Futura Medical: Market Research Points To Premium Pricing

Futura Medical (FUM.L) has licensed CSD500 to Church & Dwight, the US consumer group that owns the Trojan brand. CSD500 is a specialised condom that helps enhance the quality of an erection. The deal covers the US market, where Trojan is the clear brand leader, and key European countries. The terms are not disclosed but this should reassure investors after Reckitt Benckiser returned the rights to CSD500 in August 2012. Given these prospects, at these levels the shares appear undervalued.

Quality partner in Church & Dwight
It has not been an easy path but Futura Medical’s perseverance appears to be paying off. Things looked bleak last August when Reckitt Benckiser returned the rights to CSD500 and MED2002, but Futura Medical has now signed up a credible partner in Church & Dwight. The Trojan condom range is a brand leader in the US and many other markets. We expect further similar deals with local leading players to address other geographic areas.

Market research points to premium pricing
CSD500 is a condom containing a dose of GTN (glyceryl trinitrate) in the teat to help maintain a full and firm erection. It is aimed at men who suffer from partial loss of erection while wearing a condom as well as those who are seeking a “performance-enhancing” product, including current non-condom users. Market research studies suggest the optimal pricing points could be at a 50% premium to standard condoms (ie around $8.99 in the US and £4.99 in the UK).

Launch timing is difficult to predict
The terms of the deal are not disclosed, however we assume a small upfront fee with agreed milestones and minimum royalty payments. We also believe the launch plans and degree of marketing spend have been agreed. Launch timings are difficult to gauge but we would expect early 2014 for the first European market.

Valuation: The shares now appear undervalued
Futura’s investment case is driven by the launch and the commercial success of its PET500 “sexual control spray” and CSD500 erectogenic condom. Although the development of these products has taken considerably longer than envisaged, the launch of PET500 by Ansell coupled with the licensing of CDS500 to Church & Dwight means sustainable profitability may finally be within sight.

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