Today I had a chance to speak with Brent MacGregor (CEO) and...

Today I had a chance to speak with Brent MacGregor (CEO) and Mark Edwards (CFO). The emphasis was on the strategy level, though I did dig into some of the financials as it pertained to potential risks with the cash burn situation. Overall, I felt quite confident in the strategy and reckon it's really about whether they can execute it - and they probably have the right people in the right spots to ensure they do.

Key takeaways:

• Brent's personal interest is in growing a smaller organisation, wanted to be in Australia, but most of all saw the potential for Penthrox and felt the challenges were associated with commercial execution. If you take a look at his personal performance incentives (70% of his pay packet), they're very bullish ranging from share price of $8-$11 and US FDA approval by FY25.
• Long term goals remain US FDA approval and China approval being the cream on top. But, these are not necessary conditions for MVP success, and indeed are not factored in at all in today's share price. We didn't discuss flow technology at all.
• Medium term goals is where the Board and Management are really focusing on commercial execution in Europe. Aspirational target is top-line growth to $100m revenue by FY25 (that's 4x, or 5x for Penthrox). To get there they will need to increase the SAM - first to get into more hospitals / ambulances, second to get into pediatrics, and down the line potential is day surgeries (seems very far away).
• Emphasis by Brent was really on the people and the partners. Lots of change in personnel and essentially clearing out the decks (my term), but replacing them with competent and skilled practitioners: head of clinical development; head of operations; European distributions; Australian distribution; board members - all changed, and while there is some expansion in terms of distribution teams (from 5 to 15 in Europe in FY21), I think the key positions are now largely set.
• I probed a bit on getting a better understanding of where MVP's revenue really sits right now - as in, what's the normalised level? FY21 was $25m revenue in total, and $19m for Penthrox. For Penthrox though -~$10.5m for contract payments up front, +~$2m for Penthrox inventory rundowns from Australian distributor, means really the run-rate of Penthrox is really $11m p/a, which is a low base. For respiratory, FY20 ($9m) was high due to Covid pre orders, FY21 ($5.3m) low due to Covid impact, so plan is to get back towards <FY20 levels (my guess is around that $7-8m mark).
• Bear case is the cash burn rate. They are investing heavily again in FY22 for improved European distribution (Admin expenses increased from $4m to $14m in FY21), while a lot of the returns won't be seen in FY22 revenue. Mark was confident they have $36m in the cash, can go to the bank, and won't need to go back to the well for capital raise in the near term. Idea of selling respiratory to fund Penthrox was not really needed (would get a low price now anyway), though a visioning review for MVP is being done in later 2021 which may influence the structure going forward.

My reckoning is that this really is not a short term investment or a value play. The catalyst for share price movement will be meeting commercial targets, delivering top-line revenue growth, and possible profitability in FY23. I perhaps bought too much too early and so my average price is ~$5, but I'll look to top-up if they demonstrate some of that corporate execution.

GLTAH. Follow the discussion on Twitter for those interested, at DownunderValue.