Morgans valued Paradigm in a range of 16 cents to $2.10 with a price target of 89 cents, noting an investment in the pharmaceutical company is appropriate for investors with a higher-risk profile.
Paradigm is an Australian company focused on repurposing the drug pentosan polysulfate sodium in its injectable form (iPPS) for orthopaedic treatment of OA and bone marrow edema lesions (BMEL).
The company has a number of clinical trial results due over the next year, including its phase-2b OA trial due by the end of this year.
Paradigm has been running pre-clinical studies for its OA/BMEL indication via the Therapeutic Goods Administration’s (TGA) special access scheme (SAS), receiving endorsements from several high-profile athletes who have been treated under the scheme.
The following is an extract from the report:
Read-through for pivotal trial – major catalyst
PAR has been proactively running an unblinded treatment using ZOLUSUL via the TGA’s SAS, using a similar dosing regimen to its pivotal phase-2b trial counterpart.
To date, 145 patients with OA have been treated and reported on with an 86.8% response rate for a reduction in joint pain and improvement in knee function.
Pain level severity has been reduced by 51.2% on average across the group (compared to 15% pain reduction from opioid treatment for chronic pain in OA of the knee and hip – Seghal et al, 2013) and 91% improvement in knee function.
We believe the SAS cases act as a confidence barometer for trial success due in quarter four, calendar year 2018 (of which to date has been extremely successful).
We view a positive trial result as transformative for the company and will trigger high levels of interest from large pharmaceutical companies, looking to partner through phase III trials and the regulatory pathway.
Valuation range reflects binary nature
We have run a number of scenarios assuming different outcomes including: low (trial failure); current state (phase II pending); current state (phase II success); and a high case (un-risked) scenario.
The valuation range between scenarios reflects the binary nature of the asset and consequently the large risk-reward profile it represents.
Based on the successes of the SAS program to date and subsequent rally in the share price, we believe the market is already factoring in a high chance of success of the OA trial.
Investment view – taking profits ahead of binary event
We initiate coverage on PAR with a risked valuation range of 16 cents (phase II failure) to $2.10 (un-risked commercialised).
While it isn’t often investors get a significant read-through into the potential efficacy of a drug going through a double-blind trial, the rally over the last 12 months has increased potential risks to the downside if success is not achieved.
We ultimately view trial success as the most likely scenario based on the strong SAS outcomes to date, although set our price target on a risk-weighted basis of 38% high case and 62% low case of which the high case representing the average rate of success in phase II trials.
Due to the risks associated with the regulatory clearance of pharmaceutical drugs, we initiate with a reduce recommendation and 89-cent target price.
We note the investment is appropriate for investors with a higher-risk profile.