Futura Medical shares are up 200% in a week! Here’s what I need to know

After a strong rally, Jonathan Smith takes a look at Futura Medical shares and recent good news on the firm to assess whether it’s worth buying now.

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There’s been a spike in interest in Futura Medical (LSE:FUT) shares over recent days. In fact, the share is up around 200% over the course of the past week. If I stretch out the timeline, I can see that over the past year that the share price has risen almost 600%. Most of this move has come in March, so merits a closer look to see if it’s worth buying right now.

What’s the story?

Future Medical is a UK-based pharmaceutical company that focuses on the development of products through R&D. It then looks to partner with other businesses to take the product from late stage development to the market. 

It has taken an erectile dysfunction product to commercialisation stage in the past, but the main news at the moment surrounds products that are still in development. These include products with handy names such as MED3000 and TPR100. These are both types of gels, used for different purposes.

In recent news, MED3000 gained EU approval to go on sale. This was very positive news, and the CE mark also makes it easier to be fast-tracked through trial processes around the world. This was followed up by news that the same product is undergoing FDA studies as well.

For Futura Medical shares, the news saw a sharp move higher. This is logical, given the the main way Futura Medical has value as a company is via getting its products past research stage and onto shelves for sale. Until then, Futura Medical shares are fuelled a lot on speculation of what could happen. 

Should I buy Futura Medical shares?

Even with the approval, I still think Futura Medical shares should be treated carefully. After looking through recent results, it’s clear that the costs of development really do rack up. The latest results for H1 2020 showed research costs of £926k, with revenue at £0. That’s correct — the business didn’t generate a penny of revenue in that period.

Even during the whole of 2019, revenue stood at just over £31k against research costs of over £10m. It doesn’t take a genius to compute that this is a loss making business. For Futura Medical shares to trade at current levels reflects a market valuation of £125m. I find this quite surprising.

Of course, I do understand that Futura Medical shares are pricing-in future potential. This is a viable investing strategy and can yield very high results. But this feels like I’m investing in a start-up business that’s trying to get off the ground. That’s not the type of investment I’m looking for. I’d prefer to buy into companies that have established track records.

Futura Medical shares could build on the 200% rally, and move even higher on future approvals and commercialisation of products. If the business establishes itself as a viable player in this regard, I’ll happily look to invest then. But at this stage of the life-cycle, it’s just too risky for me to justify buying.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

jonathansmith1 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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