Futura Medical: Commercial transition complete

Futura Medical has delivered all the critical elements to position Eroxon, a topical gel treatment for erectile dysfunction (ED), for successful launches and uptake in the key EU and US markets. There are already encouraging reordering signs from first EU launches, and these experiences have helped fine-tune the positioning for roll-outs across other major markets. Launches by partners across other geographies will similarly tailor promotional activities to local market needs. Exciting as these are, the biggest commercial opportunity lies in the US, where launch is imminent by partner Haleon, the renowned consumer health specialist. Commercial success in the US or EU could be transformational, with the upcoming US launch ensuring Futura’s sustainable profitability. Our valuation is £392m (130p/share).

Eroxon is a topical gel for ED (erectile dysfunction). It has demonstrated clinically relevant and consistent benefits across a broad spectrum of ED sufferers. In contrast to mainstay prescription ED treatments, Eroxon has a rapid onset of action, few side effects, no drug interactions, and most notably is available over-the-counter (OTC), ie without a prescription. Given these unique features, Eroxon should be an attractive treatment option for a wide range of ED patients. Commercialisation has been entrusted to consumer health specialists, with the notable partners being Cooper Consumer Health for Europe and Haleon (formerly part of GSK) for the US.

As we have previously highlighted, tracking Eroxon’s launch and forecasting near-term revenues is, and remains, particularly challenging. This is owing to limited disclosure from partners, coupled with differing and unknown precise deal terms in various regions. An overview of the structure of the typical partnering deals that Futura has in place is shown in Exhibit 1; the US deal with Haleon is an IP licence model, whereas the deal with Cooper is a direct sales model. Whilst royalty income should correlate fairly directly with in-market sales, other components of Futura’s revenues, such as non-recurring and unpredictable milestone income or manufacturing fees, will not.

Exhibit 1: Futura typical partnering and operating models

Source: Futura Medical

As Eroxon is available OTC and therefore without the ability to track prescription data, there is limited quantitative data in order to track repeat use. As an OTC product, consumers are able to purchase Eroxon from a variety of sources and are effectively anonymous. The only real data that could identify repeat purchases would be via loyalty card schemes; however, not all consumers (and particularly men) will be part of these schemes and there is also no guarantee that a repeat user will purchase Eroxon via the same source each time. Nevertheless, despite these limitations, initial (albeit limited) reorder data from the UK suggest a repurchase rate of 15-20%. This is hard to contextualise, although management commented that the repurchase rate for a consumer healthcare product would typically be within the 20-40% range and the repurchase rate for Viagra and Cialis is around 30%. We also note two observations:

• Initial pent-up demand may have included ED sufferers for whom existing PDE5is do not work, and thus are potentially less likely to benefit from Eroxon, and may therefore be unlikely to repurchase; and
• The UK market is unique (in terms of regions where Eroxon has been launched) as some PDE5is are already available OTC, and thus this increases competition (compared to markets where these are only available with a prescription), which may also impact the reorder rate.

Hence, we believe the initial UK repurchase rate is encouraging at this stage, and should improve as marketing is refined to target users that are more likely to benefit. Market research and learnings that are being implemented in order to target Eroxon more effectively are summarised in Exhibit 2.

Exhibit 2: Market research observations

Source: Adapted from Futura Medical

With Haleon preparing for imminent US launch, an Eroxon product website is now available and contains imagery depicting younger males and couples. This seems to suggest that these learnings are being incorporated into Haleon’s marketing and product positioning.

Outside of the US, Eroxon has been launched in ten countries, including France, Italy and Spain with Cooper Consumer Health. In the Middle East, Labatec has launched in two markets. In Central and Latin America, a digital launch was started in Mexico in mid-August with a store roll-out to follow.

In China and South-East Asia, interest levels from potential partners remain high. The key criteria for securing any deals include finding a partner with appropriate consumer marketing credentials and market reach, plus an understanding of what is likely to be complex and nuanced regulatory processes as these regions may require additional trials to be completed. This is now the case in South Korea where regulators have outlined that Eroxon will be classified as a drug, requiring further clinical studies. Because of this regulatory requirement, this market is not currently being progressed and the deal with Menarini for South Korea has consequently been terminated.

Beyond these Eroxon launches, part of Futura’s strategy is to broaden the product range and Futura is also exploring potential range extensions (which is of interest to existing commercial partners). In the near-term, this includes completing initial proof-of-concept studies whilst remaining mindful of costs. We expect an update on these before the end of this year.

Valuation and Financials

We value Futura Medical using a sum-of-the-parts NPV (net present value), including various assumptions for Eroxon in the main geographies (US, Europe, and Other Regions). These are summed and netted against core costs and cash. Our NPV has been updated to reflect the earlier than anticipated US launch, plus we have incorporated the last reported cash position and rolled forwards in time. These lead to a Futura Medical valuation of £392m, equivalent to 130p per share (Exhibit 3). For more on our valuation methodology see our April 2024 Outlook.

Exhibit 3: Futura Medical NPV valuation

Source: Trinity Delta  Note: Assumptions include a 10% discount rate; a 1.2 $/£ FX rate, and 10% tax rate from 2027 with the benefit of the UK patent box

Following H124 interim results (discussed in our September 2024 Lighthouse) we have increased our FY24e revenue forecast to £13.3m (from £9.2m), which reflects inclusion of a $5m/£4m milestone from Haleon on US launch (which we previously included in FY25), initial first recurring royalties on US sales of £0.5m, whilst slightly lowering our EU/RoW revenue forecasts to £5.5m (from £6m), given unpredictable launch dynamics and stocking. Our updated FY25e revenue forecast is £18.5m (from £15.1m) which comprises slightly lower product sales and royalties of £10.5m (from £11.1m), albeit the mix has shifted with higher US royalties, whilst electing to conservatively keep EU/RoW product revenues broadly flat vs FY24e. Our FY25e forecast also now includes two milestones of c $5m/£4m. A breakdown of our revenue forecasts are shown in Exhibit 4.

Exhibit 4: Revenue forecast breakdown

Source: Trinity Delta

With only minor adjustments to core operating expenses (R&D and G&A), the higher revenues drive a swing to a net profit in FY24e to £0.5m, with FY25e increased to £7.1m (Exhibit 5). Our updated forecasts are in Exhibit 6.

Exhibit 5: Summary of main changes to forecasts

Source: Trinity Delta

Exhibit 6: Summary of financials

Source: Company, Trinity Delta    Note: Adjusted numbers exclude share-based payments and exceptionals.