The chief of knee pain biotech Paradigm Biopharmaceuticals (ASX:PAR) says his company is in no rush to take the tried-and-true exit strategy of partnering with a bigger pharma company to commercialise its drug, but some analysts have concerns over its bullish strategy.

Paradigm came out of a trading halt this morning to announce that it had successfully raised $61.3 million from institutional investors, two days after releasing the latest round of positive data from its Phase IIb trial and the opening of a $78m capital raise.

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But Morgans downgraded its recommendation for the company, telling investors to reduce their shareholding rather than hold, and dropping its target price to $1.71.

“The company appears to have pivoted from being “deal-ready” to raising a large amount of capital to run its own Phase III trial. The reason for the change in strategy is unclear and, in our view, increases the risk as designing, managing, recruiting, and controlling a large clinical trial is highly complex,” Morgans wrote in a new note issued today.

“We view the trial design of the trial (being run in Australia, Europe, and the US) as the key and anticipate a more arduous range of endpoints and compared against standard of care rather than simple saline solution.

It added that while the Phase IIb results appeared to be “broadly positive”, it had concerns whether the statistical significance between stratum and placebo results were more to do with nocebo effect over outright performance.

A nocebo is the opposite of a placebo — when negative expectations of the patient regarding a treatment cause the treatment to have a more negative effect than it otherwise would have.

The company is testing injectable pentosan polysulfate sodium (iPPS) in patients with knee pain from osteoarthritis and subchondral bone marrow edema (BME) lesions. Last year it wrapped up a 112-patient study that showed the drug had a “clinically meaningful and statistically significant effect” on patients’ reported pain.

That was followed up on Monday by more data analysis that showed patients had improved physical function in daily activities, pain reduction and slowed BME lesion growth.

This morning the company announced it had received commitments for a $51.9m placement and a further $9.8m from institutional investors taking part in a separate entitlement offer. It opens to all investors on April 24, giving them the chance to buy one share for every eight they already own, aimed at raising a further $16.6m.

Paul Rennie, Paradigm CEO, told Stockhead the funding ensured the company would have all the money it needs to conduct crucial Phase III trials, the final phase before a drug can begin to be marketed and sold.

“We are now fully funded to run the pivotal Phase III trial without having to rely on continued funding through the trial or partnering with another company,” he said.

For many small cap biotech companies who reach these stages of clinical trials, funding is a big challenge, and so partnering with larger pharmaceutical companies becomes an attractive option. The larger company buys the rights to the drug and conducts the remainder of the trial.

It is seen as a key exit strategy for early-stage, pre-revenue biotechs, and can pay off handsomely: formerly ASX-listed cancer fighter Viralytics was sold to Merck in February last year for $502 million.

Rennie confirmed to Stockhead his company has been approached by potential partners, but had knocked them back in order to remain in control.

“We have definitely been approached, and we will always evaluate a deal, and if it is in the best interests of shareholders then we will follow it up,” he said. “But partnering early can also adversely affect the commercial terms, it can mean we are compromised.

“This capital raise puts us in a privileged position whereby we are not boxed into a deal. We’ve got the funding to run the Phase III trial ourselves so we are not in a desperate rush to get a partner. We have the optionality of continuing to run the trial or we can partner.”

Shares in Paradigm fell 7 per cent to $1.76 this morning, but Rennie said once the news released by the company this week had a chance to settle the asking price would rise.

“There has been no extreme movement in terms of ups or downs,” he said. “We are well funded, not likely to do another raise for the foreseeable future and we have had some great results. People will need to buy the stock on market and over time the share price will re-rate to reflect the great news of late.”

In other ASX health news this morning:

Mental health tech company Medibio (ASX:MEB) gets a much-needed boost. Medibio shares rose 14 per cent to 1.6c this morning on news it had partnered with Department of Biomedical Sciences of Humanitas University in Milan, Italy. The two will work together to further develop Medibio’s mental health software products.

It gets shares off year-long lows following a tumultuous year.


Starpharma’s (ASX:SPL) bacterial vaginosis drug launched in Australia. VivaGel BV has been launched in Australian by Starpharma distribution partner Aspen Pharmacare as Fleurstat BVgel. It is the first launch of the drug, and is expected to be followed by launches in Europe in the next two months by another distribution partner, Mundipharma. Shares rose as much as 6 per cent today to $1.33.


THC Global (ASX:THC) subsidiary going well. Crystal Mountain, the Canadian-based hydroponics equipment division of pot stock THC Global, has reported a 22 per cent increase in quarterly revenue, hitting $991,000, driven partly through stronger sales of its lighting equipment. It is hoping to open a new revenue stream as well, in the ‘micro-cultivator’ market, which is supposedly rapidly increasing in Canada.