Here's why Medical Developments International Ltd shares have surged higher

Medical Developments International Ltd (ASX:MVP) shares have bounced around following two announcements. Here's why I think you should buy its shares…

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Shareholders of Medical Developments International Ltd (ASX: MVP) have been on a bit of a rollercoaster in the last 24 hours.

Late on Tuesday afternoon its shares were trading down by almost 5% before a late comeback meant they ended up finishing the day higher. This morning the positive momentum has continued with the share price climbing around 5%.

Medical Developments share price chart Aug 2016
Source: Yahoo Finance

 

So what was the reason for such a wild swing? It is likely to be the result of two announcements the company made late in the afternoon yesterday.

The first announcement related to the company's Penthrox product. Penthrox is the "green whistle" which has been used for decades by the defence force, ambulance officers, and surf lifesavers to deliver rapid pain relief through the inhalation of methoxyflurane.

Although widely used in Australia and other countries, it is not yet approved for sale in the United States. Following a lengthy wait for feedback from the US Food and Drug Administration (FDA), it announced yesterday that it has finally received feedback and now has a clear understanding of the steps required to get its Penthrox approved for sale in the country.

The next step will be to find a partner to conduct a second Phase III Pivotal Clinical Trial. Although I feel the sell off that came as a result of this announcement was short-sighted, I can understand how some investors may have become frustrated at the slow progress.

But this was all outside management's control. The FDA has been suffering from high workloads as a result of an epidemic of narcotic addiction and the political pressure generated by it.

The second announcement was a lot more upbeat and may have been missed by some investors. Although the company's Penthrox product is a big draw for investors, it isn't the only product in the company's arsenal.

It also has a range of space chamber anti-static respiratory devices. Fresh on the heels of a distribution deal with AmerisourceBergen, management reported another distribution deal with leading global pharmaceutical sourcing and distribution giant Cardinal Health.

With the company now having one of the largest distribution networks in North America, management believes it has an excellent platform for growth in the United States. I would have to agree with them and believe this is yet another sign that this is a company with explosive growth potential.

Although its shares are changing hands at 150x trailing earnings, I still feel there is a great opportunity here for a long-term investment and would put it up there with the likes of Ramsay Health Care Limited (ASX: RHC) and Mayne Pharma Group Ltd (ASX: MYX).

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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