Futura Medical plc

Good morning and welcome to the Futura Medical PLC Infant Results Investor Presentation. Throughout this quarter's presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time by the Q&A tab situated in the right corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all the questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand it to James Barter, CEO. Good morning, sir.

Good morning, everyone, and welcome to Futura Medical's interim results presentation for the period ending 30 June 2024. I am James Varda, CEO of Futura, and I'm joined today by Angela Hildreth, Futura's finance director and CEO, and also Ken James, executive director and Futura's head of R&D. Futura specializes in the development and commercialization of innovative sexual health care products across the board. Our lead product is a Roxxon a clinically proven breakthrough treatment for erectile dysfunction. Our key area of expertise is in topically 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 a Roxxon, which is truly unique, as it is a breakthrough, safe and effective treatment for erectile dysfunction. 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 UK. Secondly, we have a fast onset of action. This means that Eroxon can be used for more spontaneous sex rather than having to wait. Thirdly, Eroxon is clinically proven in two pivotal clinical studies to be effective in mild, moderate, and severe ED in over 60% of users. And last, but certainly not 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's a 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, type 2 diabetes. But as an early symptom, poor 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 accessed, safe, effective, and fast-acting treatment sold in supermarkets, pharmacies, or online. I'll now hand you back to James Barlow.

At the time of the 2023 year results in April, I said that following the significant progress we had made last year, the 24 was all about execution. and I'm really delighted to say we have made excellent progress in this regard. Aeroxon is now on sale both online and in 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 the major U.S. launch, as well as others planned for 2024 and beyond. There have now been over four independent consumer studies completed by our distribution partners, which have consistently confirmed the efficacy of results we've previously seen in our phase three trucks, the Stutford trials, of greater than 60% efficacy. 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 had hoped, but we believe it is because the product positioning is yet to be fully optimized towards the key target audience, 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 a new product category with the real-world data post-launch being used to refine ongoing marketing and product positioning to optimize advertising spend as well as sales. Andrew will talk more in a minute about our results and financial position, but I'm delighted that we've announced this morning our first profit over a million pounds, actually 2.3 if you exclude long cash payments, and a significant rise in our revenue to 7 million for the first six months of the year. This is a major achievement for a company that until 2023 has never shown any material revenue level over profit. 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 Iroxon in the UK 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're now reporting 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 7 million. This represented a growth on the period last year of over 300%. The 7 million is made up of 3.2 million recognition of the milestone received from our US commercial partner last year, and 3.8 million of product sales relating predominantly to the EU, but including some rest of world sales as well. This gives an overall growth direct product sales of over 130% compared to the same period last year. Current revenue consensus for the full year 24 is 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 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 into 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 firmly believe that this investment and expenditure was necessary to protect our supply chain. The profit we have generated in the period is $1 million, and as James said earlier, if you exclude the non-cash share-based payment, this would be at $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 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 in 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 a result. 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 event and or sales volume-based 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 event 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 Roxon as a brand. But what this does mean is that as our sales increase, our low 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 will always have an element of stocking or channel sale. That added to the milestone payments when they trigger can make revenues seem a little lumpy at times, but also in addition to Launching a product in any new category, any new product 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 rights in this region, and we are making good progress with potential Asian partners. especially for China. Nevertheless, the regulatory 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 file an identity distribution agreement. When we can say more, I will obviously update the market. Next slide. Our ABC strategy remains unchanged, and we continue to deliver across these three 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 Robson, with further In particular, this is an iterative process of learning from consumer feedback to adapt future launches and marketing to optimize sales. Again, as Andrew has already said, we've made significant investments to strengthen and expand our supply chain to meet demand. We're now having two contract manufacturers, one in the US and one in the EU. Broadening our portfolio pipeline, Ken and his team have done a remarkable job to date, and the board sees the opportunity to leverage this proven R&D expertise by broadening the offering beyond the opt-on within the OTC sector of health care. This is very much a 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 continue to build on the achievements of the past few years. In particular, this means continuing 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 and demand for Eroxon. We have in the past year taken out over a thousand 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 This leads me on to the launch of the biggest OTC market in the world, the US. Next slide. We are excited to have, in our view, the best distribution fund in the form of the world-leading consumer healthcare company, Halium. As Ken touched on earlier, the treatment of erectile dysfunction is a huge, underserved opportunity. And in the US, there are approximately 23 million men with erectile dysfunction, of which 80% are not on treatment. In value terms, Ipsos estimates this to be a potential market opportunity of in excess of $350 million per annum. Eroxon is already available for pre-online ordering now and will be launched across U.S. major retailers in October. Combined with Hayden's unquestionable expertise in consumer healthcare and strong distribution capabilities, this is a tremendous, exciting time for both Eroxon and obviously us at Futura. This launch also triggers, as Angela touched on earlier, a further milestone payment from Hayden, 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 iroxan 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 de-risks 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 Oroxon 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. The Eroxon is a breakthrough treatment in a new category, and with any new launch, there will always be need for the adjustments to product positioning and marketing, following market feedback and analysis. And sales will not be always as forecasted for different regions, which, again, Joanne touched on a little earlier. But we've had a tremendous first six months with over a 300% increase in sales and our first profit, and we're confident this is set to continue with a launch by Hadean 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.

Thank you very much for your presentation. What I'll do is I'll just bring your cameras back up at this point. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab, which is situated in the top right corner of your screen. Just while the company take a few moments for you, the questions have been submitted today. I'd like to remind you the recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via your investor dashboard. As you can see, we have received a number of questions, both pre-submitted and throughout today's live presentation. And Sam, at this point, if I could hand over to you to chair the Q&A, that'd be great. And I'll pick up from you at the end.

Thank you. As I'm sure you can 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 have come through to us. So the first question is, how excited are you about the US launch? It's clearly a pivotal moment in the company's trajectory. Yes, it is.

I mean, the US is the biggest consumer healthcare market in the world, biggest ED market potential in the world. And we've got one of the world's leading companies in the form of Alien as our commercial partner there. So this is very exciting times for us. And we've learned a lot from some of the earlier launches, and those learnings have been taken on board. So yeah, it's a very exciting time for us, and we look forward to great anticipation too.

And do you have any concerns about the US launch?

I mean, look, I think anything, when you're building a new brand, in a new category and especially some of this where there's some embarrassment issues associated with it. It's all about positioning and getting it correct. But I think we've been able to provide Hayden 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, you know, nothing's absolutely guaranteed, but I think we have gained this huge amount

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

Well, 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 progress through the rest of the launches.

I suppose it's nice to be asked about that rather than being around money. That's progress for you.

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

Well, how long have you got? I mean, the market is more complex, as we've just said earlier on, the regulatory position is complex. You know, we've had some experiences before with China, we've touched on it earlier with some complexities, if I'm correct. 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 timeline, then we have problems before where people try and exploit that. But we're making good progress, and I think when we can say more, we will say more.

Excellent. Thank you. And the question is, how have sales developed in the first half of the year in the UK and Belgium? simply given these are the first markets where the product was launched?

Yeah, I mean, they're going well. You know, 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 repeat purchase of 15% to 20%. It's not an easy thing to track because such wide accessibility of the rocks on this monitor where people are getting product from. The retailers are happy. Our commercial partners are happy. A large amount of the sales are incremental, which we have really liked because we're expanding the market, we're growing the market. And remember also that in the UK, this is an unusual market compared to pretty much everywhere else where Erobson is going to be OTC. UK, we're moving into a market where Viagra has already established an OTC brand and Cialis is not there. So I think overall, we're pretty happy the way it's going. And yes, we can always improve it. We're taking the learnings and moving forward on that basis.

Excellent. Can you remind us how the Haleian deal is structured?

Yeah, I mean, I touched a little bit on this during the presentation. So the Haleian deal falls under the IP license model, where it's structured in a way where we receive royalties. on what is deemed 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 to $45 million of further milestones to come through the agreement. 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 Hayden, they are a public company and there are limited things that we can say.

Excellent, thank you. Another question on financials. I believe there's been three million spent on plant and equipment. Can you give some more detail on what items it discovers?

Yeah, I can. So we have brought two new manufacturers on, one in Europe and one in the US. 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 thinning line that can fill a lot of tubes quite quickly is less labor intensive and less time intensive than a line that would be slower. So we made the investment into that. and also the investment into our packaging line, which basically automates the tubes going into the packaging. Again, it just increases the speed of manufacturing, which longer term will help us to retain the low cost of goods.

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

I mean, we've I've said before how we don't kind of give a running commentary ahead of launch, and that is really driven by commercial students and different launch partners. We only make any comments when they are happy for us to make any comments. There are a number of other launches planned, but I can't really say much more than that at this stage. Those launches planned for 24 and also 25. When we can say more, we will do.

Excellent. Thank you. That is the end of questions. So thank you, Alessandro. I'm back to you.

Perfect. Thank you very much for answering those questions from investors. Of course, the company can review all the questions submitted today and will publish those responses on the Investor Meet Company platform. But just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, James, could I just ask you for a few closing comments?

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

Thank you once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations. This will only take a few minutes to complete, but some shall be greatly valued by the company. On behalf of the management team of Futura Medical PLC, we'd like to thank you for attending today's presentation and good morning to you all.