Futura Medical: uncertainties and opportunities

Futura Medical has provided more detail on the data from the pivotal Phase III study (FM57) for its lead compound MED2005. The headline results show impressive and consistent improvements across all the primary endpoints for all doses at 12 weeks vs baseline. These are highly statistically significant (p<0.001) and clinically meaningful. Secondary endpoints are similarly positive. These otherwise excellent data are confusing because the same results are seen with the DermaSys placebo arm. The side-effect profile of the treatment arms suggests no formulation or administration error has occurred; which in turn means that FM57 has shown that DermaSys used alone is a potent and effective treatment for all severities of Erectile Dysfunction (ED). This opens new avenues to be explored, including a potentially simpler and faster regulatory route to market, fresh patent protection, as well as new commercial options.

The headline data from the pivotal Phase III FM57 study of MED2005 in ED showed a remarkably strong and consistent effect in all four arms, three active and one placebo, with highly statistically significant (p<0.001) improvements from baseline across Mild, Moderate, and Severe forms of ED. However, there is a lack of differentiation between any of the active arms and placebo; which would indicate that the action of the proprietary DermaSys formulation alone has an effect comparable to the glyceryl trinitrate (GTN) doses studied. Importantly, the dose-dependent variation in side-effects, notably the headaches typically associated with GTN dosing, should allay fears that administration, formulation, or procedural errors may be to blame for these outcomes.

Exhibit 1: FM57 study design

Source: Futura Medical

The FM57 study consisted of three active arms, with gel doses of 0.2%, 0.4%, and 0.6%, and a placebo arm (DermaSys formulation alone) run in parallel. The study involved 1,000 males aged 18-70, with 250 in each arm, who had confirmed clinical diagnosis of erectile dysfunction (defined as an IIEF score of less than 25) for at least three months. They undertook a four-week run-in period, which established a baseline, followed by 12 weeks of treatment.

The primary efficacy endpoint was based on the erectile function domains of the IIEF questionnaire, but with SEP2 and SEP3 questions from the Sexual Encounter Profile (SEP) questionnaire (assessing achievement of erection and the ability to complete sexual intercourse). Secondary endpoints include responder analysis, subjective measures of the time of onset and duration of action (erection), additional questions on usage and application, and safety/adverse event profile.

Exhibit 2: FM57 headline results – primary endpoints (change from baseline)

Source: Futura Medical

The results for the primary endpoints are shown in Exhibit 2 above. These highlight the highly significant (p<0.001) and consistent improvements against baseline, but with no statistical difference between the active arms and the placebo control. These results are for the 12-week analysis but the data from the four and eight week assessments were broadly similar. The outcomes for the secondary endpoints such as efficacy, speed of onset, and duration of action showed the same pattern and were also similarly consistent.

Interestingly, a ‘placebo-effect’ was seen in the four-week FM53 study, although the hypothesis at the time was that the study not long enough to see clear separation between the active (0.2% GTN) and placebo (DermaSys) arms.

Exhibit 3 shows the results for the clinically important difference using the Rosen & Araujo criteria. Again, we see consistent results with a statistically significant improvement in erectile function across ‘pooled’ patient severities (mild, moderate, and severe) of erectile dysfunction against baseline across the three treatment arms and placebo. Over 60% of all patients experienced a meaningful difference in improvement of their erections using recognised assessment techniques. Interestingly, shown in the green box, the responses across all three primary endpoints were similar across the mild, moderate, and severe ED groups in the placebo arm (treated with DermaSys alone).

Exhibit 3: FM57 headline results – clinically important differences

Source: Futura Medical

Exhibit 4 details the side-effect profile seen with the three MED2005 doses and the DermaSys placebo arm. Although the aim of the slide was to show MED2005’s attractive profile and to compare, indirectly, its safety profile with Cialis (tadalafil), for us the real importance of this data lies in the data for headaches seen in FM57.

Exhibit 4: FM57 headline results – adverse events summary

Source: Futura Medical Note: 1 – for illustrative purposes only as data is derived from different clinical studies, Cialis US Prescribing information , 2018; 2 – numbers below 1% have not been rounded

Whenever a well-structured and planned clinical trial throws up such remarkable results the first question should be whether something has gone awry in the study execution. Examples would include formulation errors, administration issues, and problems with data collection and processing. However, the clear dose response seen in the headache side-effect, a well-recognised problem with GTN administration, suggests that the study was performed correctly, and that the data are valid. This would mean that the DermaSys formulation alone is a potent and effective treatment for all forms of ED.

New horizons opening or back to the drawing board?

Clearly, these results have created an understandable amount of confusion and uncertainty. Yet if the DermaSys formulation was indeed shown to be the causative factor underlying such clinical improvements then several potentially positive outcomes would arise such as:

• Being classed as a medical device rather than a pharmacological treatment means a simpler, and faster regulatory pathway as no further clinical work would be required for the EU and only a small local study in the US;
• A larger commercial opportunity as there would be no contraindications for patients taking cardiovascular medications (eg nitrates and alpha-blockers) and it could be used in combination with other ED therapies such as the PDE5s;
• The efficacy seen in FM57 suggests an activity level higher than niche products such as Vitaros (a topical gel which is applied into the urethra) and approaching that of the oral PDE5s such as tadalafil, but with a faster onset of action (60% of patients seeing erection onset within 10 minutes of application) and fewer side-effects;
• Although we expect the first launches would be as prescription-only (Rx) treatments there is an opportunity to achieve a faster and easier switch to OTC status in many geographic markets, if commercially prudent;
• Opportunistically, management has already filed new patent applications to cover the ED indication and that could potentially extend the IP protection through to 2039.

On the downside, the new data will take time to digest and, assuming it is found to stand, it will delay any longer-term planning until there is greater clarity and visibility. This will apply particularly to out-licensing and partnering discussions.

Valuation and Financials

The remarkable results from the FM57 study have created understandable uncertainty and until we have greater visibility, we are obliged to suspend our valuation and forecasts post the financial year ending December 2019.

Our previous DCF model, which assessed the rNPV of each clinical programme, with MED2005 split into prescription-only (Rx) and over-the-counter (OTC) scenarios for both Europe and the US, was based on numerous assumptions which will need to be revisited for DermaSys for ED, including, but not limited to: potential launch timing; market size; growth rates; R&D spend; patent life; Rx to OTC switching; and commercial strategies of likely future partners.

There are clear opportunities, not least in terms of patent life and market opportunities, but equally there are potential unknowns that may unexpectedly crop up to dampen our enthusiasm. For context, our last published current valuation was £127m (equivalent to 62p/share).

Similarly, we suspend our FY20 and FY21 financial forecasts. For FY19 we expect R&D spend of £9.35m (associated with the FM57 study and preparatory work for FM59) with G&A for the full year of £1.08m. On this basis we forecast an EBITDA of £10.4m and net loss of 8.6m (4.2p per share).

Beyond FY19, anticipated R&D expenditure will fall as the FM59 study will no longer be pursued, although there will be costs associated with the close out of the open label phase of FM57, and potentially in connection with other smaller studies that may be required by regulators (most likely the FDA). Of clear interest to investors is the fact that a second pivotal Phase III trial (FM59) is no longer required, and this has repercussions for the quantum of Futura Medical’s funding needs. In our previous note, we had highlighted that FM59 required funding to be in place ahead of the start of recruitment in 2020. We had assumed the study would cost c £7m, with the company targeting a c £10-15m injection of funds (potentially through out-licensing/partnerships, equity, debt, or a hybrid). Our assumptions around Futura Medical’s funding requirement rests on the regulatory pathway for DermaSys for ED, and we await further guidance.

The largest single element of spend remains the costs of filings for the approvals of DermaSys for ED in the various regulatory regions. At present, the regulatory timeline and timeframe is unknown; management are seeking meetings with the US and European regulators and will provide an update on what they “believe will be a simple and expected lower cost regulatory pathway as soon as possible”.

Exhibit 5: Summary of historic financials and our previous estimates