PAR

[galumay]

as per decision journal,

Paradigm (PAR.ASX) is the business I have been researching and considering freeing up some capital to take a position. Essentially PAR have adapted the use of an existing oral drug, that is used for urinary tract conditions, to an injectable drug that treats OA (osteoarthritis), it is made from the timber of the beech tree and the base drug is manufactured by just 1 private company in Germany. Its a gerneric drug, out of patent, but due to the difficulty of manufacture no one has successfully made the gerneric in the 10 years since the patent expired. PAR has a huge potential market with OA as well as a varitey of other related conditions like Ross River Virus that can be treated with the drug. It has plenty of working capital with about $78m in the market with cash burn of about $10m per year.

The real grunt work of research has been done by Fifty One Capital and can be read here,

http://www.fiftyonecapital.com/paradigm-201806/2018/7/16/paradigm-biopharmaceuticals-ltd-research

http://www.fiftyonecapital.com/par-201811/2018/11/24/paradigm-biopharmaceuticals-ltd

and

http://www.fiftyonecapital.com/paradigm-201903/2019/3/8/paradigm-biopharmaceuticals-ltd

I have been burnt by bio-techs previously (AHZ), but this seems to be a case where the hype and promise would seem justified and the realisation of tangible profits seems likely within 12 months.

The liklihood of a valuable partnership with a large pharma or even a total buyout is farily strong as well.

It does look to be a strongly asymmetric investment opportunity with enormous upside and small likelihood of downside. The main thing that tempers my enthusiasm is that while its asymmetric, the downside is total loss of capital - if this doesnt come off the company has nothing and will go broke in all liklihood.

For this reason I think its sensible to limit the size of any initial postion to $5k and wait to see if they can actually get to market.

[galumay]

Had a stellar run in the first week of holding - up 22%!!

Found this on HC and thought it was worth saving to see how it plays out,

From reading the announcements and analyst reports etc, this is my abridged complete speculation/version of how it’s going to go down in the next 1-2 years. Major talking points only:

* Paradigm with do a deal with Dept. of Defence in the quarter. Either DoD will fund P3 trial for CHIKV or buy PPS supply at around US$3000 to guinea pig their CHIKV affected GI Joes in the Caribbean and Latin America.

* Paradigm will file IND and proceed to P2/3 trial for MPS first. The reason for doing so is because the MPS line has the best chance of being designated breakthrough by the FDA. Real chance of the trial being stopped so all patient participants (including placebo arm) can access PPS. Also, going first retains pricing power for the indication, which will be in the region of $100K per year for this orphan indication.

* Paradigm will file TGA Provisional Approval this quarter for approval and first sales by 2H 2020.

* Paradigm will do a regional deal for OA in Europe and Japan. Europe because already there is injectable PPS in the market and there is a risk for off-label use and reduced pricing power. They will not do a deal for Oz market and will use provisional approval to learn how easy it will be to penetrate the OA market if they go ahead alone. They will be watching Flexion closely who have built out their own US salesforce to push the inferior steroid OA drug in the US market. They will not do a deal for the US in the next 2 years.

* Paradigm will conduct a multi-arm P3 OA trial with a placebo run in. Crucially, all arms will involve patients in the 4-6 strata. MRI scans will be a secondary endpoint in all arms. Several arms will pit PPS against current standard treatment of care such as steroids, analgesics and NSAID’s. Will push for disease modification designation as a result. As soon as they get this - huge implications on deal size. Trial may be stopped early by FDA as breakthrough designation, because, hey, the FDA were putting up with the Anti-NGF drug’s terrible safety profile to solve for the disease.

Big news in three weeks, similar to the pattern of last director buy notices in March.

Writing this for historic purposes. All IMO.

[galumay]

I sold out today, shortest holding ever, only share I ever sold after less than 1 year! 11 days held for a 19% profit.

My thesis broke, a friend alerted me to a $5b deal between Galapagos, a US biotech, and Gilead Science. The deal breaker for me was the news that GLPG have a drug that also treats OA as well as other similar diseases - I believed one of PAR's strongest advantages was that all other drugs under development only treated pain symptoms and not underlying cause, discovering this was not the case meant I lost my conviction in the asymmetry of the risk and so I sold out.

It may well keep rising, and the market may not consider GLPG1972 a threat, but I have learnt the hard way, if my thesis for a business is broken, then get out. I am a little annoyed that I didn't uncover this competitor in my research, but thats offset by the profit I booked in any case.

[galumay]

I emailed Scott Williams of 51 Capital for his views on the new information, as I would love to get sufficient conviction back to invest again!

Here is the discussion,

Hi Rick,
Yes I’ve looked at the competitors. The Anti-NGF drugs (that have now failed trials) were probably the biggest threat.
This drug you have mentioned GLPG1972 is still a very long way away from commercialisation. Expected end date for their phase 2b is only December 2020 - https://clinicaltrials.gov/ct2/show/NCT03595618
They are also measuring cartilage as their primary endpoint. The FDA would typically rather see a pain reduction as a primary endpoint which is a big hurdle for any phase 2/3 study.
As an example, they are also then looking at WOMAC pain reduction as a secondary endpoint. Paradigm used KOOS (which is far more rigorous and harder to achieve efficacy in).
Galapagos also has an anti-NGF drug called Filgotinib – deal was around $1.4b for that drug.
Paradigm are a lot further along and I suspect will have a better chance of clinical success.
Biotech take a very long time to get a product to market and I think the market drastically underappreciate this. 
My simple take is that there is a very strong demand for Zilosul due to the lack of alternative (effective) treatments for the disease. The people I’ve spoken to who have used the product are ecstatic about its success and the doctors now recommend it as first line treatments. To me, this says something given it has yet to even pass a phase 3 and be granted a label.
I’m actually going to see a doctor tomorrow to discuss this in more detail and refer clients onto the SAS program.
Anyway, I think over the next 6 to 12 months big pharma deals could eventuate at which point I’m sure everyone will wake up very quickly to the potential of the drug.
Not only for OA, but in the other indications they are targeting.
Thanks for reaching out.


Hi Scott,

Thanks for taking the time to reply. I guess there is some solace in the points you make about the timeline being about 2 years behind for GLPG, although it still concerns me, especially with the sort of financial backing they are attracting and the fact that its an oral application rather than injected. Unfortunately a strong demand for a drug in development doesnt really equate to anything tangible, its certainly hopeful and better than not having demand, but unless it gets the necessary approval, and gets to market in scaleable quantities, and gains widespread acceptance medically as well as PBS support - it may not be enough to transform PAH into a profitable business.

As I understand it, PAR are not supplying any Zilosul for the SAS program as they want to keep it for the Phase 3 trials.

I will have a bit more of a think about it and consider taking a position again, my thesis was broken by discovering there was a competitor, with an oral drug, in the pipeline. If I can gain comfort that in fact the time lag in development means there is no short to medium term risk added, and that incumbency will override the longer term risk of an oral alternative, then I may find enough conviction to reconsider!



Hi Rick,
That oral drug has a different method of action and is highly unlikely to have a more efficacious result than PPS.
For example it only acts on one of the inflammatory pathways where as PPS acts on multiple pathways.
Quantity is not an issue nor is capacity of supply (I have visited BenePharma and Siegfried which is where product is made).
The supply has been awaiting GMP certification and is now en route. Expect SAS to ramp up (I visited doctor today and will be referring some clients over who want treatment - again shows lack of alternatives).
As for the PBS and reimbursement it’s highly likely given the efficacy and lack of alternatives.
Again, this is all post phase 3. But, the economics of it make sense given cost of joint replacements and opioid addiction.
We have written extensively about it.
If anything, that deal size shows what the next step and value for Paradigm will be as continue with the drug development.
Anyway, hope this gives some context,
Cheers,

I remain conflicted, Scotts critisism of using cartilage as an endpoint for GLPG1972's Phase 2 trial is unconvincing, its probable PAR will switch to this measure for any Phase 3 trial as its the best indicator of a change in the underlying cause, as pain as a metric is much more distorted by placebo effect.

I also worry about the level of personal emotional investment Scott has in the idea, when he talks about visiting doctors to get people on the SAS trial, that raises a big red flag about his objectivity around the business.

I also think he dismisses the impact of oral v injectible, he assumes lesser efficiency with no explanation for that opinion.

On the other hand the fact that the competition is around 2 years behind PAR is encouraging, if they can get to market first that will likely form a competitive advantage.

The question is, am I prepared to risk a small, speculative position on PAR?

[galumay]