Pharmaceutical stock Futura Medical (LSE: FUM) has risen 65% today as I write. This follows quick regulatory progress for its treatment in the past few days.
This sounds promising. However, I do think it is important to figure out if the news is as good as it sounds on the surface. And following from there, if the company can sustain its share price increase.
The impetus for the share price increase was an agreement between the US Food and Drug Administration and Futura Medical. A clinical study of its erectile dysfunction treatment (MED3000) has to now be conducted. This is one step forward for the company in obtaining regulatory approval from the country.
This release follows a recommendation for approval by an EU body last week. This would allow MED3000 to be sold over-the-counter in the region. An EU approval will allow fast-track reviews in countries in the Middle East, Africa and Latin America. It could then become quickly available in these countries too.
Capturing market share
Futura Medical’s treatment targets a treatment with growing demand. It is estimated that the erectile dysfunction drugs market will grow at a compounded annual rate of 5% between 2019 and 2026.
I think this suggests that MED3000 could capture some of the market share of the growing segment, especially as Pfizer’s Viagra patent ended in 2020. This gives more pharmaceutical companies an opportunity to bring in their own version of erectile dysfunction treatments.
At the same time, it also means more competition. In other words, MED3000 may or may not succeed, like any other Viagra substitute that is entering the market.
But Futura Medical has other treatments in the pipeline too. One of these is TPR100, an anti-inflammatory gel. It has conducted clinical studies and is currently awaiting regulatory authorisation in the UK.
Interestingly, it is also developing cannabis-based treatments. Medical cannabis companies have recently started listing on the London Stock Exchange to much investor interest. In a joint venture with CBDerma Technology, the AIM-listed company will bring in its patented technology, DermaSys, for CBD treatment delivery through skin.
Futura Medical’s products and technology sound promising, but I think it is important to keep in mind that its revenues have been erratic over time. In the last two full years for which financial information is available – 2018 and 2019 – the company reported little by way of revenue.
While things can change in the future, it does indicate that we do not know how they will turn out. Besides, it is loss-making too, as would be expected.
What I’d do now
I think the stock has potential but it is also high risk, especially after the sudden and sharp rise in its share price. I reckon it will come off from here so I would not like to consider buying it now. As and when it gets the approvals for distribution for MED3000, I will take a look at the Futura Medical share again.
Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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