Futura Medical plc (FUM) Earnings Call Transcript & Summary

Good morning, and welcome to the Futura Medical plc Interim Results Investor Presentation. [Operator Instructions]. And now I'd like to hand you to James Barder, CEO. Good morning to you, sir.

Good morning, everyone, and welcome to Futura Medical's Interim Results Presentation for the period ending 30th June 2024, I am James Barder, CEO of Futura, and I'm joined today by Angela Hildreth, Futura's Finance Director and COO; and also Ken James, Executive Director and Futura's Head of R&D. Futura specialized in the development and commercialization of innovative sexual healthcare products across the board, our lead product is Eroxon, a clinically proven breakthrough treatment for erectile dysfuction. Our key area of expertise is in totally delivered gel formulation. Next slide.

Hi, everyone. This is Ken James. Having worked my career in consumer healthcare, I can say that it is rare to have a product such as Eroxon, which is truly unique as it is a breakthrough safe and effective treatment for erectile dysfuction. Why is it a breakthrough? Because of its excellent safety profile, it's available without a doctor's prescription or pharmacy consultation. . This is in contrast to the oral medications known as PDE5 inhibitors, such as Viagra and Cialis, which are only available on prescription in most markets or behind the counter in the U.K. Secondly, we have a fast onset of action with 63% of men getting an erection within 10 minutes. Again, a key point of difference between the Eroxon and the oral medications which generally take 30 to 60 minutes to work. This means that Eroxon can be used for more spontaneous sex rather than having to wait. Thirdly, Eroxon is clinically proven in 2 pivotal clinical studies to be effective in mild, moderate and severe ED in over 60% of the users. And last, but certainly not the least, in the dominant U.S. market, Eroxon is the first FDA-authorized ED treatment available over the counter. And we'll talk about this huge commercial opportunity later. Next slide. Let's look at the market potential for ED, which currently has a total prescription and OTC market size of $3.5 billion. As men grow older, it is the sad fact of life that things don't quite work as well, including blood flow around the body. Sometimes this can lead to heart disease and also with weight gain and type 2 diabetes, but it's an early symptom for blood flow, you experience ED with 50% of men over 40 experiencing the problem. But also ED is now occurring in younger men with 14% of men between 18 and 31 experiencing the problem, often psychological as a result of performance anxiety. And this proportion in younger men seems to be growing. Also, largely as a result of the embarrassment factor, around 50% of men do not go to the doctor to seek treatment. So when you add it all up, there's huge potential for an easily access safe, effective and fast-acting treatment sold in supermarkets, pharmacists or online. I'll now hand you back to James Barder.

At the time of 2023 year results in April, I said that following the significant progress we made last year, that '24 was all about execution. And I'm really delighted to say we have made excellent progress in this regard. Eroxon is now on sell, both on online and retail pharmacies in over 10 countries with further launches already underway in the second half of 2024. This includes key markets such as France, Spain and Italy as well as smaller markets such as Norway and Netherlands. Moreover, in the past month, we've made our first Latin American launch in Mexico. And of course, the recently announced commencement of the major U.S. launch as well as other planned for '24 and beyond. There have now been over 4 independent consumer studies completed by our distribution partners, which have consistently confirmed the efficacy results we've previously seen in our Phase III trials of greater than 60% advocacy. We are also beginning to see repurchase rate trends in the U.K. which we estimate between 15% and 20% currently. This is slightly lower than we'd hoped, but we believe it is because the product positioning is yet to be fully automated towards the key target orders, which we now believe is men up to 60 years old. I want to stress this is normal with any new product launch, especially with the new product category with a real-world data post launch being used to refine ongoing marketing and product position to optimize advertising spend as well as sales. And we will talk more in a minute about our results and financial position, but I'm delighted we've announced this morning our first profit over GBP 1 million, actually GBP 2.3 million if you exclude noncash payment and a significant rise in our revenue to GBP 7 million to the first 6 months of the year. This is a major achievement for a company that until 2023 had never shown any material revenue, let alone a profit problem. Next slide.

Okay. Before we take a detailed look at the financials, I just want to touch a little bit on what James has just said because I do think it is worth reminding how much progress has been made in the last few years. In 2022, we were still a pre-revenue company, 100% focused on R&D. Last year, we generated our first meaningful revenues with the launch of Eroxon in the U.K. and Belgium. And during the first half of this year, we've continued with the rollout of Eroxon to key markets in Europe and the rest of the world. We now report a meaningful revenue growth and our first profit. And this is ahead of the U.S. launch, which is scheduled in October. And as previously stated, we expect the U.S. to be our biggest market. In the first half of the year, we generated revenue of GBP 7 million. This represented a growth on the period last year of over 300%, the GBP 7 million is made up of GBP 3.2 million recognition of the milestone received from our U.S. commercial partner last year. And GBP 3.8 million of product sales remained predominantly to the EU, but including some Rest-of-World sales as well. This gives an overall growth of direct product sales of over 130% compared to the same period last year. Current revenue consensus for the full year '24 is GBP 9.5 million, and we have confirmed this morning that we expect to exceed those expectations. Gross profit margin on direct sales was 44%. This is a decrease on the margin generated in 2023. And as a result, of temporary higher cost of goods, as we have moved and expanded our manufacturing capability and capacity. We made the decision to invest in manufacturing and in particular, investment into a fully automated filling and packaging lines. But unfortunately, this equipment takes time to manufacture and install and we made the decision to run on a semi-automated basis until mid-2025. Meaning we do incur additional costs, but we have ensured that we can continue to meet demand from our partners. In addition to the temporary low margin, the investment made in the manufacturing also had an impact on CapEx. This is the investment into the machinery for the filling and packaging lines. And into G&A because we incur tech transfer and setup fees with our new manufacturers. However, we all firmly believe that this investment and expenditure was necessary to protect our supply chain. The profit we generated in the period is GBP 1 million of cash, as James said earlier, if you exclude the noncash share-based payments, this would be at GBP 2.3 million. Aside from the additional costs incurred with the manufacturing tech transfer, the core G&A costs remain broadly static to the period last year. Our cash position at the end of the period was GBP 3.9 million. This will, of course, be strengthened by continued revenue generation including the next milestone expected from our U.S. commercial partner this year and with the receipt of the [ 300,000 ] 2023 R&D tax credit is the next month or so. We have every reason to remain confident that we will significantly exceed current market expectations for the full year and guidance will be updated shortly as the results. I thought it would be useful just to remind everyone how our revenues are generated. We have two slightly different operating models. We have a direct sales model. Within this model, we remain legal manufacturer and still have responsibility for regulatory and quality. We purchase finished products from our third party manufacturers and effectively take our margin as a transfer price. Some agreements within this model also have some events and/or sales, volume and milestones. Thus, we generate revenues through those direct sales and the milestones as they trigger. The other model that we have is an IP license model. Under this model, the partner is responsible for manufacturing, quality and regulatory. Revenues are generated through royalty payments and milestone payments, again, could be events and/or sales volume driven. It's important to note that in both models, the commercial partner is responsible for the costs associated with advertising and promoting the product and also the investment required into building a rocksolid brand. But what this does mean is that as our sales increase, our operating costs can be leveraged as they also won't significantly increase. I think one thing that is worth mentioning in respect of both of these models is the challenge when it comes to visibility of forecasting both revenues and the phasing of those revenues. Revenues generated by direct sales and royalties are based on net sales to the retailers. And during any launch phase, we'll always have an element of stock in or channel sale that added to the markdown payments when they trigger, can make revenues seem a little lumpier time. But also in addition to launching a product in any new category, any new products with limited data can make in-market sales difficult to predict, especially when we are not directly responsible for the sales and rely on our third-party commercial partners.

Thank you, Angela. As I said earlier, our primary focus in '24 has been around supporting our distribution partner launches in as many countries where we already have regulatory approval. I would also add that our priority has been very much on commercialization within the larger consumer healthcare markets for the time being. Again, we are making excellent progress with the latest launches in Mexico and the imminent launch in the U.S. The one exception if you look on this map is Asia. We have received huge interest for the marketing lots in this region, and we are making good progress with potential Asian partners. Especially for China. Nevertheless, the rate environment in this area is quite complex, as we have recently seen with our experiences in Korea. Commercial negotiations are going on in parallel with discussions with the relevant authorities to understand the regulatory position before we finalize any distribution agreements when we can say more I would obviously update the market. Next slide. Our ABC strategy remains unchanged, and we continue to deliver across these 3 strategic pillars of addressing the growing needs within the OTC sexual health market, broadening our product pipeline portfolio and committing to building sustained profitability whilst maintaining financial discipline. So putting this into context, on the addressing side, worldwide demand for Eroxon with further launches especially in the U.S., in particular, this is an iterative process of learning from consumer feedback to adapt future launches and marketing to optimize sales. Again, as Angela has already said, we've made significant investments to strengthen and expand our supply chain to meet demand. We're now having 2 contract manufacturers, one in the U.S. and one in the EU. Broadening our portfolio pipeline, Ken and his team have done a remarkable job to date, and the board see the opportunity to leverage this proven R&D expertise by broadening the offering beyond Eroxon within the OTC sexual health packaging. This is very much work in progress, and we look forward to updating shareholders over the coming months. No pressure there, Ken. I'm extremely proud to say this is the first time we've been able to declare a profit, but we are committed to build -- to continue to build on the achievements of the past few years. In particular, this means continue to expand our intellectual property portfolio wherever possible, and we're making good progress with our various patent and trademark applications as well as protecting the IP we already have. I suppose we should take it as a backhanded compliment, but such is the interest in demand for Eroxon, we have, in the past year, taken out over 1,000 sites selling illicit Eroxon or equivalent. We will continue to aggressively protect our IP wherever we can. Finally, we continue to work hard and support our distribution partners to drive both growth of Eroxon and profits. This leads me on to the launch of the biggest OTC market in the world, the U.S. Next slide. We are excited to have, in our view, the best distribution partners as one of the world-leading consumer healthcare company, Haleon. As Ken touched on earlier, the treatment of erectile dysfunction is a huge underserved opportunity. And in the U.S., there are approximately 23 million men with erectile dysfuction of which 80% are not on treatment. In value terms, this itself is estimated to be a potential market opportunity of in excess of $350 million per annum. Eroxon is already available for online ordering now and will be launched across U.S. major retailers in October, combined with Haleon's unquestionable expertise in consumer healthcare and strong distribution capability. This is a tremendous exciting time for both Eroxon and obviously us at Futura. This launch also triggers, as Angela touched noted, a further milestone payment from Haleon not dissimilar to the payment received in July 2023.

So just basically summarizing the investment case, we know that the market for men with ED is large, it's growing and it's currently underserved. And we also know that Eroxon is highly differentiated from other ED treatments, because of its OTC availability and its speed of onset. We believe that our go-to-market strategy, derisk by partnering with leading healthcare companies who can commit to significant marketing spend and expertise, and we are now at an inflection point with growing revenues and profits declared. Our cash balance and low OpEx base provides us with sufficient funding to execute on our growth strategy. We will continue to utilize our experienced and innovative R&D team to look at how we broaden the Eroxon range, and as James touched upon earlier, with the EU patent granted and other applications pending, we believe we have protection out to 2040. James, would you like to wrap up?

Yes. At the beginning of the presentation, I talked about 2024 always being a year of execution for us and we are definitely delivering on this promise. Eroxon is a breakthrough treatment in a new category. And with any new launch, there will always be need to make adjustments to product positioning and marketing following market feedback and analysis. And the sales will not be always as forecast of the different regions, which again Angela touched on a little earlier. But we've had a tremendous first 6 months with over a 300% increase in sales and our first profit. And we're confident this is set to continue the launch behavior in the biggest consumer healthcare market in the world. It just remains for me to say we look forward to the future with growing excitement, and thank you all for listening today.

[Operator Instructions]. And Sam, at this point, if I could hand over to you to chair the Q&A, that would be great, and I'll pick up from you at the end.

Thank you. As I'm sure you appreciate, we've had lots of questions come through. So whilst we may not answer every question word for word, we will try and capture the key themes that come through to us. So the first question is how excited are you about the U.S. launch, is clearly a pivotal moment in the company's trajectory.

Yes, it is. I mean look, the U.S. is the biggest consumer healthcare market. Well, biggest ED market potentially in the world. And we've got one of the world's leading companies in the form of Haleon as our commercial partner there. So this is very exciting time for us. We've learned a lot from some of the earlier launches and those learnings have been taken on board. So yes, it's a very exciting time for us and we've got great anticipation to it.

And do you have any concerns about the U.S. launch?

I mean look, I think anything, when you're building a new brand in a new category, and especially done this way, there's some embarrassment issue to sit with it. It's all about positioning and getting it correct. But I think we've been able to provide opinion with a lot of learnings from the earlier launches, which is really helpful. And they're very professional. They know what they're doing. So nothing is absolutely guaranteed, but I think we are going into this with very huge amount of options.

Excellent and now that you've made your maiden profit, do you have a set capital allocation policy?

We're really proud to have reported our maiden profit today. I think this is something that the Board will continue to discuss, keep under review as we pro through the rest of the launches.

I suppose it's nice to be asked about [indiscernible] money. So let's call that progress for you.

And you referenced China in the presentation as a big market. What are the market dynamics within China?

Well, that won't be gone. I mean the market is more complex. As I as said earlier on, the regulatory position is complex. We've had some experiences before with China. Definitely there will be some complexities [indiscernible]. So we're working steadily through this. We've had well over 50 approaches for the marketing rights in Asia and in particular, China. It is a big market. We're working on it. We won't be rushed. We won't commit to a timeline on it. Because if we give a time line, then we have problems before we're trying to explore that. But we're making good progress. And I think when we can say more, we will say more.

Excellent. Thank you, and question is how sales developed in the first half of the year in the U.K. and Belgium, particularly given these are the first markets products was launched?

Yes. I mean they're going well. I think the key things for us is some of the learnings we're getting out of it. We said earlier on that we're estimating a repeat purchase of 15% to 20%. It is not an easy thing to track because such wide accessibility of the Eroxon is always to monitor where people are getting product from. The retailers are happy, our commercial partner is happy. . A large amount of the sales are incremental, which we have really liked because we're expanding the market with growing the market. And remember also that in the U.K., this is an unusual market compared to pretty much everywhere else, but Eroxon is going to be OTC. U.K., we're moving into a market where Viagra is already established as an OTC brand and Cialis is like that. So I think overall, we're pretty happy with the way it's going. And yes, we can always improve it, and we're taking the learnings and moving forward in that -- on that basis.

Excellent. And can you remind us how the Haleon deal is structured?

Yes. I mean I touched a little bit on this during the presentation. So the Haleon deal falls under the IP license model, and we're structured in a way where we receive royalties on what we're seeing as net sales, so that's sales that's made to retailers. And we've also previously disclosed in addition to the upfront milestone there are potentially another $5 million to $45 million of further milestones to come through the agreement. And I don't really think I can add any more to that. And I know it frustrates a lot of our shareholders that we talk about commercial sensitivities. But especially with Haleon, they are a public company and there are limited things that we could say.

Excellent, thank you. A question on financials then. I believe there's been GBP 3 million spent on plant and equipment. Can give some more detail and more items? Just colors.

Yes, I can. So we have brought two new manufacturers on, one in Europe and one in the U.S. And -- the product itself is fairly easy to manufacture, but it comes in small tubes, which are quite complex in terms of the way that they are filled. The key to getting the cost of goods low is to obviously manufacture as quick as possible. So having a filling line that can fill a lot of tubes quite quickly is less labor intensive and less time intensive than a line that will be slower. So we made the investment into that and also the investment into our packaging line, which basically alternates the tubes going into the packaging, again, it just increases the speed of manufacturing, which longer term will help us to retain a low cost of goods.

And clearly, the U.S. is a major milestone for the group in the second half. What other launches do you expect for the remainder of this year?

I mean we've said before we don't kind of give a running commentary ahead of launch, and that is really driven by commercial tests [indiscernible] launch partners. We're only making a comment when they are happy for us to make. There are a number of other launches planned. But I can't really say much more than that at this stage, those launches are for '24 and also '25. When we can say more, we will do. But the most important thing is to respect commercial sensitivities of our different commercial partners and only you say when they are happy for us to do so.

Excellent. Thank you. That is the end of questions. So thank you, [indiscernible] back to you.

[Operator Instructions] But just before redirecting investors, to provide you with their feedback, which I know is particularly important to the company. James, could I ask you for a few closing comments?

Yes. I mean, look, thank you all for joining. I think for the company, this is a pivotal moment in our journey, which I appreciate it might have been long. And our first profit, significant revenue updated guidance day, which Angela has touched on, I think it's very exciting times, and we look forward to especially to the launch with great excitement. So again, thank you all for joining, and we look forward to speaking again in due course.

Thanks once again for updating investors today. [Operator Instructions]. On behalf of the management team at Futura Medical plc, we'd like to thank you for attending today's presentation, and good morning to you all.