Here you go:
Futura Medical (FUM:36p), a pharmaceutical company that is developing a portfolio of innovative products based on its proprietary, transdermal Dermasys drug delivery technology focused on sexual health and pain, has been one of the stars of my 2019 Bargain Shares portfolio. The shares have more than doubled in value since I first advised buying them at 14.85p.
The investor interest reflects the huge potential commercial value of Futura’s flagship product, MED2005, a breakthrough topical gel for erectile dysfunction (ED), which is currently going through a Phase III clinical study. MED2005 has a rapid rate of glyceryl trinitrate (GTN) absorption, with first detection in blood plasma in four to five minutes, reaching peak levels in the bloodstream within 10 to 12 minutes, far quicker than any oral inhibitor on the market (60 to 120 minutes to reach peak levels) and without the nasty side effects.
After the 1,000 patients undergoing the clinical study complete their four-month trial period, they are then invited to enter the open-label extension study to assess safety at the highest dose (0.6 per cent GTN) up to the required number of 450 patients. The first 500 patients have completed the 12-week double-blind phase of the study, with 80 per cent electing to continue into the open-label extension to study long-term safety of the highest dose. This is a normal requirement for pharmaceutical products to provide additional reassurance on safety for longer-term use. Expect headline efficacy and safety data to be released by the year-end.
Futura is now planning a second confirmatory Phase III study in the first half of 2020 and will incorporate a US patient cohort (700 patients). Protocols will be the same as for the ongoing European study, but will be informed by the receipt and analysis of the European Phase III data and adapted accordingly, if necessary, via regulatory amendments. Futura will shortly be filing protocols and an Investigational New Drug Application in the US.
Discussions are ongoing with a number of interested commercial partners for the out-licensing of MED2005, although the main focus for Futura is to deliver Phase III headline data by the end of 2019 and prepare for the second, smaller Phase III study. It is usual for two Phase III studies to be required for regulatory filing, but depending on data from the first European Phase III study, Futura may explore filing MED2005 with regulatory bodies in Europe with one Phase III study, which could occur during the first half of next year. The US drug regulator has made it clear that two studies are required, so US filing will await results from the second Phase III study.
Completion of the second, confirmatory Phase III study, expected by the end of 2020, is subject to funding and positive results from the ongoing European Phase III study. In anticipation of this, Futura’s directors are exploring both non-dilutive and dilutive funding options in order to place the company in a position of strength to continue capitalising on product development and for negotiating any out-licensing agreements for MED2005. This is a sensible course of action.
Clearly, if data from Futura’s European study is positive, and I would stress that it’s not a binary event as of the realistic outcomes only one would definitely mean MED2005 cannot be launched commercially, then I can see strong demand for the shares in any fundraising. The market could be huge as there are an estimated 78m men above the age of 40 with some form of ED in the US and the EU5 (France, Germany, Italy, Spain, United Kingdom), who between them generate $2.4bn (£2bn) of annual sales for makers of oral inhibitors (Viagra, Cialis and Levitra). Also, at least 10 per cent of patients are unable to take oral inhibitors because they are on nitrate therapy. This group would benefit from MED2005, so increasing Futura’s captive market.
Simon Thompson’s 2019 Bargain Shares portfolio performance
Company name TIDM Market value Opening offer price 01.02.19 Bid price 13.09.19 Dividends Percentage change
TMT Investments (note one) TMT $163m 250¢ 580¢ 20¢ 140.0%
Futura Medical FUM £70m 14.85p 34p 0p 129.0%
Inland INL £143m 57.75p 69p 0.85p 21.0%
Ramsdens Holdings RFX £56m 165p 183p 4.8p 13.8%
Augmentum Fintech AUGM £129m 102.4p 110p 0p 7.4%
Jersey Oil & Gas JOG £48m 205p 218p 0p 6.3%
Litigation Capital Management LIT £89m 77.5p 81.8p 0.28p 5.9%
Bloomsbury Publishing BMY £175m 229p 235p 6.75p 5.6%
Mercia Technologies MERC £94m 29.57p 31p 0p 4.8%
Driver Group DRV £27m 74p 51p 0.5p -30.4%
FTSE All-Share Total Return index 6,852 7,507 9.6%
FTSE AIM All-Share Total Return index 1,023 1,004 -1.8%
Note 1: Simon advised taking profits on TMT Investments at 580c a share on Monday, 9 September 2019 (‘Takeovers, tender offers and taking profits’, 9 September 2019).
Source: London Stock Exchange opening offer prices at 8am on 1 February 2019 and closing bid prices on 13 September 2019.
Moreover, I am comfortable with Liberum Capital’s blue-sky fully de-risked target price of 137p, implying a target market capitalisation of £280m, given the product could be making peak annual sales of £500m by 2028 at an eye-watering margin, thus generating Futura huge royalties from any outlicensing deal (‘Beating the market’, 12 August 2019). I also like the potential of Futura’s joint venture collaboration with CBDerma Technology to explore the application of Futura’s Dermasys drug delivery technology for delivery of cannabidiol.
True, the unknown factor is how Futura will fund a US Phase III study, which is why there was some profit-taking after the half-year results. However, it looks overdone to me because it is clearly in the financial interest of existing institutional shareholders to back any funding round at a level that will support the current value of their existing holdings – and clearly there could be substantial further investment upside at the current level – while at the same time providing Futura with the financial strength to be able to negotiate the best deal possible with licence partners. The sums are not huge in any case as the US Phase III study will be smaller than the European Phase III study, which is costing £8m and is fully funded. Buy.