Paradigm Biopharmaceuticals Ltd (ASX:PAR) placed $35 million in shares earlier this month to leading Australian and international institutional and sophisticated investors with bids received exceeding the size of the placement.
Proceeds will be applied to costs of the second phase 3 osteoarthritis (OA) clinical trial and leaves Paradigm fully-funded through to completion of this trial for which readout is expected to take place in late 2022.
Bell Potter Securities continues to maintain its speculative buy recommendation for Paradigm with a $2.79 per share valuation (current share price: $1.68).
Following is an extract from Bell Potter’s research update:
Regulatory Pathway Clearing
The recent market announcements and capital raise by PAR have provided significant clarity to numerous aspects of the company’s development pathway for Zilusol.
In our view the most important aspect of the announcement was the FDA’s views on the unique characteristics of the iPPS molecule produced by BenePharma. Their product is the only product which may be used in the phase 3 clinical trials, notwithstanding that PPS is off patent and that iPPS is seeking to be repurposed. The agency recognises the unique moieties of the BenePharma molecule and as such, any competitor contemplating a future generic is highly unlikely to be successful in the United States.
Paradigm will now proceed with the submission of the IND later this calendar year followed by two phase 3 studies commencing in 2021. The pivotal study will be conducted in the US and include 750 subjects while the confirmatory study of 400 subjects is likely to run in Europe and possibly Australia. The two studies will run concurrently, costing ~$80m.
The primary and secondary endpoints of the phase 3 studies will largely mimic the end points from the earlier phase IIb study. The inclusion criteria for the phase 3 study has been simplified to include knee osteoarthritis subjects with Kellgren Lawrence scores of 2, 3 or 4. The previous reference to numerical rating score has been dropped, hence simplify the outcomes.
Maintain Buy Rating
PAR has completed a $35m capital raise to fully fund the clinical program over the next 30 months. Headline results from the phase 3 are due to readout in 2H CY2022. Our price target is reduced by 6% reflecting the dilution. Changes to earnings reflect the higher than expected cost of the clinical program.
On Track For IND in 4Q2020
The key points from the update are as follows (in order of importance for shareholder value):
Intellectual Property Subjects on the study must be dosed with iPPS manufactured by Bene Pharmaceuticals. We believe this substantially strengthens the standing of the intellectual property position of the company. As we understand the minutes of the pre-IND meeting recognise the unique chemical signature of the bene product as compared to any other compound of similar description. The BenePharma product is a semi synthetic with considerable trade secrets surrounding the manufacturing process, so while the patents on the chemical entity (i.e. PPS) may have expired, it is still the case that the BenePharma product has unique moieties which differentiate it from other manufacturer’s version of the same drug.
It is not unreasonable to conclude that there is significant intellectual property in the manufacturing IP owned by BenePharma.
It is the company’s view that the FDA has recognised these unique characteristics in the minutes of the pre IND meeting which leads PAR to represent that there is little chance of generic competition.
PPS is certainly not a readily available small molecule drug where generic copies are likely. We know with certainty that BenePharma has the only Drug Masterfile (DMF) for iPPS with the FDA, therefore, no other pharma group may reference that DMF in any future submission without BenePharma’s specific permission. Such permission is highly unlikely as PAR has the exclusivity rights. The exclusivity deal with BenePharma runs until 2040 with a further 10 year option. (i.e. PAR’s option).
Based on the minutes from the FDA (which the company has para-phrased in its market release) it would appear that Paradigm will be the sole provider of Zilusol to the US market for many years.
In our view it is apparent that the FDA is receptive to the conduct of a phase 3 trial in the United States. The FDA has now had ample opportunity to review the summarised safety and efficacy data of the Paradigm experiences to date. If there was going to be a problem then we believe it would have emerged in this release.
CERTAINTY ON SIZE OF PHASE 3
The pre IND meeting minutes with the FDA have confirmed the company will be required to conduct two phase 3 trials. The first of these will be conducted in the US. The second study will run concurrently in Europe. The US trial will enrol 750 subjects with and follow them for 18 months, while the European trial will enrol 400 with a follow up period of 12 months.
Subjects will be dosed twice weekly for 6 weeks and observed for duration of effect. This is the identical protocol as was used in the phase IIb.
Comfort On Clinical Endpoints
The phase 3 trials are expected to use similar primary and secondary endpoints of pain and functionality as were used in the phase IIb trial. Also relevant, the control group in these studies will be dosed with saline (being a non-active placebo).
The primary endpoint for the Phase IIb was a reduction in the KOOS pain score from baseline at day 53. The endpoint was met across the entire population and the difference between the control group and the active arm of the study was statistically significant.
Across the total population in the phase IIb trial, 46.2% of subjects showed a greater than 50% reduction in pain scores (at day 53) as compared to ~22.5% of the placebo group. A reduction in pain scores was sustained through day 165 and remained statistically significant at the conclusion of the study.
The phase 3 trials will use the WOMAC rating scale rather than KOOS (as was used in phase 2b trial). WOMAC is the preferred rating scale of the FDA and is more popular in North America. A 25% reduction in WOMAC pain score from baseline in usually regarded as clinically meaningful.