It has been announced this morning that Medical Developments International has received FDA approval for its Space Chamber asthma spacers. Since I bought shares, the company has moved forward with a number of its initiatives (selling asthma devices into the USA is just one of them). Importantly, the application for marketing approval of Penthrox in Europe has been accepted for consideration. These are both positives. However, the company has also reported reduced sales of Penthrox in Australia, meaning that the shares are no more attractive now than when I bought them, in my opinion. The current price is $1.38 (only slightly above my average entry price).

Medical Developments has been an under-performing holding, although I still believe in this company for the long term. The main reason for the sluggish share price is the bad news conveyed in the Preliminary Annual Report: sales of Penthrox to two Australian ambulance customers declined (leading to a 7% reduction in sales to Australian customers). The company attributes the decline in sales to cost-cutting in the ambulance services.

Since the Liberals formed the various state governments, there have been various cuts to ambulance services and public health spending. These simply aren't the priorities for conservative governments. Most recently, the NSW government decided they would squeeze the NSW Ambulance Service. The bottom line is that despite a rise in sales of Penthrox to non-ambulance customers, the company has reported a reduction in revenue from Penthrox sales of $356,000 for FY2013.

It's quite possible that these cuts could have a greater (or equal) impact in FY 2014, because we don't know whether the full impact of reduced demand from those two customers is reflected in the FY2013 figures. The company also took on about $1.4 million of debt during the year but paid a 2c final dividend. It wasn't necessary to do this, in my opinion, as now shareholders will just end up needlessly paying interest on the debt.

In my last post on Medical Developments I wrote:

By FY 2015, any or all of the following might be occurring:
- Sales of Penthrox to the UK
- Sales of Penthrox to Japan
- Sales of Space Chambers to the USA
- Reduced cost of manufacturing Penthrox
- (Increased) sales of Penthrox into other jurisdictions

The company is on track to sell Penthrox into the UK (and Europe). The company is on track to sell Space Chambers into the USA. When I spoke to the company after the release of the preliminary annual report, it was confirmed that they continue to work on new manufacturing processes.

It's also good news that the company is planning to sell Penthrox into the USA, although I think they have to be careful how much they spend on trying to get FDA approval.

Two different directors have bought shares at about $1.26, in recent weeks, suggesting that current prices are attractive. All things considered, the good news from Medical Developments balances out the bad news, and I will continue to hold my shares in the company. However, I did sell some of my holding in August 2013, because of the poor Penthrox sales in Australia. The company is about 8% of my personal portfolio, which is highly concentrated - my top 3 holdings are almost 50%. Edit: I also have capital in August Investments, which adds diversification (separate to my own portfolio).

I didn't see the point in opportunistically buying shares this morning because I have enough already. The share price is probably bouncing as I write this. I wouldn't be surprised if it comes back down to around $1.40 at least, as it has traded below that for a few weeks now, and this news is not that surprising.

The Author owns shares in Medical Developments International. Nothing on this website is advice, ever. This post is for entertainment (and for my own reference!)

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