Michael Goldberg

In my time at University (which seems like a lifetime ago) I recall two types of lecturers: Those that guided the students towards what to expect at exam time, and those that didn’t.

Unsurprisingly, there was a strong correlation between the type of lecturer, the student attendance late in the term, and the pass rate. Once students knew what to expect in an exam and where to find the answers, it would take a special kind of person to fail.

Management at Paradigm Biopharmaceuticals are the type of people that, had they been lecturers at University, would have had near 100% attendance in the final weeks of class, and a near 100% pass rate.

We already know the exam questions, and their solutions.

Paradigm (ASX:PAR) is a company repurposing a blood clot drug (pentosan polysulfate sodium (PPS) to treat inflammation, with its current focus being the treatment of Osteoarthritis of the knee.

Unlike the arduous, costly, and time-consuming process of qualifying a new drug for use in humans, PPS is a compound that has been used for 65 years to remove blood clots. Essentially this has meant that PAR has been able to skip directly to human testing, comfortable in the knowledge that the drug is safe.

And test they have. As at the writing of this article, Paradigm’s formula (iPPS) has been used to treat some 500 patients with arthritis through the Australian Therapeutic Goods Administration Special Access Scheme (SAS). Patients include all sorts, from the elderly seeking to avoid life altering surgery, to AFL footballers looking to extend their careers.

Anecdotally the feedback has been very positive. Having spoken to a number of recipients of iPPS, we have been impressed by the consistency of results. In fact, PAR announced on December 7 that data from 183 patients who have taken part in the SAS trials have returned consistently positive outcomes.

Results from the SAS trials have shown that 88.5% of participants reported a reduction in joint pain, with 91.2% reporting improved knee function. Those same patients reported pain scores that were reduced by over 51% after treatment of iPPS, which is a significantly superior outcome compared to the 15% reduction in pain reported from opioid treatment. This is of note especially in a world currently struggling with opioid addiction

As the following chart shows, PAR has already seen its share price improve over the last 6 months.

Paradigm Biopharmaceutical share price chart

Nevertheless, it is the Phase 2b trial due to report in mid to late December that will be the catalyst that determines if iPPS is brought to market, and will likely be the driver that sees a company with a current market cap of just $180 million grow beyond $300 million.

The differences between SAS treatment and Phase 2b trial:

The core difference between SAS and Phase 2b is that the SAS seeks to treat, while the Phase 2b seeks to test. Practically speaking this means that the Phase 2b trial will include patients being tested with placebos, the results from which will be measured against the results from patients actually receiving iPPS.

However, this will not be the first time iPPS has been tested against a placebo. In 2005 Dr Peter Ghosh found that under clinical trial conditions iPPS showed statistically significant results when measured against a placebo.

What’s it worth?

Based on our understanding of the size of the Osteoarthritis market and the likely cost per treatment, we estimate that PAR could generate revenues of between $50 million and $100 million per year if they achieve a 10% penetration into the treatment market. However, if PAR are able to satisfactorily show superior results from iPPS and become a leader in osteoarthritis, a 50% penetration rate would see revenues as nearer to $350 million per annum.

Entry into global markets would see the companies potential increase significantly. As a point of reference, if PAR were to reach 10% of US Osteoarthritis patients, they could generate another $1 billion per year.

Paradigm’s agreement with the NFL (American National Football League), and its stated intention to engage with FDA (US Federal Drug Administration) suggest that such a move is certainly intended.

Our View:

We’ve never before seen a company provide access to its test data before a phase 2b trial. Having done just that, PAR’s release is akin to a teacher providing a test to their students weeks in advance of the test being due.

Having access to so much information has meant that unlike like other biopharmaceutical investments, Paradigm is right down the risk curve. Additionally, management have an exceptional pedigree, having come from from industry leaders like CSL and Mesoblast, and have a significant personal investment in the company.

When taken in context, we believe that the share price of PAR is too low.


Comments

Please sign in to comment on this wire.
Avatar fallback

Rob Matthews

Excellent article Michael

Avatar fallback

Chris Vertullo

I’m surprised that Pentosan has generated much interest for the following reasons. 1 Prior trials have not shown a meaningful clinical Improvement and it is not disease modifying. SEE https://dx.doi.org/10.1186%2F1472-6904-10-7 2 It is an old drug that anybody can make - where is the moat? 3 It is a drug that alters coagulation, meaning it can’t be used with NSAID safely. This markedly limits its use as it can not be added on to an existing effective and inexpensive drug regime. 4 Opiates are not to be used for OA so why compared it to them rather than NSAID or paracetamol?

Avatar fallback

Mr T

interesting article thanks. does 10% penetration seem like an aggressive assumption into this market? Most medico's i have met are very slow and conservative changing to new meds (eg a ten year journey rather than a 2 year journey) - so wonder if the penetration rate and ramp up rates might be overestimates?

Medium screen shot 2017 04 03 at 2.49.44 pm

Michael Goldberg

@Chris Vertullo. Thanks for your comments. As an orthopaedic surgeon yourself, I can understand why you would have a unique interest in a drug that promises to drastically alter the industry and delay the need for surgery as treatment for OA. To answer your queries one at a time: 1. Recent releases from Paradigm suggests that iPPS treats the underlying pathology of osteoarthritis by reducing inflammation, resolving the bone marrow edema lesions, and down regulating cartilage degrading enzymes. The link you provided is 8 years old, and affirms the drug’s effectiveness as a treatment. 2. Paradigm have patents across the first world for use of PPS in OA treatment. Additionally, Bene Pharma (the global leader in PPS production) have agreed to give sole rights to PAR for production from its facilities. I would suggest that this is as good a moat as one can ask for in the pharmaceutical industry. 3. I suspect that the effectiveness of iPPS treatment would negate the need for an additional anti inflammatory. 4. While opiates are not used in the treatment of OA per say, they are used for pain management. Insomuch as as iPPS reduces pain, comparing it to pain management drugs would be appropriate. If you have technical questions, I’m more than happy to put you in touch with someone who can answer them for you. Feel free to be in touch.