A deeper look at the moving parts of our revenue line provide some insights, which illustrate really good progress in our strategy, and I'll go through those shortly. As Brent has mentioned several times, we have had great success in FY '24 in improving pricing and reducing our costs. This has resulted in strongly improved margins and earnings. Our gross margin has improved 5 percentage points to 74%, mostly due to higher pricing, particularly in Australia. At the same time, we reduced our cost base by close to $5 million. And underlying EBIT was improved by $6.6 million, up 36%. You'll see on this page, $21.5 million in underlying adjustments in the period. These are outlined in further detail in the appendix. They include non-cash asset impairments we announced to the market in July in addition to a one-off share-based payment expense relating to changes to Brent's remuneration, which we announced last November. These were also non-cash and did not represent a benefit to Brent. Net loss after tax was a loss of $41 million. This reflects not only the underlying adjustments, but also the derecognition of tax losses that we announced to the market in July. Further details on this is contained in our financial report. Jumping ahead to slide 14 and pain management revenue. Revenue here was up 4% with strong growth in Australia and Europe, offset by lower revenues in our rest of world markets. This is due almost entirely to inventory stocking done in the prior year in Canada ahead of the relaunch of Penthrox there. Pricing in the year was strongly improved, delivering over $2 million in revenue growth, and we saw underlying volume growth in most markets outside of Canada. The Nordic region had a particularly strong second half with positive momentum in demand building there, and France has been really pleasing, growing volumes despite limited commercial activity during the year. In our respiratory segment, we saw revenue growth of 1%, a solid result given the soft seasonal conditions we experienced in Australia and the destocking we experienced in Europe, driven by another really pleasing result in the U.S. Here, revenues were up 37% as we continue to grow market share. While our result in Australia was down on the prior year, it is generally in line with FY '22, which was more comparable to the demand conditions we experienced in FY '24. We hold a leading market position in Australia. And while overall demand was softer in FY '24, we maintained our position in the market. So overall, a good result. On slide 16, we have our EBIT bridge for the period. As Brent has already mentioned, we were pleased with the pricing and efficiencies we delivered. Pricing increased earnings by $2.2 million in the period. This reflects price changes for Penthrox in Australia and some of our rest of world partners. Efficiency benefits, as I mentioned, improved earnings by $5 million. This included costs -- lower costs in Europe following the scale back of direct marketing support, supply chain efficiencies and other operational efficiencies implemented throughout the second half. Volume changes I spoke to earlier, had a net $0.2 million benefit to earnings. Other cost changes and revenue changes were $0.8 million unfavorable to earnings. This included non-capital project costs relating to the operating model review in Europe and the U.S. market entry work in the first half, lower milestone income following a true-up in the prior year and generally -- general inflationary impacts. On slide 17, our balance sheet and cash flow in line with improved earnings. Operating cash flow was strongly improved and CapEx was well down. Free cash flow as a result was improved by $10.2 million. What has been most pleasing throughout FY '24 is the trajectory of our cash flows, which continue to trend positively, reflecting the efficiencies we have delivered and overall underlying operating performance improvement. Cash at the end of the period was $9.7 million. Following the raise on a pro forma basis, cash reserves were around $19 million. So our balance sheet is well capitalized. CapEx in the year ahead is expected to be around $2 million. So a step down from this year due to the completion of the MAGPIE study and a pause in investment in U.S. market entry activities. Operating cash flows are expected to be positive by the end of FY '25. I'll hand over to Brent now to close.

Thanks, Anita. So let's go to the final slide here. And in summary, we expect the positive operational momentum of the business to continue in FY '25. We've delivered $7 million in earnings benefits from pricing and efficiency already. And as I said, we expect to deliver a further $3 million to $4 million in FY '25. And these improvements will really drive delivery of our target of positive operating cash flows by the end of FY '25. And finally, to our earnings outlook. The company expects underlying EBIT in FY '25 to continue to be strongly improved on FY '24, driven by higher average Penthrox prices and operational efficiencies of $3 million to $4 million. So that's it in a nutshell. Thank you for coming on the call today, and now we can open the floor for questions.

[Operator Instructions] The first question is from Dan Hurren with MST Marquee. What is the sales impact from a new hospital protocol listing for Penthrox? Do sales follow on quickly? Or does it take more time? Can you give any examples?

Yes. Thanks for the question, Dan. It doesn't -- I think the quick answer is it doesn't come quickly. The selling cycle is a long one. It varies from hospital to hospital. But if you look at -- if you look at the steps, from the moment a protocol is written and approved, what happens next from a selling cycle perspective is that we look to train up the ED staff on the protocol and on the use of the product. And that takes time to schedule it to get done. The hospitals are usually very open to doing it. And even once the training is done, there is still time taken before behaviors really begin to change. So the training happens, and then usually some months pass after the protocol stage has been reached. Again, it varies from hospital to hospital, no 2 hospitals -- at least from what we've seen thus far, no 2 hospitals are the same, but it can be several weeks to a few months after the protocol is achieved.

The next question is from [ David Pattinson ], a private investor. Have you any idea how the test in the U.S.A are going?

I'm sorry, could you repeat the question again?

Have you have any idea how the tests in the U.S.A. are going?

I'm sorry, I'm missing a word there. Did you say tests in the U.S.?

I think perhaps they're referring to perhaps the notion that we have a trial going over there at the moment, Brent, which we don't.

We don't have a trial underway right now, if that's what you're referring to. Sorry, if I'm not understanding your question, we're not in Phase III. We don't have preclinicals going as regards to Penthrox in the U.S. That project is on pause right now. Sorry if I'm not getting there -- if I'm not hearing your question correctly, please ask again if I didn't get it right for you.

Two more questions from Dan Hurren. Can you explain how the additional cash will impact FY '25 expenses versus FY '24? That's the first one.

Dan, at this point, our outlook for FY '25 is for $3 million or $4 million of efficiency. So costs have come down by 3 to 4. We still -- our outlook is for strongly improved earnings. In terms of changes to that, obviously, that reflects where we're at and reflects the fact that we've been successful in the capital raise. The capital raise and the use of funds that we spoke to July and August alongside that, was around accelerating progression of the strategy in Australia, and that would take spend in various forms, including investment in data generation, expansion of commercial activities in time. But some of that work necessarily requires progress in other parts of that strategy that we have underway at the moment, particularly in our medical strategy. Now that is likely to take some time in this financial year. And we're probably unlikely to be in a position until somewhere into the second half for that work to actually inform our next steps -- in our next investment stages. So unlikely to change our outlook for FY '25 at this stage, Dan.

And the second question is EU pain growth slowed in the second half, what is the outlook for FY '25? Is second half the right base from which to grow or will sales continue to fall to a new baseline before returning to growth?

That's an interesting one, Dan. Yes, there's a couple of data points for Europe, which you might be looking at. One is we report underlying in-market volume. And yes, the growth percentage rate relative to the first half growth percentage was softer. And we also report dollars. The dollars we report are not in market sales. They are invoiced shipments to our customers, and that can be necessarily a little lumpy. So probably the best focus is the end market volumes into that. There's a few swings and roundabouts by country. But what we can say is that we're continuing to grow volumes and see volume growth in all markets there. And I think taken average perhaps across the year might be a better look.

Next question is from Morgan Payne with Payne Media. On the last call, management said there would be no need for a capital raise. A raise was announced within 3 to 4 months from that call. What changed in these 3 to 4 months to go from no raise needed to needing $10 million raise?

Yes. This was -- this -- there was no raise needed and there was still no raise needed for us to hit positive operating cash flow. We had a number of discussions at the Board level, Morgan, around a few things, and one of which was the -- our strategy and the acceleration strategy that we were contemplating. Another was around how the market was reacting with our share price. And as a result, we ended up taking a discussion and having advice which said, let's move forward to do a small raise that allows us potentially to fund some additional initiatives we were contemplating, and it shores up the balance sheet a little bit further. But this is not a raise that's been required to achieve positive operating cash flow as we've said, and we continue to hold to that view.

Your next question is from Roy Taouk from MST Marquee. Given the price increases in Australia generated $2.2 million in FY '24, what will the new 25% price increases in Australia in August 2024 generate in FY '25?

Do we have this figure specifically?

Look, it again will be $1 million to $2 million, Roy. Now the PBS price specifically is on PBS volumes, which obviously is not all of our volumes. So that will be an automatic pass-through of pricing and that's effective from the 1st of August. We will look to leverage that to push pricing more broadly in the market and anticipate some of those benefits to come through in FY '25 and further benefits to come through in FY '26.

Up until now, there's been no impact on the behavior on certainly Ambulance services and our customers in Australia, it's still early days with the latest price increase. Our teams had a number of discussions with key customers, key partners in Australia as to the rationale for the price increase, recognizing that there was an increase as well about 1.5 years, 18, 19 months prior. But we believe quite strongly, and we believe our partners in the market also believe strongly that the price does reflect the value that Penthrox represents, and we were encouraged by the fact that from a PBS perspective that the government felt that way too.

The next question is from Mary Hewett from [indiscernible]. Hi Brent and Anita, given that the introduction of Selfie may help drive adoption and further market penetration, what time and capital amount is likely required to finalize development of Selfie and bring it to the market?

Yes. Hi Mary. Selfie is still in a -- it's in a late stage on the engineering front. There are still a few more steps to [ go ]. We put Selfie on hold because we link it very closely with U.S. market entry. And why is that? Because our internal view currently is the cost of goods associated with Selfie is higher than the cost of goods associated with our current device. And hence, it's probably likely a U.S. market device. We'll see whether it ends up being a device in other markets, including here in Australia. In terms of how much additional cost is associated with getting it to the finish line, that's not a number we're super clear on right now. Anita, do we have a number that's associated with the remaining effort required from an engineering perspective on Selfie?

Not a definitive.

I don't think so. Yes. But Selfie -- Mary, Selfie is in a pause just as the U.S. project is currently.

Next question is a follow-up question from Morgan Payne. Can you give more information on the results and submission of the MAGPIE in the U.K.?

Sure, Morgan. Yes, we -- the MAGPIE study was a study, a pediatric study. And the purpose of the MAGPIE study was to ultimately lower the age indication from its current 18 years down to 6 years of age. And ultimately, what MAGPIE was intended to show is that the efficacy and safety profile at that lower age is equivalent at least to what it is at the adult age at 18 years and above. And that's what the MAGPIE -- that's what the results have shown. And so we have that dossier read out a couple of months ago. The publication is close at hand. But one of the things we said, Morgan, a few weeks ago during the capital raise process was that we would be submitting that dossier to the European authorities on August 14, and that occurred on that day. So we are -- we are into the process now. What we're going to wait on next is when the first round of questions comes in the normal course. That should come probably somewhere around October. Usually, it's 1.5 months, 2 months after a dossier is submitted when the questions begin to come back from the regulatory authority. But our ability to respond to those questions in a timely manner is going to be important. We're very focused on that, and we expect to get -- we expect to get a positive result from the European authorities in August of 2025.

Another question from Morgan. How long can the FDA approval be paused for?

How long can it be paused for? It can be paused indefinitely. We have an open IND. So we do need to maintain interaction with the authorities such that the IND remains open. But it can be paused for an extended period of time. We don't have a timeline right now on when we will re-engage the U.S. project, we don't intend that it's going to take a number of years, but it's not going to occur in FY '25 at the very least. We'll have to figure out what the funding options are for us because vis-a-vis the preclinical studies that would have to be done before we go into Phase III.

There are no further webcast questions, and I'll hand back to you for closing remarks.

Okay. Look, everyone, thanks very much for coming on this call. We know for a number of you, it's a bit repetitive from the calls we've had over the prior weeks during the capital raise process, but we do appreciate you coming on the call this morning, and we appreciate as well you asking the questions that you asked. We're really encouraged by what -- the platform that we're on right now. We're encouraged -- we've already had -- kicked a few goals in the first few months of this year. So we're feeling good about the progress we're making even as we come to the end of August. We look forward to speaking to that a little bit more. I suppose the next milestone will be the AGM in October and then, of course, the half year results. But until then, I thank you again on behalf of all of us for coming on the call, and wish you a good day.