Despite improving sentiment in the life sciences sector, investors are savagely discounting pre-clinical drug developers with a long path to approval.

That’s fair enough – investors are risk averse generally – but many worthy drug developers are being valued more stingily than when they were far less developed.

Take the osteoarthritis-busting Paradigm Biopharmaceuticals (ASX:PAR) and its reformulated drug candidate Zilosul, which has worked wonders in improving the lives of former AFL footballers with damaged knees and joints.

Current osteoarthritis (OA) treatments such as non-steroidal anti-inflammatory drugs are notoriously ineffectual, while opioid-based painkillers are undesirable given the risk of addiction.

Last month, Paradigm released clinical results that showed Zilosul (pentosan polysulphate sodium, or PPS) was not only effective for reducing knee OA and improving function, but also improved the ‘architecture’ of the joints by promoting cartilage growth.

Loath to waste the opportunity, Paradigm this week followed up with a $30 million-plus capital raising.

Derived from the beechwood tree, PPS to date has been used to treat a bladder condition and deep-vein thrombosis. In league with Germany’s Bene Pharmachem, the only maker of the drug, Paradigm has tweaked the drug in injectable form.

Paradigm has an exclusive 25-year supply deal with Bene Pharmachem for OA applications, as well as protective patents that mean others can’t come up with cheap generic versions post-approval.

If word-of-mouth endorsement were enough to secure approval, Zilosul would be off to the races: treated footballers include former Carlton stars Greg Williams, Marc Murphy and Andrew Walker, while Opals basketball star Rebecca Cole and 10 former American football players have received the magic elixir.

But the US Food and Drug Administration demands properly constructed, placebo-controlled trials, not just the testimony of sporting legends at club pie nights.

Paradigm is on the job, having carried out two Phase II trials, while progressing two Phase III trials demanded by the FDA.

Last month, Paradigm released data from its Phase II study, showing the benefits of pain reduction and added functionality endured 365 days after the six-week treatment.

The study also saw reduced use of pain medication, with the placebo group resorting to paracetamol (or such) five times more than the treated cohort.

The company then followed up with data from 15 of the actively-treated patients undergoing magnetic resonance imaging (MRI). The scans showed cartilage reduction had not just been halted, but cartilage mass had increased.

Like adults growing teeth again, this is unheard of.

The only way is up… maybe

While US assent for Zilosul is years away, Australia’s three million OA sufferers may not have to wait that long. Paradigm plans to seek TGA provisional approval – early-bird status awarded to drug candidates tackling high unmet needs – as early as 2025.

With current treatments averaging $2500 per patient, that could add up to impressive revenue.

Meanwhile, Paradigm shares are close to record lows after the placement and rights issue, struck at 42 cents per share (a hefty 30 per cent discount).

In early 2020 the stock traded above $4 and last year the company raised $66 million at $1.30 apiece.

At least the fresh moolah funds Paradigm to mid 2025, when the company is due to post the ‘top line’ results of its Phase III trial.

Your columnist’s philosophy is that the market is never wrong – at least until it is proven to be wrong.

Investor concerns include the prospect of another party coming out with a cheap generic knock-off, although Paradigm claims its IP position is rock solid. Also, co-founder and major shareholder Paul Rennie’s role as executive chair and CEO does not amount to governance best practice.

We may only have to wait a couple of years – a nanosecond in drug development terms – to see whether the sceptics or the true believers are right.
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