MedAdvisor (MDR: ASX) operates in the healthcare IT space, specifically in improving the interaction between pharmacies, patients, drug manufacturers, doctors, and government. MDR provides a fully digital end to end experience for handling medical scripts for prescribed medication, primarily targeting chronic conditions which require ongoing medication management.

If we quickly look at some of the benefits each stakeholder stands to gain from the MedAdvisor platform

Pharmacists/Pharmacies: It allows their customers to refill (where they have a repeat prescription) scripts on the app at any time, thus they can just come to pay and collect. This allows the pharmacists to process scripts more efficiently and allows them to provide regular customers with a faster and more streamlined service offering. The app prompts reminders when you are about to run out and thus leads to patients re-ordering at required intervals so they don’t skip out or fall off their medication. This improved adherence means extra sales that would otherwise be lost by a pharmacy. They are also investigating the ability to pay for prescriptions via the app or platform thus introducing a whole merchant service revenue stream for MDR. The pharmacy will also then benefit from even faster servicing of customers but crucially free up time to discuss other products or services with the customer when they come to collect.

Patients: The app has inbuilt reminder functions for when you need to take your prescription and when your next script refill is due. These functions help to improve adherence to the medication prescribed and for better overall management of chronic conditions. Improved adherence to medication programmes improves the overall quality of life when living with chronic conditions. The MDR platform also acts as a detailed history of your medication history for any medical professional in the event of an emergency, in hospital appointments and regular outpatient check-ups at the hospital or with a GP.

Drug Manufacturers: For the first time drug manufacturers can market and communicate directly to patients actually taking their specific drug. Giving them advice on how to best utilise the drug, the latest research on the drug or new and improved versions that they should ask their doctor or pharmacist about. MDR has also now started offering clinical trial recruitment based on user data for drug manufacturers and other biotech companies given their huge user database. This massively cuts down recruitment timelines and reduces the overall time to market for drug development for the manufactures, which is already a long process. This is a nascent revenue line but one with solid potential.

Doctors: Straightforward script renewals can be authorised through the app via an e-consultation and communicated to both the patient making the request and their local pharmacy. Thus cutting down the need for the patient coming in for an appointment. This assists doctors in providing a better service to patients with chronic conditions and improving the throughput of patients through their surgery as routine script refill appointments can be avoided.

Government: The ability to utilise pharmacies, doctors and patients on the platform for public health initiatives in a coordinated and target way is highly appealing to the government. For example, the annual winter flu shot campaign saw over 100k flu shots administered through the MDR network. Similar campaigns such as blood pressure testing, mental health awareness programmes etc could all be supported via the platform. Again this is a nascent revenue stream for MDR but appears to have reasonable scalability.

When I last wrote about MDR they had managed to sign up, 9 Major Pharma Companies, 2,500 pharmacies, 4,000 doctors and 700,000 users. Today they have 16 Major Pharma Companies, 3,500 pharmacies, 7,500 doctors and 1,000,000 users. This has been delivered through organic growth and a major acquisition of a key competitor. Current revenue is 63% SAAS based from the pharmacies and the other 37% is transactional fees being charged to the pharmacies, doctors, drug companies. Transactional revenue is growing strongly and will eventually form the backbone of the business.

EBOS Strategic Investment

Since my last piece, EBOS (EBO: ASX) made a strategic investment in MDR and currently owns 14% of the company. EBO made a $9.5m investment at $0.0575c in Oct 2017. The price paid at the time was a 44% premium to the share price pre their investment. They are also integrating MDR through their network of operations such as Zest and HPS. MDR is trialling the platform in a hospital setting on both the admission side (medication info pre-admission) and at discharge (script processing, medication adherence and outpatient management) Having an invested partner to test and trail this product offering before releasing it into the broader market is a nice luxury to have.

We note that Sigma Healthcare (SIG: ASX) also owns 3.2% of the company which could make for some interesting corporate activity at some future point and something I will be keeping an eye on.

US Expansion

MDR has recently signed an agreement with a partner in the US which will see them roll out the MDR platform out to circa 10,000 pharmacies in the US. However, revenues from this will only meaningfully kick in FY20 as there is a large IT integration piece that needs to be completed beforehand. This integration along with other implementation projects with EBO on the hospital side has seen a large ramp up in operating costs in FY18 and more of the same is expected in FY19. One must bear in mind for Australia the MDR platform had had to be integrated with 11 different dispensing systems and pharmacy operating systems to date. This IT integration in the US is a large investment for a company of MDR’s size and not without significant risks of cost and time overruns. However, the prize at the end is enticing if they can get this right. Given their execution in the Australian market, I would be inclined to back management here. With $10.5m on the balance sheet as a result of the EBO investment, the company is well funded to pursue this opportunity without significant capital constraints.

Other International Markets

MDR has appointed a business development manager in the UK to explore a possible entry. MDR has also indicated that is assessing other attractive markets in Asia and elsewhere. I would like to see them bed down the US opportunity first before making a major jump into the UK or other markets. It must be noted that managements desire to take the platform to other markets demonstrates the scalability of the platform on an international basis. By having already partnered with 16 of the world’s leading pharma brands already in Australia they should prove help partners in entering new markets given their positive experience with the platform in Australia.

"Today MedAdvisor is approaching cash flow breakeven and expects to hit this milestone in the latter half of 2018, in other words, the next 12/18 months." This was my assessment in my last article. This has now been pushed out till sometime in FY20 depending on when the US goes live and if and when they enter other markets. While this is a longer timeframe than I would normally be comfortable with the value proposition offered by the platform and solid execution by management in the Australian market to date give me a degree of comfort.

MDR is currently trading around 4c and market capitalisation of $56mil with $10.5mil of cash on the balance sheet. With an end to end, digital solution that is providing benefits multiple market participants MDR is an interesting investment proposition. Coupled with the fact that they have successfully rolled out in the local market validates the MDR platform value proposition. If the same value proposition can be validated in the US market then MDR will be in a very solid position to take the platform to multiple markets.

Taking it all into consideration to me the MDR story is on the higher risk end of the spectrum given it is not cashflow positive, conducting its first offshore expansion project and has some large cash-hungry IT integration projects in play but overall to me on a medium-term view it still looks interesting.