Paradigm BioPharmaceuticals Ltd (PAR): Research Report

Hay Fever trial paper published

Paradigm is an ASX listed biopharmaceutical company focused on repurposing the historic drug pentosan polysulphate sodium (PPS). PPS has non-steroidal anti-inflammatory properties and has potential for its novel use in the treatment of many inflammatory diseases such as Allergic Rhinitis (AR) (also known as hay fever). PAR announced that the long-awaited scientific paper on the pre-clinical trial of the efficacy of PPS on Hay Fever has been published. The peer-reviewed publication, involving a number of highly respected scientists, has shown that PPS has a statistically significant treatment efficacy over controls using an industry standard preclinical model. We re-iterate our Speculative Buy recommendation.

Key Points

  • Paradigm’s pre-clinical hay fever trial finally published. PAR has announced the long awaited publication of its pre-clinical trial of the efficacy of pentosan polysulfate sodium (PPS) for the treatment of allergic rhinitis (hay fever). The paper, published in Immunity, Inflammation and Disease Journal, was peer-reviewed and conducted out of the Department of Experimental Medical Science, Lund University, Lund, Sweden. The trial was funded by PAR and the Swedish Asthma and Allergy Foundation.
  • Positive conclusion. The research concluded that PPS is a likely potent Th2 cytokine-binding molecule that has both biological neutralisation capacity and broad anti-inflammatory effects. In other words, PPS fulfils the role as a potential candidate molecule for the treatment of hay-fever, warranting further studies of clinical efficacy.
  • Double-acting molecule. The research used the commercial formulation of the corticosteroid budesonide as a reference drug. PPS and budesonide displayed similar anti-inflammatory profiles however PPS acts via broad immunomodulation rather than immunosuppression observed in corticosteroids, meaning the side-effects seen in steroidal use would not be present with PPS based treatments.
  • Clinical Stage II results due in weeks. PAR’s PPS based nasal product, Rhinusul®, is currently in a Phase 2a clinical trial, a double-blind, placebo controlled, cross-over allergen challenge study conducted by Skane University Hospital, Sweden, under the leadership of Dr Lennart Greiff. This facility is using an established allergen challenge clinical model used previously by major international pharmaceutical companies. Results are therefore likely to stand up against a high level of scrutiny.
  • Potential from a positive outcome: We believe a positive outcome would launch Rhinosul firmly on the path to development and will likely be a catalyst for the interest of big biopharma to take a closer look at PAR’s innovative approach to this common disease state.
  • Recommendation and Valuation: We maintain our Speculative Buy recommendation. We stress that PAR is significantly under-valued compared to peers who have compounds undergoing Phase II trials. We believe a successful outcome will be a major catalytic event for PAR and is likely to initiate interest from big pharma who are looking to replace revenues from drugs going off-patent. Our valuation remains between A$120M and A$152M which corresponds to share price of A$1.18 and A$1.50 respectively, or a mid-point of $1.34 per share.

PAR’s repurposing strategy

  • PAR’s strategy is to repurpose the well-known compound historic drug pentosan polysulfate sodium, or PPS, for a number of disease states but focusing initially on allergic rhinitis (AR). The global market for AR drugs is extremely large, estimated to be circa US$11 billion. The available drugs are dominated by anti-histamines and corticosteroids but market surveys have found a high level of patient dissatisfaction with long-term anti-histamine and steroidal use. The application of PPS to AR could provide a solution to patient dissatisfaction.
  • PAR is also looking to apply PPS to other disease states such as viral arthritis following mosquito born virus infections such as Ross River Virus and Chikungunya. It also may act as a new treatment for Bone Marrow Edema (BME) following traumatic injury. Further work on both these disease states is scheduled for this year.
  • Advantages of a repurposing strategy are diminished risks, lower costs, reduced timeframes compared to traditional new drug development and higher success rates.

Progress on the Phase IIa clinical trial for AR

  • On 25 January 2017 PAR announced the recruitment of the subjects required to conduct a Phase IIa clinical trial, numbering 40 in total. The study is an allergen challenge study on subjects with allergic rhinitis (hay fever). It is a double blind, placebo controlled, cross-over clinical trial which should provide enough evidence to confirm the efficacy of PAR’s novel histamine stabilising, ant-inflammatory and non-steroidal product Rhinosul.
  • The clinical trial is being conducted under the leadership of Dr Lennart Grieff at Skane University Hospital, Lund, Sweden. Dr Grieff conducted similar clinical trials, using the established allergen challenge clinical method for other large biopharma, including Astra Zeneca. Astra Zeneca produced on of the most widely used drugs targeting AR globally.
  • The last clinical participant out of the trial occurred in March 2017. Data analysis has already commenced and PAR expect to see the read-out from the clinical trial at the end of June 2017. The rapid progress made in the Phase 2a trial shows the advantage of a re-purposing strategy used by PAR as its business model.

Potential results of a positive outcome

Completion of the trial itself marks a milestone in the advancement of PAR’s repurposing strategy and for Rhinosul in particular.

We expected to see an uplift in share price post the trail completion (March) as anticipation of the results looms. We have now begun to see this, as the share price has moved from a trading range between $0.40 and $0.50 to $0.62. We believe a positive outcome would launch Rhinosul firmly on the path to development and will likely be a catalyst for the interest of big biopharma to take a closer look at PAR’s innovative approach to this common disease state. At a market capitalisation of circa $60m, PAR is still modestly priced compared to peers who have drugs in Phase 2 trials.

Fully funded program

PAR completed an over-subscribed $6.21m capital raise in October 2016 and followed this with a $1.0m share purchase plan for existing shareholders. At the end of the Mar Q, PAR had a cash balance of $4.11m, enough to fund the hay fever and other trials scheduled for 2017.

Catalysts Summary

PAR will have a number of catalytic events through CY2017 with significant news flow from a number of trials. In summary:

Hay Fever (AR)

  • Q2 2017, Publication by internationally recognised respiratory researcher, Professor Jonas Erjefält, from Department of Experimental Medical Sciences, Clinical Immunology, Allergy and Pulmonology, of the comparator research paper; “Th2, Neutralisation and In Vivo Anti-inflammatory Action of Pentosan Polysulphate Sodium (PPS) in an Allergic Rhinitis Model”.
  • Q2 2017, Potentially interest from a few key respiratory pharmaceutical companies following the publication of the Professor Erjefält research and or before Phase II trials commence.
  • Q2 2017, Completion and publication of Phase II(a) allergy challenge trials.
  • Other uses of PPS in respiratory diseases. PAR’s respiratory patent includes the use of PPS to treat allergic asthma and chronic obstructive pulmonary disease (COPD).

Alphavirus

  • Q3 2017 Phase II trials ethics approval and trial initiation for Ross River Virus/Chikungunya virus.

BME

  • Q2 2017 PAR is also making progress on its Phase 2 trial for bone marrow edema (bone bruising) with 10 participants treated. Study close-out is expected in June.
  • Potential for PPS to treat other autoimmune inflammatory joint disease states such as Rheumatoid Arthritis.

Corporate Opportunities

  • Q1-Q3 2017, Potential licensing agreements/ takeover interest in PAR may be sparked by the publication of the Th2, Neutralisation and In Vivo Anti-inflammatory Action of Pentosan Polysulphate Sodium (PPS) in an Allergic Rhinitis Model, paper.
  • Q1-Q3 2017, Potential licensing agreements/ takeover interest in PAR may be sparked by the Phase II(b) closed label trials for PPS in the treatment of BME.
  • Development and maturation of existing manufacturing agreements.

Valuation and recommendation

We maintain our Speculative Buy recommendation. We stress that PAR is significantly under-valued compared to peers who have compounds undergoing Phase II trials. We believe a successful outcome will be a major catalytic event for PAR and is likely to initiate interest from big pharma who are looking to replace revenues from drugs going off-patent.

We also maintain our valuation range between A$120M and A$152M which corresponds to share price of A$1.18 and A$1.50 respectively, or a mid-point of $1.34 per share.


Disclaimer:

This Research report, accurately expresses the personal view of the Author.

At the date of this report, DJ Carmichael Pty Limited, members of the Research Team; including authors of this report, its directors and employees advise that they hold approximately 1.1 million shares in PAR, and may have an interest in and/or earn brokerage and other benefits or advantages, either directly or indirectly from client transactions in stocks mentioned in this report. DJ Carmichael Pty Limited acts as Corporate Adviser to Paradigm Biopharmaceuticals Limited and is paid a fee for that service. DJ Carmichael Pty Limited was Joint Lead Manager in a placement in Paradigm Biopharmaceuticals Limited in October 2016 that raised $6.21 million and was paid a fee for that service.

The contact person for this report has an interest in less than 50,000 shares in Paradigm Biopharma Limited (PAR-ASX).

DJ Carmichael Pty Ltd is a wholly owned subsidiary of DJ Carmichael Group Pty Ltd ACN 114 921 247.

In accordance with Section 949A of the Corporations Act 2001 DJ Carmichael Pty Limited advises that this document contains general financial advice only. In preparing this document D J Carmichael Pty Limited did not take into account the investment objectives, financial situation and particular needs (‘financial circumstances’) of any particular person. Accordingly, before acting on any advice contained in this document, you should assess whether the advice is appropriate in light of your own financial circumstances or contact your DJ Carmichael Pty Limited adviser. DJ Carmichael Pty Limited, its Directors employees and advisers may earn brokerage or commission from any transactions undertaken on your behalf as a result of acting upon this information. DJ Carmichael Pty Limited, its directors and employees advise that they may hold securities, may have an interest in and/or earn brokerage and other benefits or advantages, either directly or indirectly, from client transactions. DJ Carmichael Pty Limited believe that the advice herein is accurate however no warranty of accuracy or reliability is given in relation to any advice or information contained in this publication and no responsibility for any loss or damage whatsoever arising in any way for any representation, act or omission, whether express or implied (including responsibility to any persons by reason of negligence), is accepted by DJ Carmichael Pty Limited or any officer, agent or employee of DJ Carmichael Pty Limited. This message is intended only for the use of the individual or entity to which it is addressed and may contain information that is privileged, confidential and exempt from disclosure under applicable law. If you are not the intended recipient or employee or agent responsible for delivering the message to the intended recipient, you are hereby notified that any dissemination, distribution or copying of this communication and its attachments is strictly prohibited.

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The recommendation made in this report is valid for four weeks from the stated date of issue. If in the event another report has been constructed and released on Paradigm BioPharmaceuticals Ltd, the new recommendation supersedes this and therefore the recommendation in this report will become null and void.

Recommendation Definitions

SPECULATIVE BUY – Anticipated 10% or more outperformance, high risk
BUY – Anticipated 10% or more outperformance
HOLD – Anticipated 10% underperformance to 10% over performance
SELL – anticipated 10% or more underperformance
Period: During the forthcoming 12 months, at any time during that period and not necessarily just at the end of those 12 months.

Stocks included in this report have their expected performance measured relative to the ASX All Ordinaries index. DJ Carmichael Pty Limited’s recommendation is made on the basis of absolute performance. Recommendations are adjusted accordingly as and when the index changes.

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Paul Adams

Head of Research

Paul joined DJ Carmichael in 2006 as a Resource Analyst. Paul has an honours degree in Geology, is a member of the Australian Institute of Mining and Metallurgy and has 16 years experience in the mining industry in exploration, open pit, underground and operational roles, both in Australia and overseas. Before joining the company, he was Chief Geologist and Evaluations Manager at Placer Dome's Granny Smith mine. Paul has a Graduate Diploma in Applied Finance and Investment, fromthe Financial Services Institute of Australasia.