Company Overview: Paradigm Biopharmaceuticals Limited (ASX: PAR) is a biopharmaceutical company incorporated and domiciled in Australia. The company is engaged in repurposing the drug pentosan polysulfate sodium (PPS) to treat arthralgia driven by injury, inflammation, aging, degenerative disease, infection, or genetics. PAR concentrates on repurposing PPS under Zilosul® name, as a treatment for bone marrow edema (BME) lesions in the wake of painful damage.

PAR Details

PAR Rides on Higher Investments & Progress Development of Zilosul®: The company remains on track with a robust liquidity position and decent revenue-generation capabilities. Additionally, PAR’s revenue includes other income, which has been increasing from the past few years, and is likely to attract market players’ attention. The company believes to ride on several key catalysts such as the progress development of Zilosul® with the onset of the PARA_OA_008 study in Australia, clinical development program for osteoarthritis, and development of PPS for mucopolysaccharidosis (MPS).

Key Findings from FY21 Results:

• Rise in Total Income: In FY21, the company reported revenues from continuing activities of ~$8.94 million (which includes other income), up from $4.69 million in the year-ago period. The company generated its first revenue from the sale of Zilosul® under the Therapeutic Goods Administration (TGA) Special Access Scheme (SAS). Notably, Revenue from continuing operations stood at $20,550 (Period from 1 July 2020 to 30 June 2021).
• Increase in Losses: The company posted a loss of $34.29 million in FY21, compared to the loss of $12.29 million in the prior corresponding period. The rise in losses can primarily be driven by higher R&D expenditure for clinical development costs, and expenditure related to a Phase III trial for iPPS, and Zilosul®.
• Regulatory Approvals: In June 2021, PAR received approval from the Brazilian regulator ANVISA, to begin a Phase II study in Brazil. The study underpins the accessibility of safety, permissibility, and effect of PPS on pain, and glycosaminoglycan levels in patients suffering with MPS type VI. The demand for such services offers a massive market prospect for PAR’s iPPS.
• Progress Development of Zilosul®: In FY21, PAR underwent robust progress to support a successful clinical program for Zilosul® to treat pain related to osteoarthritis. In doing so, it has negotiated several strategic agreements throughout the year to help drive its clinical program for the development of Zilosul®. Notably, it conducted 26 preclinical studies in FY21, and received Australian approval for its pivotal Phase 3 clinical trial, PARA_OA_002, to evaluate the treatment effects of PPS against placebo on applicants with Knee Osteoarthritis Pain.
• Healthy Balance Sheet: The company reported ~$71.03 million of cash and cash equivalents as at 30 June 2021, with total debt amounting to ~$0.75 million. The decent liquidity position is expected to finance osteoarthritis (OA) and MPS programs and aid the company to further deploy preclinical studies.

The below picture depicts a decent momentum in PAR’s total income since FY16, depicting a CAGR of 45.1% (FY16- FY20).

Key Trend; Analysis by Kalkine Group

Key Metrics: For FY21, the company reported a gross margin of 98.9%, higher than the industry median figure of 87.1% reported. In FY21, the company recorded a current ratio of 13.98x, compared to the industry median figure of 7.09x. Debt-to-equity ratio stood at 0.01x compared to the industry median figure of 0.05x.

Liquidity Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 23.97% of the total shareholdings, while the top 4 constitutes the maximum holding. Rennie (Paul) held the maximum number of shares with a percentage holding of 8.85%, followed by RBC Global Asset Management (Asia) Limited holding 3.61%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis:

• Mounting Losses: PAR’s net loss is increasing on a year-over-year basis. Hence, these mounting losses may throw tough challenges at the company’s overall functioning and may dampen margins in the future.
• Forex Headwinds: Any adverse movement in foreign exchange price may impact the financial performance of the company.
• Failure of Clinical Trials: The clinical trial process is designed to assess the safety and efficacy of a medical device before commercialisation. A failure to achieve the desired results may hamper the company’s financial 
• The company is exposed to a complex regulatory landscape in the healthcare space. 

Outlook: The company’s decent liquidity position, and a longstanding relationship with commercial partners, are likely to aid growth momentum in years ahead. The company expects top-line results from the preclinical progress with PPS in two new indications, heart failure and acute respiratory distress syndrome (ARDS), during the fourth quarter of CY20. Further, the company opines that the commencement of Phase 3 clinical trial will progress well and expects more clinical sites in the UK and Europe, in addition to the current eight Australian sites, subject to regulatory approvals. Commencing the Phase 3 clinical study marks a significant milestone for the company. 

Stock Recommendation: The stock of the company has been corrected by ~22.82% in the past one year. Currently, the stock is trading below the average of its 52-week high and low levels of $3.19 and $1.76, respectively. On a TTM basis, the stock of PAR is trading at a P/B multiple of 6.4x, lower than the industry average (Biotechnology & Medical Research) of 11.6x, thus seems undervalued. Considering the higher revenue base, robust product pipeline, positive outlook, current trading levels, strong liquidity position, regulatory approvals, technical levels as mentioned below, valuation on TTM basis, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $2.13, as on 29 September 2021, 1:10 PM (GMT+10), Sydney, Eastern Australia.

Investors with high-risk appetite should evaluate this stock in view of the technical support and resistance levels as well as taking into consideration associated risks in stringent regulator landscape, failure of clinical trials, and foreign currency risks.

Technical Commentary:

On the daily chart, PAR stock price broke out the downward sloping trendline resistance at AUD 2.06 level on September 28, 2021. Since the breakout, prices are sustaining above the downward sloping trendline. Moreover, the prices are trading above the trend-following indicator 50-period SMA, indicating a bullish trend. The leading indicator RSI (14-period) is trading at ~59.15 level, indicating positive momentum in the stock. An important support level for the stock, is placed at AUD 1.76, while the key resistance level is placed at AUD 2.80.

PAR Daily Technical Chart, Data Source: REFINITIV 

Note: The purple color line in the chart depicts RSI (14-period).

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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