Bloomberg News

‘Viagra in a Condom’ May Make Futura a Target for Reckitt

December 13, 2011

(Updates to add stock price in eighth paragraph.)

Dec. 7 (Bloomberg) -- A new condom that aims to enhance erections may also lift earnings and buyout prospects for unprofitable U.K. drugmaker Futura Medical Plc.

Durex condoms made by partner Reckitt Benckiser Group Plc will contain a dose of Futura’s Zanifil gel inside the tip, boosting blood flow within the penis. The product results in firmer, larger and longer-lasting erections for men who may find wearing condoms challenging, according to Futura.

Premium pricing may help the condom generate global sales of 150 million pounds ($235 million) annually within five years, tempting Slough, England-based Reckitt Benckiser to keep all that revenue for itself, said Daniel Mahony, who manages $300 million at Polar Capital in London. Reckitt Benckiser, the maker of Lysol cleaners, doesn’t usually agree to sales-sharing accords, which makes it likely takeover talks are under way, said Lala Gregorek, an analyst at Edison Investment Research.

“It’s essentially Viagra in a condom,” said Mahony, who owns shares of Guildford, England-based Futura. “I wouldn’t be surprised if Reckitt tries to either buy the whole company or buy that royalty stream out at some point.”

Futura Chief Executive Officer James Barder declined to comment on any discussions with Reckitt Benckiser. While Futura isn’t for sale, he said, “ultimately, we’re looking to optimize and maximize our return at the appropriate time.”

Heroin Substitute

Reckitt Benckiser declined to comment on any discussions with Futura. The maker of Vanish stain removers and Finish dishwasher tablets has a drug division, which accounted for 9 percent of sales last year. The unit sells the Suboxone opioid substitute for those addicted to heroin. Still, it seems unlikely that Reckitt would want to expand in health care by buying Futura, said Martin Deboo, an analyst at Investec Securities in London.

“If there’s a wide application of Futura’s technology across all parts of Reckitt Benckiser’s portfolio, that might tip the balance,” said Deboo, who rates Reckitt Benckiser a “hold.” “As a general rule, however, I don’t think they would want to own a specialized pharmaceutical company.”

Futura rose 4.4 percent to 71 pence at 8:15 a.m. in London. Before today, the stock had dropped 4.9 percent in 2011, giving Futura a market value of 49.7 million pounds. The company has posted a loss every year since first listing in 2003, though that will probably change next year, Mahony and Gregorek said.

Futura is also developing a topical spray that helps delay ejaculation, which is due to hit U.S. stores next year through a partnership with Australian condom-maker Ansell Ltd. The Ansell partnership for the drug, called PET500, along with Zanifil’s prospects, will bring in enough royalties to push Futura into profitability next year, Gregorek said.

Blood Flow

Zanifil, like Futura’s other experimental drugs, relies on a patented delivery system known as DermaSys that allows medicine to rapidly permeate the skin. Zanifil is based on the chemical nitroglycerin, used to treat chest pain and heart failure since the 19th century. The drug widens the blood vessels by relaxing the muscles in the vessel walls, increasing blood flow.

Unlike Pfizer Inc.’s Viagra, the condom with Zanifil will be available without a doctor’s prescription. Pfizer, the world’s biggest drugmaker, has sold the Viagra pill as a treatment for erectile dysfunction since 1998. That drug, which boosts blood flow in the penis, had 2010 sales of $1.9 billion.

Reckitt Benckiser also owns marketing rights to another of Futura’s experimental compounds, MED2002, a version of Zanifil to be sold as a standalone erectile-dysfunction treatment. A separate gel in development to treat joint pain with partner GlaxoSmithKline Plc will start a key clinical testing program next year.

U.S. Condom Market

While Mahony and Gregorek expect the Zanifil condoms to reach store shelves in Europe next year, the biggest growth prospects may lie in the U.S., where Durex condoms lag the Trojan brand. Trojan, owned by Church & Dwight Co., accounts for about 75 percent of U.S. over-the-counter condom sales, while Durex holds only 6 percent to 8 percent, according to Bill Howe, president of PolyTech Synergies LLC and a consultant to the condom industry.

“The unique selling point may well help it in territories where Durex is not strong,” Futura’s Barder said. Zanifil may also help win over men who don’t use any kind of condom because of decreased sensitivity or partial loss of erection, he said.

The partners are “exploring the approval process” in the U.S. and other markets, Barder said, declining to give U.S. approval or sales forecasts.

Marketing ‘Sensitivities’

The Zanifil-containing condoms are cleared for sale in 29 countries. The companies haven’t disclosed how they will name, price or split sales of the product, though Barder said the Zanifil condom will carry a “premium” price tag. Mahony estimates Futura will receive 15 percent of Reckitt’s revenue from the condom. If that’s the case, the value of the royalty stream exceeds Futura’s market value, he said.

The delay in bringing the product to market may be because the companies are negotiating a takeover or new sales agreement, Edison’s Gregorek said in an interview. Reckitt Benckiser is also integrating its July 2010 acquisition of Durex maker SSL International Plc, which may contribute to the holdup, she said.

The main reason the product isn’t yet on shelves might be more complicated than that, according to Futura CEO Barder.

Forty percent of condoms are purchased by women, and the marketing materials need to strike the right balance between men’s and women’s attitudes about sex, he said.

“If the packaging says it will give you a bigger penis, and a woman gives it to a man, it might cause a reaction, like ‘What, you’re saying my penis is small?’” Barder said. “This area does have sensitivities. Positioning is critical.”

--With assistance from Clementine Fletcher in London. Editors: Kristen Hallam, Phil Serafino

To contact the reporter on this story: Trista Kelley in London at tkelley2@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net


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