Following on from our March 2021 story on Paradigm Biopharmaceuticals Limited (ASX:PAR), “All the makings of a first-class blockbuster drug”, Baker Young’s Evan Metanomski sat down with Paradigm’s management recently to talk about the market, recent media reports, and the Investigational New Drug approval (IND) status.
Over the past few months, Paradigm has succumbed to short-term traders repositioning on delayed news regarding Investigational New Drug approval (IND). Feedback from the FDA, and subsequent delay, coupled with what we believe to be negative and uninformed opinions expressed in several publications (which in our view misrepresents what we believe to be true), has contributed to a knee jerk reaction, and decline in share price.
Explanation
We acknowledge COVID-19, rightly or wrongly (and conveniently for some), seems to be the scapegoat for people’s misfortune over the past year, however, in Paradigm’s case this couldn’t be more false. With over 1,500 IND applications submitted per year, and the majority of FDA staff working remotely, to say their infrastructure and normal course of business has been interrupted would be grossly inaccurate.
Further, in recent years, the required documentation for IND submission has been adjusted, resulting in a more comprehensive process. The recent delays reflect not only an organisation under pressure but one that must ensure their duty of care is maintained at all times. With technological advancements, and the ability to share large digital files, the IND submission process has become increasingly thorough, requiring in some cases 30,000+ pages of data. Prior to digital submissions, IND applications were much smaller, although the process was longer given the requirement for documents to be mailed or faxed. IND digital submissions are known and widely accepted to be considerable documents designed for improving efficiency and transparency. We are not concerned by the size of Paradigm’s IND submission.
The IND application must contain information in three broad areas:
Animal pharmacology and toxicology studies
Preclinical data to permit an assessment as to whether the product is reasonably safe for initial testing in humans. Also included is any previous experience with the drug in humans (often foreign use).
Manufacturing information
Information pertaining to the composition, manufacturer, stability, and controls used for manufacturing the drug substance, and the drug product. This information is assessed to ensure that the company can adequately produce and supply consistent batches of the drug.
Clinical protocols and investigator information
Detailed protocols for proposed clinical studies to assess whether the initial phase trials will expose subjects to unnecessary risks. Also, information on the qualifications of clinical investigators/professionals (generally physicians) who oversee the administration of the experimental compound to assess whether they are qualified to fulfill their clinical trial duties. Finally, commitments to obtain informed consent from the research subjects, to obtain review of the study by an institutional review board (IRB), and to adhere to the investigational new drug regulations.
We have discussed with Paradigm some shareholder concerns in relation to approval delays, and remain confident and satisfied with the company’s explanations. While the above process is arduous and complex, there have been additional reasons for the request for further information. Operational constraints have resulted in not only Paradigm but several other companies being asked by the FDA for more time to respond. Whilst this alone is not expected to ease investors’ concerns, the type of questions asked by the FDA should. Given the sensitivity of such questions, we are not able to publicly discuss their nature, however, we can share that the majority of the questions posed by the FDA were in fact ‘time’ related, seeking nothing more than clarification and explanations to issues we consider to be minor. Further, required additional data as speculated by some was not in relation to a lack of toxicological studies done prior to Good Laboratory Practice guidelines established in the 1970s.
Paradigm did, however, state they would likely take the full 30 days to respond, as there is a need to perform a small trial for additional data. We are comfortable this trial will provide the information necessary and ensure all data provided at the end of the 30 day period will address and satisfy the FDA’s questions.
The above is likely to impact the timeline in which PARA_OA_002 (Phase 2b/3) can begin. Previously Paradigm believed this trial could start around the beginning of CY Q3, however, it is now likely to be toward the end of Q3. Whilst this is not ideal, we must highlight that our valuation remains unchanged, as any trial delays have been accommodated for in our Paradigm Valuation (24 February 2021). Note the assumptions on page 48, and thereafter, detailing a range of potential outcomes of how extended delays may or may not impact our valuation. The current delay has no impact on our valuation. Further, we encourage the reader to pay attention to trial PARA_OA_008 (synovial fluid), which is due to commence shortly. This study will evaluate biomarkers in the blood and synovial fluid, as indicators of the mechanism of action (MOA) of Pentosan Polysulfate Sodium (PPS) in knee OA (osteoarthritis). The results of the study should provide an understanding of how PPS works by evaluating the synovial fluid, and support a provisional approval application with the Therapeutic Goods Administration (early 2024). This study brings with it a great deal of anticipation, as both pain and mobility are directly correlated with biomarker activity.
From a capital management perspective, current delays will have little impact on Paradigm’s cash burn given the company’s largest expense are their trials, which are on hold for the time being. All other fixed costs are considered immaterial to the valuation as highlighted in our research report provided in the link above. It is widely known and acknowledged that Paradigm will need to explore funding options, however, it is not an issue for the time being, with a range of options highlighted in our research report.
Ross River virus peer review – no need for concern – relating to a potential trial bias as a result of a new route of administration. We acknowledge there have been some publicly expressed concerns, and consequently, we have discussed these opinions extensively with the company. Our takeaways are as follows:
- The frequencies are as stated in the RRV peer review, however, there were few events with the exception of injection site reactions which were elicited in detail as an adverse event of special interest. Although frequent, they were mild and transient injection reactions similar to those seen with many types of injections, including saline injections.
- Although reported with greater frequency in the PPS group, injection site reactions also occurred with saline. As such, patients are informed that they may have bruising, swelling, and pain with the injections. The expectation for this is to present in both treatment arms. The key to managing this is through setting expectations so patients and staff do not comment on higher expectations of events in one arm over another. For the Phase 3 Trial, Paradigm has engaged a specialist company that trains staff and subjects in order to get honest and accurate responses from patients and avoid setting expectations with the study staff. This is an important strategy for pain trials to manage the placebo effect, and also to provide balanced information on injection site pain and swelling. Given the lack of unique physical features of the injection reactions in PPS subjects compared to control subjects, Paradigm does not believe this event will unblind patients. At the conclusion of the study, and before unblinding, patients will be asked to indicate what agent they believed they received.
- Paradigm’s Phase 2b Peer Review is in preparation. The timing of the release will depend on peer review as well as feedback from Paradigm’s pain/placebo management group. Publication of positive results shortly before commencing a trial can set an expectation for both patients and trial staff. The adverse event profiles of the two studies are similar, although since Para_005 is a larger study, Paradigm saw a wider range of events including injection site reaction, headache, and one patient with hypersensitivity. As highlighted above, these reactions are consistent, and as explained, are not considered ‘adverse effects’ of concern either to the patient, or the accuracy of a blinded trial.
Summary
Overall our positioning remains positive. Paradigm is trading at very close to its 52-week low, whilst operationally the company remains in good shape. As we have stated many times, Paradigm remains incredibly attractive to the investor who is prepared to look beyond short-term volatility. Given Paradigm operates in a speculative market, any price action is correlated mostly to news flow rather than cash flow and earnings. We acknowledge the recent delay has not been conducive to an appreciating share price. That being said, trends can reverse quickly, as we have seen often with biotechnology companies. Paradigm remains on course, albeit having recently experienced a slight deviation. In our opinion, the current share price reflects value as we look forward to hearing positive news flow in the coming months. We reference our price target of A$4.75 as stated in our research link above.
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