PARADIGM BIOPHARMACEUTICALS LIMITED · 2018. 12. 3. · with detailed information about Paradigm...

PARADIGM BIOPHARMACEUTICALS LIMITED

WHOLESALE/INSTITUTIONAL INVESTOR EDUCATION REPORT

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Adelaide Equity & Partners Ltd – AFSL: 313413 – ABN: 59 119 059 559

DECEMBER 2018

This report is a Wholesale/Institutional Investor Education Report and not an initiating coverage research report. This Document is not for retail distribution or distribution to third parties without the prior written approval of Adelaide Equity Partners Limited, AFSL 313143.

This report has been factually prepared on generally available information.

This report has been written to provide qualified Wholesale, Sophisticated and Institutional Investors with detailed information about Paradigm Biopharmaceuticals Limited (ASX.PAR).

This Report may provide information and our analyst insights, on Paradigm Biopharmaceuticals Limited to wholesale & institutional investors.

You should make your investment decision based on all available information.

The research analyst(s) attests that this Report contains views and opinions of the research analyst solely and they have not been influenced by the issuing company or its other advisers. The Research analysts’ views on Paradigm Biopharmaceuticals Limited are unbiased and reflect their professional judgement and expertise.



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RISK CATEGORY

RISK HIGH / SPECULATIVE

PUBLICATION DATE 3 DECEMBER 2018

ANALYST ALASTAIR MURRAY

AUTHORISATION DIRK VAN DISSEL

DUNCAN GORDON

CONTACT +61 8 8232 8800

CORPORATE SNAPSHOT (30/11/2018)

ASX CODE PAR.ASX

SHARE PRICE A$1.145

12 MONTH HIGH/LOW A$1.29/A$0.24

SHARES ON ISSUE 139.8m

OPTIONS ON ISSUE 6.35m

AVERAGE DAILY

VOLUME 196,139

MARKET

CAPITALISATION ~A$160m

CASH – DEC 2018 ~A$10.5m, no debt

Paradigm Biopharmaceuticals Limited (PAR)

listed on the ASX in August 2015. Paradigm

focuses on repurposing pentosan

polysulphate sodium (PPS) for new

orthopaedic and respiratory applications.

Paradigm addresses conditions that start

with and are sustained by inflammation. The

Company’s lead clinical indications involve

treating disease/injury that results in bone

marrow edema lesions (BMEL), including

Osteoarthritis, acute joint injury and rare

joint diseases (mucopolysaccharidoses - MPS).

Paradigm’s pipeline includes treatments for

cardiovascular disease, respiratory illnesses

and atopic dermatitis.

BRIEF COMPANY VIEW

12 MONTH SHARE PRICE CHART

Paradigm Shift in Treating Osteoarthritis Pain

Paradigm Biopharmaceuticals Ltd (‘Paradigm’ or ‘PAR’) is an Australian Biotechnology company that is repurposing the existing drug injectable Pentosan Polysulfate Sodium (iPPS) for treating osteoarthritis (OA) with concurrent Bone Marrow Edema Lesions (‘BMEL’ or ‘Bone Bruising’), Rare Joint Diseases (mucopolysaccharidoses - MPS) and joint pain and dysfunction arising from alpha virus infections such as Ross River and Chikungunya. Paradigm’s pipeline includes treatments for cardiovascular disease, respiratory illnesses and atopic dermatitis.

By repurposing an existing drug with a well-known and established safety profile, Paradigm is significantly reducing the risk and cost of bringing the drug to market for new indications. Trial costs are greatly reduced and trial result timelines (price catalysts) are significantly brought forward, all without diminishing the end potential payoff. We believe there is a very real potential for >US$650m transaction to be executed between Paradigm and a global pharmaceutical company at any stage post the upcoming Phase 2 b OA/BMEL trial read-out through to the enrolment/duration of a Pivotal Phase 3 Clinical Trial. Being granted FDA Fast-Track Status or successfully completing the Pivotal Phase 3 Trial will only enhance potential deal metrics.

Our risked DCF valuation on PAR, which is derived from using a probability weighted DCF analysis of future iPPS sales, ranges from A$587m on a fully diluted basis, assuming Phase 2b trial success, down to A$104m in the event OA is not successful and the MPS indication is the only successfully commercialised product.

Investment Highlights Paradigm is one of the few biotechnology opportunities that encompasses several key macro themes concerning global health-care and life-sciences:

- Combatting the Opioid Epidemic with new non-addictive and non-opioid/non-steroidal ways to treat joint pain;

- Addressing the ever-increasing health problems associated with an aging population;

- Cost savings for health systems that are under immense budget stress; and

- The 21st Century Cures Act and the use of Real-World Evidence in accelerating drug registration.

Unprecedented demand for a safe, effective, non-addictive treatment for OA and chronic joint pain

The World is currently experiencing an Opioid Epidemic on an unprecedented scale due to over prescribing of opioid based pain killers. This has resulted in drug dependence and opioid addiction with damaging consequence for all levels of society. iPPS is non-opioid, non-steroidal, non-addictive and is more effective in treating joint pain (and the underlying disease pathology) than opioids (50%+ pain reduction for iPPS vs ~15% for opioids1), thus promising to be a safe and more effective alternative to traditional pain killers.

The probability of a successful placebo-controlled Phase 2b OA/BMEL trial is high due to very encouraging data from the 145 patients successfully treated via the open label Special Access Scheme

Over the last year, Paradigm has reported the results from the first 145 patients that have had their knee OA treated with iPPS by their doctors under the Therapeutic Goods Association (TGA) Special Access Scheme. The results have been very positive, showing a >86.6% response rate, with an average pain reduction of 51.2% and an average increase in joint function of 64.8%. The SAS data appears to show that a six-week treatment period (same dosing regimen as the phase 2b trial) may result in greater efficacy vs. three or four weeks. Paradigm will continue to release results from additional TGA SAS groups as they become available, providing further invaluable Real-World Evidence data prior to the Phase 2b results. This RWE data will provide valuable complimentary evidence of effect that will assist any regulatory filings.



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Potential to receive FDA Fast-Track and TGA Provisional Approval

We note a number of companies developing non-opioid, non-addictive joint pain therapies are receiving Fast-Track Designation from the US FDA, an innovative regulatory process designed to facilitate the development and expedite the review of new therapies that treat serious conditions, like OA, and fill unmet medical needs (see NASDAQ:FLXN and Centrexion Therapeutics LLC). The data being collected from the 500+ SAS OA patients that have been treated with iPPS provides Paradigm with powerful Real World Evidence of the drug working safely and successfully treating OA/BMEL. This RWE in combination with a successful Phase 2b OA trial and existing drug master file data on iPPS will allow for Paradigm to apply for Fast-Track/Provisional Approval post a successful Phase 2b clinical trial.

Targeting very large addressable markets – many millions of sufferers globally

iPPS is set to be a new, multi-acting treatment for osteoarthritis with concurrent bone marrow edema lesions and beyond that for acute joint injuries with concurrent BMEL. Over 300m people globally, including 30m people in the US and 2.1m people in Australia have OA and are currently treated by a range of drugs with undesirable side effects such corticosteroids, non-steroidal anti-inflammatory drugs (NSAIDS) and opioids.1

Multiple share price catalysts expected over the coming 6 months

Paradigm will read-out headline results from their Phase 2b OA with BMEL placebo controlled (n=110) clinical trial in mid/late December 2018, release ongoing results from groups of patients having their OA treated under the SAS program (>370 to report on), release results from Phase 2a Viral Arthritis placebo controlled trial (n=20) treating Ross River virus in Q1CY2019 and commence treatment of retired US NFL players under the Compassionate Use/Expanded Access program – all providing material news events for the Company.

Mucopolysaccharidoses (MPS) Orphan Indication provides backstop to current market valuation

Paradigm recently executed an Exclusive In-License Agreement for the use of iPPS in the treatment of mucopolysaccharidoses (MPS), a group of inherited lysosomal storage disorders. A key unmet medical need in this class of inherited disease is the lack of treatment of joint pain and dysfunction akin to osteoarthritis, hence the applicability of iPPS in treating these rare joint diseases. BioMarin Pharmaceutical Inc. is a US pharmaceutical company specialising in Orphan indications including the treatment of several of the MPS sub-indications and has a US$17bn market capitalisation based on US$1.3bn of annual revenues derived from treating these orphan indications. Given the human data of iPPS treating MPS we believe this is truly an unrecognised opportunity for Paradigm to serve this market above and beyond its primary indication being the OA market.

Safety is King

iPPS is shaping as a superior, safe, non-opioid, non-steroidal joint pain relief treatment that actually treats the underlying pathology of the disease, with the significant benefit of being safe with repeated use. Steroids and opioids have their obvious drawbacks. Other pain relief treatments in advanced development have unknown long-term safety profiles (Centrexion’s synthetic trans-capsaicin) or even worse have grave safety concerns like the anti-NGFs, which have well documented adverse events (AE), such as rapidly progressive osteoarthritis. In time, we believe, iPPS will overtake the anti-NGF’s who will continue to be hampered by AEs, noting that a number of large pharma have already dropped their anti-NGF programs.

Opportunity to replicate the Australian TGA SAS treatment program in the USA by treating retired elite sportspeople with serious chronic joint issues and pain

As is happening in Australia with the Australian Football League (AFL) and other sporting codes, iPPS is showing that it can assist in treating a number of chronic joint injuries/diseases and associated pain. We believe the opportunity exists to replicate this treatment program in other countries and expand to new sporting codes with an initial focus on the American National Football League (NFL).

Highly experienced board and management team that have delivered large licensing transactions

Members of the Paradigm’s Board and senior management have previously brought drugs to market, held positions with top ASX listed companies, CSL (CSL.ASX) & Mesoblast (MSB.ASX) and were part of the team that executed the US$1.7B Cephalon Inc/MSB, partnership. The Paradigm team have brought pharmaceutical products through clinical development to commercialisation/execution of big pharma transactions. Furthermore, the Board/Management own ~20.5% of the company and are very much aligned with shareholders.

Multi-faceted IP strategy which covers manufacturing, formulation and delivery, patents, protects Paradigm from competition. Additionally, exclusive rights to the only FDA-approved version of PPS (bene pharmaChem) for human use adds another level of protection to Paradigm’s position.

Arguably one of the best risk-reward plays in the ASX listed biotechnology sector

Paradigm’s undemanding market capitalisation compared to listed peers such as Flexion Therapeutics Inc (FLXN – current mkt cap ~A$870m with recent high of A$1.25Bn) and the potential payout of developing the world’s first OA treatment that treats the underlying pathology of the OA, not just masking pain, makes the Company an attractive risk/reward investment opportunity.

1 DMKC0179226, Informa Pharma Intelligence, Datamonitor Healthcare, 28 June 2018



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Contents

Company Overview 5

Product Pipeline 6

About Pentosan Polysulfate Sodium (PPS) 6

Why Repurpose Compounds? 7

Orthopaedic Indications - Osteoarthritis and Acute Injuries

8

Rationale to use iPPS (ZILOSUL®) to treat Bone Marrow Edema Lesions 9

Biomarkers (CTX I & CTX II) 10

Bone Marrow Edema Lesions - Acute Injuries 10

Bone Marrow Edema Lesions and the progression of Osteoarthritis 11

BMEL & OA 12

Current Treatment Options 13

iPPS and Osteoarthritis 14

Phase 2b – Osteoarthritis Clinical Trial 15

OA with BMEL: Clinical Timeline 16

Therapeutic Goods Administration Special Access Scheme 16

TGA – Special Access Scheme – Knee OA Data 17

Ghosh et al – Double-blind, placebo-controlled pilot study 18

Kumagai et al – Open label trial 20

Understanding Placebo Responses in OA of the Knee Pain Clinical Trials 21

Elite Athletes and Professional Sporting Codes using iPPS 21

US Compassionate Use/Expanded Access – treating past NFL Players 23

Competition 24

Anti-NGF’s repeat long term use – serious adverse events 27

iPPS vs Pfizer’s anti-NGF – Tanezumab 27

Regulatory pathway and next steps 28

What is US FDA Fast-Track? 29

Next Steps in Paradigm’s Clinical OA Program 29

Rare Joint Diseases - Mucopolysaccharidoses (MPS) MPS – Phase 2a Results BioMarin Pharmaceuticals – Orphan Drug Developer IP Portfolio & Market Exclusivity

30 32 33 34

Paradigm’s other Programs 36

Investment View - Share Price Catalysts - Valuation

38 38 39

Peer Comparison 40

Recent Transactions 41

Valuation Methodology & Assumptions 42

Top 20 Shareholders 44

Board and Management 45

Key Risks 46

Disclaimer and Disclosures 47



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Company Overview

Paradigm Biopharmaceuticals Limited listed on the ASX in August 2015 and is focused on repurposing pentosan polysulfate sodium (PPS) for new orthopaedic and respiratory applications. PPS was developed in Germany in 1949 and has established anti-inflammatory and anti-thrombotic properties. It has been in use for over 60 years and as such its safety profile has been firmly established.

The Company addresses conditions that start with and are sustained by inflammation. Lead clinical indications involve treating osteoarthritis (and associated pain and injuries that result in bone marrow edema lesion, BMEL) and viral arthritis (Ross River and Chikungunya virus).

Given the pitfalls, time and costs involved in new drug (De Novo) development, repurposing existing registered drugs has become more popular over recent times. From 2007-09, 30-40% of drugs or biologics that were approved or launched for the first time in the US were either drugs repurposed for new indications, reformulations or new combinations of existing drugs.2

Paradigm’s core business revolves around the repurposing of iPPS for a number of indications unrelated to its already approved uses. These are:

First target indications:

• Osteoarthritis with concurrent bone marrow edema lesions (ZILOSUL® - iPPS) – currently in:

- Phase 2b randomised, double-blind, placebo controlled multicentre clinical trial for the treatment of Osteoarthritis (OA) with BMEL (n=110)

- Recently completed Phase 2a open label clinical trial for the treatment of acute BMELs resulting from traumatic joint injury (e.g. ACL/sporting injuries or other bone bruising)

• Rare Joint Diseases - Mucopolysaccharidoses (MPS), a group of inherited lysosomal storage disorders – Orphan Indication

- Successfully completed Phase 2a studies in humans (n=4 & n=12) - Successfully completed numerous animal studies

• Viral arthritis – currently in:

- Phase 2a randomised, double-blind, placebo controlled multicentre clinical trial for iPPS to treat both acute and chronic symptoms associated with mosquito transmitted alphavirus infections such as Ross River virus (RRv) and Chikungunya virus CHIKV infection (n=20) – Chikungunya virus is analogue to RRv.

Secondary indications:

• Cardiovascular and prevention of heart disease post cardiac arrest

• Allergic Rhinitis (requires reformulation, Phase 2 data under review)

• Allergic Asthma

• Chronic obstructive pulmonary disease (COPD) (conditions of the lungs which cause air flow through them to be reduced)

Paradigm also has an interesting novel compound, an IL-1RA Peptide, that has potential application in:

• Inflammatory bowel disease (“IBD”)

• Cancer-related cachexia

• Ulcerative colitis

• Crohn's disease

The IL-1RA Peptide has had its safety and efficacy confirmed in Phase 1/2 clinical trial (n:26) with patients with cancer-related cachexia who received the drug via IV administration. Paradigm is now focused on pre-clinical work and reformulation (into oral admin) for this exciting compound.

2 Luther MA. Systems pharmacology and drug repositioning- an integrated approach to metabolic diseases. Journal of Translational Medicine. 2012;10(Suppl 2):A18. doi:10.1186/1479-5876-10-S2-A18.



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Product Pipeline

About Pentosan Polysulfate Sodium (PPS) Pentosan polysulfate sodium (pentosan) is a semi-synthetic drug manufactured from beech-wood hemicellulose by sulfate esterification of the xylopyranose hydroxyl groups. PPS is a highly sulphated linear polysaccharide and is an anti-inflammatory acting on transcription factor NFkB. Additionally, it is an inhibitor of cartilage degrading enzymes-such as ADAMTS-4 and ADAMTS-5 and metalloproteinases. These properties make it a strong candidate for the treatment of orthopaedic conditions, such as osteoarthritis.

The oral formulation of PPS, manufactured by Bene PharmaChem (“Bene”), was approved by the US FDA in 1996 for the treatment of interstitial cystitis, commonly known as painful bladder syndrome, where it is sold under the brand name Elmiron® by Janssen Pharmaceuticals. Injectable administration of PPS (iPPS) has been approved as an anti- thrombotic (blood clot dissolving) agent in certain, predominantly European, countries. The patents covering the oral formulation expired in 2010. Although due to the extremely complex manufacturing process, no generic competition has been formulated, suggesting other companies are unable to manufacture or source PPS to the approved standard. It is believed that the biological activity of a sample of PPS is tied to and varies according to the set of polysaccharides (xylose chains) and the degree of sulphatation of the actual PPS sample. Since this is tied to the manufacturing method, the method used to create the PPS with consistent, well characterised content and biological activity, already deemed acceptable by the US FDA, is a key component of the company’s IP of its product.

Regional Approval for PPS – for thrombeombolism The injectable form of PPS has been sold in Germany since 1949, approved for the prevention of thrombeombolism and the treatment of acute blood vessel occlusions. It is the injectable formulation (subcutaneous) that Paradigm has employed for the treatment of its orthopaedic indications.

The injectable formulation of PPS is not presently approved for human use in Australia. The safety profile of the injectable form is proven, being approved for use in numerous countries, including four of seven of the global pharmaceutical markets, being Germany, Spain, Italy and France. Since approval, there have been in excess of 100 million injectable doses administered. The Oral formulation of PPS is approved by the TGA in Australia and FDA in the United States and is sold under the brand name Elmiron, by Janssen Pharmaceuticals, for the treatment of interstitial cystitis (painful bladder syndrome).



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Why Repurpose Compounds?

The quote of Dr. Stephen Naylor & Judge M. Schonfeld rings true for the global pharmaceutical industry: “The

pharmaceutical industry is still beleaguered by escalating costs, stagnant productivity and protracted timelines

as it struggles to bring therapeutic drugs to market. This situation has been compounded by a ravenous generic

drug sector, and patients that have morphed into a discerning consumer population.”3

Value and challenges of Drug Repurposing/Repositioning/Rescue (“DRPx”)

There are a number of substantial benefits of utilising a DRPx strategy in comparison to conventional de novo

drug development programs, which result in a greater chance of clinical success, in a reduced timeframe for a

fraction of the traditional capital outlay. The most prevalent benefits include:

I. Cost Savings – It is suggested by Dr Aris Persidis, President and co-founder of Biovista Inc, that the cost “to relaunch a repositioned drug averages US$8.4 million.”4 This figure is at the low end of the spectrum, relatable to line extension DRPx cases, thus may be multiplied to a high case of US$100-300 million if the DRPx drug has to undergo complex Phase II and Phase III clinical trials. This figure represents a fraction of the average de novo drug development cost of US1.778 billion.5

II. Time Savings – Repurposing a compound dramatically reduces the clinical approval process due to the established clinical data that accompanies it. The average cycle time of a DRPx drug is approximately 3-12 years, considerably less than de novo drug development at 10-17 years. 6

Figure: 1 - Standard Drug Development vs Drug Repurposing

Source: PAR Company Presentation

III. Risk/Productivity – The attrition rate of conventional de novo drugs is a staggering ~95%. The leading factor of the high attrition rate is due to a compound’s lack of safety (~45% failure in Phase I) and efficacy (65% failure rates in Phase II).7 As a result of the high attrition, there is an increased pressure on the drug pipeline, which negatively affects the productivity/focus of pharmaceutical companies.

IV. Higher Success Rates – As DRPx drugs have been either been approved or shown to be safe in late stage trials, they can enter the clinical cycle at the efficacy stage, therefore the failure rate is significantly decreased, promoting the chances of a successful launch. Approximately 25% of DRPx drugs successfully make it from Phase II to launch, in comparison to only 10% for conventional de novo drugs.

V. Market Potential – The market potential for a DRPx drug is subject to the same market forces as a conventional de novo drug, such as, market need, patient acceptance, market strategy and intellectual property position.8 Therefore a DRPx drug has the same potential to reach ‘blockbuster drug status’ as

3 Therapeutic Drug Repurposing: repositioning and rescure. Winter 14 by Dr Stephen Naylor & Judge M. Schonfeld. 4 Persidis, A. The Benefits of Drug Repositioning. Drug Discov. World Spring Edition: 9-12 (2011). 5 http://www.ddw-online.com/drug-discovery/p274232-therapeutic-drug-repurposing:-repositioning-and-rescue-winter-14.html 6 Source: PAR Company Presentation 7 Paul, SM et al. How to Improve R&D Productivity: the Pharmaceutical Industry’s Grand Challenge. Nature Reviews: Drug Discovery, 9, 203-214 (2010). 8 Persidis, A. The Benefits of Drug Repositioning. Drug Discov. World Spring Edition: 9-12 (2011).



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a de novo drug. A recent example of a DRPx blockbuster drug is dimethyl fumarate (brand name Tecfidera) from Biogen IDEC. It was approved for a new indication to treat multiple sclerosis (MS) in 2013 and achieved revenue sales of >$2.5 billion worldwide in 2014. This represented ~30% of total revenues for Biogen IDEC last year

VI. Intellectual Property – Utilising a DRPx strategy can help elongate a drugs patent life, thus prolonging product lifecycle and reducing the ‘patent cliff’ effect.

Orthopaedic Indications

- Osteoarthritis and Acute Injuries

Paradigm’s Focus

Paradigm’s primary focus is the treatment of Bone Marrow Edema Lesions (BMELs), specifically occurring

concurrently with Osteoarthritis (“OA”) and post-Acute Injury, such as a ruptured ACL.

As stated above, Paradigm’s clinical program in Orthopaedics includes:

• Recently completed Phase 2a open label clinical trial for the treatment of acute BMELs resulting from traumatic joint injury (e.g. ACL/sporting injuries or other bone bruising)

• Phase 2b randomised, double-blind, placebo controlled clinical trial for the treatment of OA with BMEL (n=110)

What are Bone Marrow Edema Lesions?

Bone Marrow Edema Lesions (“BMEL”) commonly known as ‘bone bruising’ is the accumulation of interstitial

fluid or inflammation within bone marrow structure (figure 2). With the development of magnetic resonance

imaging (MRI), BMELs are now easily identified and diagnosed. BMELs are typically associated with or a

consequence of a direct impact to the bone, bone fractures, ligament injury, osteoarthritis, bone tumours,

invasive surgery, or synovitis.

Among medical professionals it is accepted there are two distinct forms of BMEL:

1. Traumatic BMEL – Occur as a result of trauma9, such as

a ruptured ACL - Focus of Paradigm Phase 2a trial in elite

sportspeople

2. Atraumatic BMEL – Occur without trauma10, typically

associated with osteoarthritis. – Focus of Paradigm’s

Phase 2b clinical trial

Figure 2. MRI of Bone Marrow Edema – indicated by

the red shadow within the confines of the bone11

9 Meaney, Falko-Alexander Stichnoth, Clinical MR Imaging: A Practical Approach 10 rimm, J., et al., MRI of transient osteoporosis of the hip. Arch Orthop Trauma Surg, 1991. 110(2): p. 98-102. 11 https://www.rheumatologyadvisor.com/osteoarthritis/the-predictive-value-of-bone-marrow-lesions-in-degenerative-joint-disease/article/466050/

https://www.rheumatologyadvisor.com/osteoarthritis/the-predictive-value-of-bone-marrow-lesions-in-degenerative-joint-disease/article/466050/

https://www.rheumatologyadvisor.com/osteoarthritis/the-predictive-value-of-bone-marrow-lesions-in-degenerative-joint-disease/article/466050/



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Rationale to use ZILOSUL® (iPPS) to treat Bone

Marrow Edema Lesions

The emergence of BMELs’ in the bone underlying the cartilage (sub chondral BMEL) are indicators of rapidly progressing disease and therefore represent a poor prognosis for the joint. BMEL’s are understood to be a source of pain and the initial signal demonstrating the pathophysiology of cartilage breakdown. The joint fluid of patients with an acute injury and consequent BMEL, presents substantial increases in inflammatory cytokines (principally TNF-alpha and IL-1), cartilage degrading enzymes (MMP’s and ADAMTS-5) and signs of hypercoagulability.

To effectively address this pathophysiology a compound must have multiple pharmaceutical actions, namely, anti-inflammatory (importantly Anti TNF-alpha and anti IL-1), block the matrix metalloproteinases (MMP’s and ADAMTS), improve microcirculation and reduce expression of neurotropic factors which transmit pain signals.

It has been published in a variety of peer-reviewed scientific studies that PPS has demonstrated the aforementioned pharmaceutical actions, supporting the rationale for its use to treat BMEL.

Mechanism of Action (MOA) - PPS has demonstrated:

• The inhibition of cartilage degrading enzymes that are released post-acute injury.12

• Anti-inflammatory effects, whilst blocking the effects of the pro-inflammatory cytokines TNF-alpha and IL-

1.13

• Antithrombic and antilipadaemic effects, which enhance microvascular circulation in the subchondral

bone. Improving the microvascular circulation is believed to be a critical factor in resolving BMEL.14

• To be safe and well tolerated in patients.15

Put simply, PPS is likely to reduce swelling (i.e. anti-inflammatory) improve blood flow which greatly assists

the healing process and reduces cartilage degrading enzymes.

The table below summarises the key therapeutic actions of PPS as it relates to the biological process of

osteoarthritis.

Biological Process PPS Therapeutic action

Inflammation

• High expression of the inflammatory cytokines IL1beta and TNF-alpha instigate tissue damaging cellular immune responses within heart tissue and cartilage

• These cytokines are common to inflammation in OA.

• PPS stops the translocation of transcription factor NF-kB from the cytoplasm to the nucleus and thereby reduces the expression of the pro-inflammatory cytokines like IL-1 or TNF-alpha.

• Reduction in pro-inflammatory cytokines in the joint fluid16

Tissue damage and adverse remodelling

• Increased levels of cartilage degrading enzymes ADAMTS-4, ADAMTS-5, MMP3

• Involved in impairment of joint function and potentially cause bone marrow edema and bone pain17

• PPS forms a complex between the enzyme inhibitor (TIMP3) and the proteolytic enzymes, ADAMTS-4 and ADAMTS-5a

• PPS inhibits the synthesis of the metalloproteinase MMP-3 b which is also involved in degrading cartilage

• Inhibition of these enzymes or reducing the levels by PPS prevents cartilage degradation in OA18

12 Troeberg L, Mulloy B, Ghosh P, Lee MH, Murphy G, Nagase H. Pentosan Polysulfate increases affi nity between ADAMTS-5 and TIMP-3 through formation of an electrostatically driven trimolecular complex: Biochem. J. 2012; 443, 307-315

13 Smith JG, Hannon RL, Brunnberg L, Gebski V, Cullis-Hill D. A multicentre clinical study of the efficacy of sodium pentosan polysulfate and carprofen (Pfizer) in canine osteoarthritis (osteoarthrosis), VETERINÄR- MÖTET 2002. 14 Ghosh P and Cheras P Vascular mechanisms in osteoarthritis: Best Practice & Research Clinical Rheumatology 2001; 15: 693-701. 15 Kumagai K, Shirabe S, Miyata N, et al .Sodium Pentosan Polysulfate Resulted in Cartilage Improvement in Knee Osteoarthritis - An Open Clinical Trial. BMC Clin Pharmacol. 2010; 10: 1-24. 16 Sunaga et al 17 Troeberg et al 18 Sunaga et al



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Biomarkers (CTX I & CTX II)

Synovial fluid post an acute joint injury presents a rapid increase in levels of key inflammatory cytokines and

cartilage breakdown biomarkers CTX I and CTX II, which are measurable in urine and serum. Increased levels of

CTX I and CTX II indicates cartilage breakdown and subsequently the onset of osteoarthritis.

Results from a placebo controlled pre-clinical study, demonstrated that PPS administered post-acute injury

maintained the pre-injury levels of the key inflammatory cytokines and cartilage breakdown biomarkers CTX I

and CTX II.19 In comparison, the post-acute knee injury group administered with the placebo showed substantial

increases in serum levels of cytokines (TNF alpha and IL-1beta) and the cartilage breakdown biomarkers of CTX

I and CTX II. These increased levels occurred immediately and were maintained for up to 48 weeks, therefore it

was concluded that PPS is protective to cartilage post acute injury.

The multiple pharmacological properties of PPS supports Paradigm’s reasoning for further investigation into its

application for the treatment of Bone Marrow Edema.

Bone Marrow Edema Lesions - Acute Injuries Paradigm’s initial focus in their orthopaedic program was to demonstrate that PPS had a clinical benefit in patients that had sustained a bone marrow edema lesion as a result of a ruptured anterior cruciate ligament (ACL).

Why focus on BMEL? - No regulatory approved pharmaceutical therapeutic options

The presence of bone marrow edema (Traumatic or Atraumatic) results in severe and chronic pain in the affected

area. Apart from prolonged rest and immobilisation of the affected joints/anatomical region there is currently

no effective, regulatory approved, therapeutic treatment available for suffers.

The traditional treatment via rest and immobilisation may result in resolution of symptoms of pain & joint

dysfunction and the normalisation in MRI within 6-18 months, although during this period the patient’s quality

of life is usually considerably diminished.20 Additionally, a sustained BMEL (6-18 months) can have a lifelong

impact on joint health as a result of overproduction of the cartilage degrading enzymes (MMP’s and ADAMTS-

5), leading to the onset of osteoarthritis.

Treatments beyond immobilisation

Other treatments may include analgesics and anti-inflammatories, physiotherapy and surgical treatment (core

decompression). Analgesics or non-steroidal anti-inflammatory drugs (NSAIDs) are usually prescribed to provide

some relief for BMEL, although it is widely accepted that NSAIDs and corticosteroids have a detrimental side-

effect on the metabolism of bone and cartilage. More importantly, all current treatment options are considered

as symptomatic therapy since they have little or no effect on the underlying pathophysiology responsible for

BMEL. No treatments are currently available that influence the underlying pathology.21

The Addressable Market for BMEL – Acute Injuries The worldwide hip & knee surgical implant market is US$16.7bn, will be US$33bn by 2022.22 There is a current

focus is on acute knee injuries, but we see potential to use iPPS to treat other major joints (ankle, shoulder,

elbow, hip, etc.) and chronic injuries (BMEL case study).

19 Kumagai K, Shirabe S, Miyata N, et al .Sodium Pentosan Polysulfate Resulted in Cartilage Improvement in Knee Osteoarthritis - An Open Clinical Trial. BMC Clin Pharmacol. 2010; 10: 1-24. 20 Krause, R., et al., [The transitory bone marrow edema syndrome of the hip]. Z Orthop Ihre Grenzgeb, 2002. 140(3): p. 286-96. 21 Ibid. 22 Winter Green Research (2016), Hip and Knee Orthopaedic Surgical Implants Market Shares, Strategies, and Forecasts, Worldwide, 2016 to 2022



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Addressable market based on acute traumatic injuries:

Utilising the data above, the potential addressable market in the United States alone, based on a treatment

cost of US$1,750 – US$3,000 is US$2.52bn – US$4.32bn. It is important to note that this figure does not include

shoulder, elbow, hip injuries and BMEL associated with invasive surgery.

BMEL – ACL – Trial Results

Paradigm undertook a phase 2a open label trial in 11 patients to evaluate injectable pentosan polysulfate for

the treatment of Bone Marrow Edema Lesions associated with acute anterior cruciate ligament (ACL) injuries.

iPPS was administered as a course of 6 intramuscular injections, given twice weekly over 3 weeks.

Results – Trial was a success

• Primary endpoint of safety and tolerability was met

• Secondary endpoint was met and showed a statistically significant reduction in bone marrow lesion volume.

• The changes in BMEL and effusion-synovitis from baseline to End of Study were examined in 9 subjects

who had completed the course of PPS treatment. Overall 6/9 (66.6%) participants showed reduction

in BMEL; 8/9 (88.8%) had reduction in effusion-synovitis volume. There was a significant reduction in

BMEL volume in lateral tibia [p=0.046], and a marginally significant reduction for total tibia [p=0.06].

Similarly, there was a significant reduction in BMEL maximal area in lateral tibia [p=0.03] and total

tibia [p=0.02]. There was a significant reduction in effusion-synovit is volume in suprapatellar

pouch [p=0.02] and total knee [p=0.01]. There was also a significant reduction in effusion-synovitis

maximal area in suprapatellar pouch [p=0.03] and total knee [p=0.04].23

Bone Marrow Edema Lesions and the progression

of Osteoarthritis • Many patients with a torn ACL develop osteoarthritis of the knee irrespective of current treatment. 24

• Many acute joint injuries are characterized by Bone Marrow Edema Lesions (BMEL’s) as detected by

Magnetic Resonance Imaging (MRI).

• The occurrence and progression of BMELs have been shown to be associated with progression to

osteoarthritis and joint pain.25

• Importantly, BMELs are also associated with structural changes in bone and cartilage and are a potent

risk factor to joint pain and osteoarthritis.26

• Patients who present with BMEL were nearly 9 times as likely to progress towards total knee replacement.27

• BMEL’s are strongly associated with joint pain

23 Paradigm ASX Announcement – 14th November 2017 24 BMJ 2013:346:f232 doi: 10.1136/bmj.f232 25 Osteoarthritis and Cartilage 2012, 20:1514-1518 26 Rheumatology 2010, 49:2413-9 27 Skeletal Radiol 2008, 37:609–617

ACL injuries associated with BME per annum in USA15 160,000

Meniscal injuries associated with BME per annum in USA16 800,000

Ankle injuries associated with BME per annum in USA17 480,000

TOTAL - Knee & ankle Injuries Associated with BME in USA (Excludes

shoulder, elbow and hip injuries as well as chronic inj ur ies).

1,440,000



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DECEMBER 2018

BMEL & OA

BMELs lead to Osteoarthritis

• There is a growing link between BMEL and joint cartilage degeneration that leads to OA and this is further evidenced by the above studies/references. It is believed that there are chronic health impacts associated with untreated BMEL, with patients having 10x greater likelihood of developing OA.

BMELs progress Osteoarthritis

• In established OA, BMELs are associated with knee pain, progression (on x-ray or MRI) of knee OA and cartilage loss

• Enlargement of BMELs is strongly associated with increased cartilage loss and reduction of the extent of BMELs is associated with a decrease in cartilage loss

• By targeting the resolution of BMELs, it is hoped that this could significantly reduce pain and stop or slow the structural destruction of the joint

What is Osteoarthritis?

Osteoarthritis isn’t just a disease that affects older adults; it’s the most common form of arthritis, affecting more

than 30 million Americans.28 Anyone who injures or overuses their joints, including athletes, military members,

and people who work physically demanding jobs, may be more susceptible to developing this disease as they

age, as detailed above. OA is a chronic condition that can affect any joint, but it occurs most often in:

• knees,

• hips,

• lower back and neck,

• small joints of the fingers and the bases of the thumb and big toe. Currently, there is no cure for OA.

In normal joints, cartilage covers the end of each bone. Cartilage provides a smooth, gliding surface for joint

motion and acts as a cushion between the bones. In OA, the cartilage breaks down, causing pain, swelling and

problems moving the joint. As OA worsens over time, bones may break down and develop growths called spurs.

Bits of bone or cartilage may chip off and float around in the joint. This can cause inflammation and further

damage the cartilage. In the final stages of OA, the cartilage wears away and bone rubs against bone, leading to

joint damage and more pain. When OA becomes severe, other than treating symptoms with pain medications,

the only option for treatment becomes joint replacement.

The following facts describe some of the features common to OA.

• Progressive breakdown and loss of cartilage

• Most common type of arthritis, also known as degenerative joint disease

• The lifetime risk is of developing symptomatic knee osteoarthritis is 45%

• There are 14 million individuals in the U.S. who have symptomatic knee osteoarthritis

• More than half of all individuals with diagnosed symptomatic knee osteoarthritis (OA) have had sufficient progression of OA that would make them eligible for knee replacement. (Deshpande 2016)

• Since the 1990’s the average age at diagnosis of OA has fallen from age 72 to 56

• OA affects 14% of adults aged 25 and older and 34% of those aged 65 and older

• Accounts for >$185B in annual U.S. healthcare expenditures

• Approximately 40% of Medicare patients with OA are prescribed opioids and 2015 Part D spending for

28 https://www.cdc.gov/arthritis/basics/osteoarthritis.htm



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DECEMBER 2018

these drugs exceeded $4 billion29,30

• Currently over 30 million Americans have OA and that number is expected to grow in the coming years driven by aging, obesity and increasingly sports injuries31

• The osteoarthritis market is forecast to grow at a CAGR of 8.1% as the global population ages.32

Addressable Market based on prevalence of knee osteoarthritis in the United States

Utilising the data above, the potential addressable market in the United States alone, based on a treatment

cost of US$1,750 – US$3,000 is US$12.25bn – US$21.0bn. It is important to note that this figure does not include other areas of osteoarthritis i.e. hips, lower back and neck, small joints of the fingers and toes.

Current Treatment Options

The current standard of care/treatment regime for knee OA can be summarised as follows:

There are well documented side effects/shortfalls with current anti-inflammatory treatments

including:

• Corticosteroids side effects with use for >3-months include osteoporosis (fragile bones), hypertension (high blood pressure), diabetes, weight gain, thinning of the skin and easy bruising.

• Opioids side effects centre around physical dependence and addiction, with Opioid abuse deemed to be a “National Public Health Crisis” by the US Government in 2016. Other side effects include sedation, dizziness, nausea and vomiting.

29 Wright EA, Katz JN, Abrams S, Solomon DH, Losina E. Trends in prescription of opioids from 2003-2009 in persons with knee osteoarthritis. Arthritis Care Res (Hoboken). 2014;66(10):1489-95. 30 Williams AR, Bisaga A. From AIDS to opioids – how to combat an epidemic. N Engl J Med 2016;375(9):813-815 31 Cisternas MG, Murthy L, Sacks JJ, Solomon DH, Pasta DJ, Helmick CG. Alternative Methods for Defining Osteoarthritis and the Impact on Estimating Prevalence in a US Population-Based Survey. Arthritis Care Res (Hoboken). 2016 May;68(5):574-80. 32 https://www.arthritis.org/Documents/Sections/About-Arthritis/arthritis-facts-stats-figures.pdf

Anti Inflamatories

•Corticosteriods (mostly intra-articular)

•Opioids (mostly oral)

•Non-steriodal anti-inflamatories (NSAIDS) (oral & topical)

Lubricating Fluid

•Hyaluronic acid

Surgery

•Arthroscopy

•Osteotomy

•Joint Replacement

Number of people with osteoarthritis in USA 30,800,000

Number of people with knee osteoarthritis in USA 14,000,000

Number of people with advanced knee osteoarthritis (50%) (i.e. eligible for a knee replacement) in USA

7,000,000



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DECEMBER 2018

• NSAIDS side effects include stomach ulcers, high blood pressure, liver and kidney damage and heartburn.

Opioid abuse has become and remains a real focus for several US government departments and industry bodies

including the National Institute of Drug Abuse, the National Institute of Health and the US Department of Health

& Human Services.

The National Institute of Drug Abuse suggests:

• 115 people in the US die every day from opioid overdoses

• 21-29% of opioid users misuse the drug

• The total economic burden of opioid abuse in the US is US$78bn/year.

The National Institute of Health (NIH) met with pharmaceutical companies and academic research centres in

2017 to discuss:

• Safe and effective, non-addictive strategies to manage chronic pain

• Develop new and innovative medications & reversal interventions to treat opioid disorders

• Improve overdose prevention & reversal interventions to save lives and support recovery

Even as recently as April 2018 NIH launched the Helping to End Addiction Long-term (HEAL) program to stem

the national opioid public health crisis.

iPPS and Osteoarthritis A Paradigm Shift in Treating Osteoarthritis Pain

Paradigm utilised data from 30 patients treated by their doctors via the Therapeutic Good Administration’s

Special Access Scheme (“TGA SAS”) to provide initial validation for a double-blind, placebo-controlled Phase 2b

clinical trial to investigate PPS in subjects with BMELs and OA.

Paradigm’s announcement to the ASX on the 11th September 2017 titled “A Paradigm Shift in Treating

Osteoarthritis Pain” confirmed the significant potential of Pentosan Polysulfate Sodium (PPS) to treat

subchondral Bone Marrow Edema Lesions (BMELs) in people with osteoarthritis (OA).

The Case Study of a 70-year-old female patient with BMELs and advanced OA treated with iPPS was published

in BMC Musculoskeletal Disorders entitled:

“Improved clinical outcome measures of knee pain and function with concurrent resolution of subchondral Bone

Marrow Edema Lesion and joint effusion in an osteoarthritic patient following Pentosan Polysulphate Sodium

treatment: A case report”.

The iPPS treatment was seen to be so effective that the patient and surgeon no longer consider a total knee

replacement is warranted.

The Peer Reviewed Publication case study showed that treatment with iPPS:

• eliminated the patient’s subchondral (the layer of bone just below the cartilage in a joint) BMELs;

• eliminated the patient’s pain level (from a score of 8 out of 10 on a Numerical Rating Scale [NRS] to 0 out of 10);

• significantly reduced knee swelling; and

• significantly improved joint movement (43% improvement from a Lysholm Knee Score).

Furthermore the 30 patient SAS data found that all patients experienced similar clinical outcomes of:

• reduced BMEL volume (on MRI); and

• significant reduction in pain and knee effusions (excessive fluid around the knee). Paradigm was then able to use what they had learnt from the initial 30 patient SAS data, combined with the

Ghosh et al 2005 and other iPPS studies to design a robust Phase 2b Clinical Trial.



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DECEMBER 2018

Phase 2b Clinical Trial

Phase 2b – Osteoarthritis Clinical Trial

Paradigm have completed recruitment of a phase 2b, randomised double blind placebo controlled multicentre study to evaluate the effects of pentosan polysulfate sodium on treating pain in subjects with osteoarthritis of the knee and subchondral bone marrow lesions.

Trial Design • Phase 2b, randomised double blind placebo controlled multicentre study

Type of endpoints • Safety/Efficacy

No. Participants • 110

Active: Placebo Ratio

• 1:1 (55:55)

Dosing • 2mg/kg Pentosan Polysulfate Sodium (100mg/ml injectable solution),

administered by subcutaneous injection, twice weekly for 6 weeks.

Placebo • Saline (0.9% saline solution)

Recruitment Sites • 6 – Across SA, VIC, WA and QLD

Key Inclusion Criteria

• Subjects with a clinical diagnosis of osteoarthritis in one or both knees and a radiographic diagnosis of knee osteoarthritis showing a Kellgren-Lawrence score 2, 3 or 4

• Aged 40 to 75 years

• Presence of subchondral bone marrow lesions of the distal femur or proximal tibia on sagittal or coronal MRI slices, confirmed by radiologist at screening

Trial Endpoints

What is the Knee Injury and Osteoarthritis Outcome Score (KOOS)?

The Knee Injury and Osteoarthritis Outcome Score (KOOS) is the gold standard questionnaire designed to assess short and long-term patient-relevant outcomes following knee injury. The KOOS's five patient-relevant dimensions are scored separately: Pain (nine items); Symptoms (seven items); ADL Function (17 items); Sport and Recreation Function (five items); Quality of Life (four items). A Likert scale is used and all items have five possible answer options scored from 0 (No problems) to 4 (Extreme problems) and each of the five scores is calculated as the sum of the items included.

For further details:

https://www.anzctr.org.au/Trial/Registration/TrialReview.aspx?id=373400&isReview=true

Primary Endpoint

• Evaluate the effects of injectable pentosan polysulfate sodium (iPPS) on knee pain in participants with knee osteoarthritis and subchondral bone marrow lesions (BMLs) as assessed by the Knee injury and Osteoarthritis Outcome Score (KOOS) Pain subscale.

• Time point - Baseline (day 1 of treatment), days 11, 25, 39, 53 (repeated measures)

Secondary Endpoint • Evaluate changes in KOOS joint symptom score of the knee and MRI changes to

Bone Marrow Edema Lesion volume.

• Time point - Baseline to Days 11, 25, 39, 53, 81, 109 and 165

Exploratory Endpoints • Haematology and Coagulation parameters

• Time point - Baseline to days 11, 25, 39, 53.

https://www.anzctr.org.au/Trial/Registration/TrialReview.aspx?id=373400&isReview=true



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DECEMBER 2018

OA with BMEL: Clinical Timeline

Therapeutic Goods Administration Special Access Scheme

The Therapeutic Goods Administration of Australia (‘TGA’) is a government body that is tasked with regulating

and approving a range of treatments, diagnostics, drugs and supplements for use in humans within Australia.

They have a long history of following very similar protocols and rules to that of the US Federal Drug Authority

(the ‘FDA’) and the European Medicines Agency (the ‘EMA’).

The Special Access Scheme (‘SAS’) refers to arrangements which provide for the importation and/or supply of

an unapproved therapeutic good (i.e. those not included on the Australian Register of Therapeutic Goods

(ARTG)) for a single patient, on a case-by-case basis. The TGA must be satisfied that the treatment presents no

safety issues and the treating physician and patient has exhausted all available ‘standard of care’ treatments

before approval is granted. In Europe the equivalent program is called the ‘Compassionate Use’ program and in

the US the ‘Expanded Use’ program.

Given PPS’ well established safety profile and anti-inflammatory properties, it has been accepted by the TGA on

a ‘case by case’ basis to treat patients with a range of orthopaedic conditions, where a BMEL is present. There

have been over 370 patients treated by their doctors, a figure which is growing exponentially as positive

outcomes are spreading by ‘word of mouth’.

Of the 370 patients treated, a large portion have knee osteoarthritis with concurrent Bone Marrow Edema Lesions, the focus on Paradigm’s phase 2b clinical trial. Paradigm has released data on four groups (typically 20-30 patients), providing an invaluable ‘look-through’ to the upcoming phase 2b trail results. This data will be submitted to the FDA as Real-World Evidence (“RWE”), which can be used in combination with Randomised Controlled Clinical Trials to support product registration for repurposed pharmaceuticals under the 505(b)(2) regulatory pathway.

Additionally, the TGA SAS is providing Paradigm with highly valuable data on a whole range of orthopaedic

indications (not limited to osteoarthritis). This additional data will assist Paradigm in the formation of a valuable

RWE data pack to be submitted to the FDA, which may reduce the need of typical clinical trials. The RWE will

assist with Paradigm’s submission for Fast Track Designation.



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DECEMBER 2018

TGA – Special Access Scheme – Knee OA Data Paradigm has recently released the data from the sixth group of patients (n:25), taking the total number of patients reported on to 145.

The results from all 6 groups are significant, showing a 51.2% reduction in pain (on average) thus pointing to a constant pain reduction amongst the different groups which points to a lack of variance of effect for the drug.

Results from the total 145 patients have shown the average pain reduction doesn’t vary drastically amongst the

different patient groups treated under the TGA SAS. As a point of reference, these figures demonstrate

superiority over the:

• 15% pain reduction scores reported for opioid treatments for chronic pain in OA of the knee and hip33; and

• 25-30% pain reduction scores considered to be a clinically meaningful reduction of chronic pain34. What is more encouraging is the hypothesis for these strong results. The company stated that it may be attributed to a larger proportion of the patients in Group 4 undergoing a six-week treatment period, which replicates the Phase 2b OA clinical trial, suggesting a greater response compared to a three or four week treatment period.

We understand that physicians are now treating the vast majority of their knee OA patients under a six-week treatment regimen, suggesting that we may be able to expect an upward trend in pain reduction as additional SAS data is released.

Paradigm now envisages that there may potentially be more than 200 patients in total reported on before the Phase 2b clinical trial results.

Details of case study patients and outcomes

The 145 patients are a pool of the results from 24 patients, which were reported in October 2017 (Group 1); 21

patients between November 2017 and February 2018 (Group 2); 30 patients March 2018 and June 2018 (Group

3), 25 from August 2018 (Group 4), 25 September 2018 (group 5) and 20 from November 2018 (group 6).

The 145patients [76 males and 69 females, median age of 57.6 years (range 27 to 84 years)] had been clinically

diagnosed with OA and subchondral BMELs (as determined by multiple MRI). At the onset of PPS treatment:

• All patients were symptomatic with OA pain for at least six months and had failed current standard of care, which involved treatment with analgesics, NSAIDs (non-steroidal anti-inflammatory drugs) or corticosteroids.

• 70% of the patients had moderate to severe BMELs with a size ranging from five millimetres to more than 20 millimetres in diameter.

• 30% had lesions less than five millimetres in diameter.

Patients were administered with two injections of PPS per week for three to six weeks depending on the severity

of the BMEL (a total of 6 to 12 injections). Patients were followed up at four to six weeks following the last

treatment. During the course of iPPS treatment, patients did not receive NSAIDs or corticosteroid treatment.

Clinical knee pain outcome measures after the initiation of PPS treatment were as follows:

• 126 out of 145 - (86.8%) patients showed a reduction in pain;

• Average pain reduction was clinically meaningful at 51.2% compared to pre-treatment pain.

Clinical knee function outcome measures after the initiation of PPS treatment were as follows:

• 132 out of 145 - (92.0%) patients showed improvement in knee function;

• The average improvement in knee function was clinically meaningful at 64.8% compared to pre-treatment function.

33 Seghal N, Colson J and Smith H; Expert Rev Neurother. 2013;13(11):1201-1220 34 Seghal N, Colson J and Smith H; Expert Rev Neurother. 2013;13(11):1201-1220



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DECEMBER 2018

Weight of the results

We are cognisant of the fact that the TGA SAS data is open label, not resultant from an official clinical trial and

does not incorporate a placebo control arm. These factors undeniably lower the reliability of the data but in our

view not to a point where it should be heavily discounted.

Why we believe this data is strong

Replicated Reporting

• Patients treated via the TGA SAS undergo an MRI pre-treatment and 6 weeks post treatment – Same as the Phase 2b clinical trial

• Patients undergo the same clinically recognised Knee injury and Osteoarthritis Outcome Score (KOOS) Pain subscale and KOOS joint symptom score – Same as the Phase 2b clinical trial

There is potential for the Phase 2b OA clinical trial results to exceed the TGA SAS results (from baseline), based

upon two critical factors:

• The phase 2b trial patient enrolment is optimised (as all clinical trials are) with the appropriate exclusion/inclusion criteria, whilst the TGA SAS includes ALL applicants, some of which are 80 years+ with extreme osteoarthritis and are naturally harder to treat etc; and

• All patients in the phase 2b trial are treated for six weeks, whereas the earlier patients in the TGA SAS groups were treated for 3 and 4 weeks – we believe this the 6 weeks regimen demonstrates higher efficacy.

Ghosh et al – Double-blind, placebo-controlled pilot study

Ghosh et al, 2005 undertook a randomized, double-blind, placebo-controlled pilot study to assess the ability of sodium pentosan polysulfate (NaPPS) to improve pain and function in patients with OA of the knee.

Trial publication here: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3965979/

• The randomized, double-blind, placebo-controlled pilot study enrolled 114 Patients aged >18 years with OA of the knee that were randomly assigned to receive PPS 3 mg/kg or Ringer's solution (control), intramuscularly for 4 weeks.

• Efficacy was assessed at enrolment and weekly during the 4 weeks of treatment and at weeks 8, 12, 16, and 24.

• Seven direct clinical assessments were made, including, intensity of early morning joint stiffness, pain at rest, and pain on walking. A 10-cm visual analogue scale (VAS) was used to assess pain at rest and on walking and early morning joint stiffness.

• A Response was defined as a change from baseline in VAS score >2 cm.

• Function was assessed using the 10-cm VAS to rate 13 activities of daily living (ADLs), including stair climbing and domestic chores.

• Patient global assessment of the overall effectiveness of the study drug comprised a 4-point Likert scale (0 = not effective to 3 = maximally effective).

• An aggregate score for all ADL functions was calculated as the mean change from baseline score of all of the ADLs as determined at 4, 8, 12, 16, and 24 weeks after commencement of the study.

• For tolerability monitoring, haematology and biochemistry were used, and patients were questioned about adverse events at each visit.

Patient Breakdown

• 114 patients were enrolled (83 women, 31 men; mean [SD] age, 63.3 [1.5] years).

• On breaking the randomization codes, no significant differences in age, sex, body mass index (BMI), number of involved joints (hips or knees), global pain score, or radiographic grade of knee OA were found between the 2 groups.

• However, the between-group difference in the mean (SE) duration of OA symptoms was significant (NaPPS, 5.0 [0.5] years; controls, 6.8 [0.7] years [P = 0.03]).



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DECEMBER 2018

• BUT, there were no significant between-group differences in rates of ADL functional disability assessed at baseline.

• All 114 patients completed the 4-week course of injections (weeks 1-4), but some patients were withdrawn from the study due to dissatisfaction with treatment or loss to follow up.

• The percentages of patients remaining in the trial were significantly higher in the PPS group at 8, 12, and 24 weeks compared with controls

Study Results

• Response Group: VAS score >2cm

• Treatment Group: All patients treated with PPS with varying VAS scores

Pain

• Pain at rest: Whole Treatment Group demonstrated a statistically significant reduction of pain at rest from 8 weeks onwards

• Pain on walking: Response group demonstrated a statistically significant improvement in pain on walking at weeks 4, 12 and 24.

Function

• Joint stiffness: Whole Treatment Group demonstrated a statistically significant improvement in early morning joint stiffness at weeks 4, 8, 12, and 16.

Treatment Effectiveness

• Patient global assessment of treatment effectiveness was significantly higher in the Whole Treatment Group compared with the control group at all time points after the fourth injection (week 4).

Conclusions from the trial

What the Trial Investigators said:

• “In this pilot study, 4 weekly injections of PPS were associated with significantly improved duration of joint stiffness and pain at rest compared with controls for 20 weeks after the cessation of treatment, and significantly improved pain on walking and overall function for 8 weeks after the cessation of treatment in these patients with OA of the knee.”

Our view on the patient breakdown

• The fact that there was a statistically significant difference of ‘time of OA diagnosis to entry to the trial’ between the treatment arm and the control

• Is negated by the fact that there was no significant difference between ADL functional disability assessed at baseline.

What this previous successful iPPS clinical trial means for Paradigm

The fact there has been a successful randomised, double-blind, placebo-controlled pilot study to assess the ability of iPPS to improve pain and function in patients with OA of the knee gives us an enhanced degree of confidence. It is very rare in the biotechnology sector to have a somewhat comparable study, which validates your hypothesis.

Potential for Paradigm’s Phase 2b OA results to be stronger as a result of dosing?

The fact that paradigm is dosing 2x2mg/kg injections (4mg/kg) per week for 6 weeks compared to 1x3mg/kg per

week for 4 weeks under Ghosh is an important dosing feature which enhances our confidence in Paradigm’s

phase 2b OA results. Paradigm believe that 2x2mg/kg injections weekly is a more effective dose, additionally, as

highlighted above, the TGA SAS data is suggesting that a 6-week treatment regimen may result in greater

efficacy.



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DECEMBER 2018

Kumagai et al – Open label trial

• Kumagai et al conducted a twenty patient, single-centre, open label trial to assess the effectiveness of iPPS in patients with osteoarthritis, as defined by the Kellgren-Lawrence Grading System (K/L grade).

• Treatment consisted of 6 weekly subcutaneous injections (sc) of pentosan (2 mg/kg).

• All patients were prospectively reviewed at entry and at weeks 1, 2, 3, 4, 8, 12, 16, 24, and 52 with initial question of pain at rest and walking, a physical examination of the knee and VAS for pain with ROM exercises, 50m walking, walking up and down stairs, or at 5 minutes rest after exercises.

• To check the change of the metabolism in the cartilage, degradation of type II collagen (C2C) in the blood was measured with a commercial ELISA kit, in addition to the usual biochemical tests.

• Weight bearing radiographs were reviewed at baseline and at the end of study to grade the degree of OA using K/L grade. WOMAC 3.1 (Likert) was used to measure secondary effectiveness.

Open Label Study Results

Primary Outcomes:

• Hydrarthroses (fluid accumulation)

- The hydrarthroses were reduced quickly in all cases.

• Knee Pain

- Walking up and down stairs – Statistically significant improvement in levels of pain, based on visual acuity scale (VAS) at weeks 8, 11, 24 and 52

- Range of movements exercises – Statistically significant improvement in levels of pain, based on visual acuity scale (VAS) at weeks 8, 11, 24 and 52

- 50 meter walk – Non-statistically significant improvement in pain - 5 minutes of rest – Non-statistically significant improvement in pain

• Knee Function

- The ROM of knee joint (knee function) was improved significantly. Clinical improvements were maintained at the one-year follow-up.

• Concentration of C2C in Blood

- The concentration of C2C in the blood decreased significantly at 8 and 24 weeks. - To check the change of type II collagen metabolism, they measured C2C as a degradation marker of

type II collagen, as C2C is said to be the only reliable marker of cartilage metabolism. - The significant decreasing tendency of C2C is thought to be more objective than those parameters

measured with VAS and ROM findings in this study. - Reduced levels of C2C indicate slowing down in cartilage degeneration.

Secondary Outcome Measurements – WOMAC

• There was no statistical improvement in the total score of the WOMAC compared to the baseline measurements

• Although, pain while walking, as initial checks of each visit at the clinic, showed statistical improvement compared to the baseline measurements

• Comments - "this may have been due to a problem with the baseline evaluation or the techniques of the score system".

The authors of the study concluded, "Pentosan treatment in twenty patients with mild KOA seemed to provide improvements in clinical assessments and C2C level of cartilage metabolism”. Any reduced levels of C2C in the biomarker samples taken from the PAR Phase 2b trial would indicate slowing down in cartilage degeneration.



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DECEMBER 2018

Understanding Placebo Responses in OA of the

Knee Pain Clinical Trials

We note from the 145 patient SAS data released that an average pain reduction of 51.2% exceeds the clinically

meaningful reduction of chronic pain, defined at 25-30%35. This provides Paradigm’s Phase 2b OA clinical trial

with a healthy placebo response buffer as we note clinical trials using subcutaneous (SC) injections generally

have a lower placebo response than clinical trials using intra-articular (IA) injections (injection directly in to the

knee, like FLXN’s ZILRETTA® treatment).

In perhaps a more direct comparison of SC placebo responses, we refer to the Ghosh et al (2005) clinical study

where iPPS was trialled (under a lower dose and lower duration than PAR’s current Phase 2b trial) to treat OA

pain (where it was shown to be statistically significant in improving pain and function in patients with OA of the

knee36).

o In the Ghosh trial the placebo response for subcutaneous injections was approx. 15-20%.

Interestingly, in a systematic review and meta-analysis of 74 randomized clinical trials for the treatment of OA

of the Knee (KOA) using intra-articular injections of hyaluronic acid and saline as placebo, it was concluded that

saline IA injections have a “large placebo effect” of approximately 30% pain reduction37.

Finally, we do not see why the PAR Phase 2b placebo response would be noticeably greater than the placebo

response in the Ghosh trial when the two trials are so similar.

Elite Athletes and Professional Sporting Codes

using iPPS to treat serious joint pathologies Treating Current Elite Players There are currently 9 Australian Football Clubs (AFL) using iPPS to treat over 50 current/listed players with a range of unresolved orthopaedic pathologies. These players have failed all standard of care treatments and often the only choice is to rest the player for an extended period of time. This is detrimental to the player on various levels but also has a negative economic effect for the club and its owners. The fact that the large medical teams of these well-resourced elite sports clubs are using iPPS tells us two things:

1. That they consider iPPS is safe for use on their players. They would not risk using it if there was even a shadow of doubt that it could harm the player, and

2. That it is having a positive effect in resolving the orthopaedic issue. If iPPS wasn’t working the clubs would cease using it and would not treat any further players with it.

We understand there are a number of other elite sporting codes (the National Rugby League (NRL), the A-League (National Soccer League)) within Australia who are either exploring or have treated various players under the TGA SAS.

Treating Past Elite Players There is now a focus on the health and welfare of professional players once they retire and finish playing for their respective clubs. This was not always the case where often retired players were forgotten once they retired and this led to a raft of serious medical diseases and mental health issues. One has to look no further than the

35 Seghal N, Colson J and Smith H; Expert Rev Neurother. 2013;13(11):1201-1220 36 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3965979/ 37 Colen S, van den Bekerom MP, Mulier M, Haverkamp D. Hyaluronic acid in the treatment of knee osteoarthritis: a systematic review and meta-analysis with emphasis on the efficacy of different products. BioDrugs 2012; 26(4): 257-68. [http://dx.doi.org/10.1007/BF03261884] [PMID: 22734561]



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DECEMBER 2018

NFL (US) and concussion related neuro-degenerative diseases that have plagued players for a number of years. As time goes on, we see this as a major opportunity for a multitude of sporting codes and clubs to offer a higher level of care and support by using iPPS to treat the retired players ongoing orthopaedic pathologies. We expect this will have added benefits such as reducing the players’ use of pain killers and other analgesics whilst improving their quality of life and finally their mental health.

Australian Football League – the AFL

Andrew Walker – Carlton FC

The first elite sportsman treated with iPPS was Andrew Walker from the Carlton Football Club (AFL). In June 2014, Walker suffered a knee injury which ruled him out for the remainder of the season and dogged him for the rest of his career. Despite this, in July 2016 he became the first Aboriginal footballer to play 200 games for Carlton.

In April 2018 in a series of media interviews

the retired Andrew Walker revealed just how

serious his ongoing chronic injury was and the

debilitating pain he endured throughout his

career — and the wonder drug that helped

heal his arthritic knee.

Andrew Walker battled a range of knee issues throughout his career, undergoing four surgeries and extensive rehabilitation, before his pain issued peaked in 2014. Prior to his final season Walker was having 150ml of fluid drained from his knee every week when playing football.

Walker’s pain was so severe he contemplated undergoing an osteotomy — surgery that breaks the leg to change the force that drives through the knee joint. As a last resort, before serious surgery, the Carlton FC Medical team applied under the TGA SAS to treat Walker with iPPS.

Walker was reported as saying on Fox Footy’s On The Mark “What it has done for me in such a short term has

been amazing, I think my bone bruising decreased significantly within about six months.

“The positive out of it is that it does actually work, even for elite athletes that are constantly putting their bodies

under such duress.”

“I was probably playing each week with what I would call 9-10/10 pain. Throughout 2015 simple things like

walking the dog, going to the kitchen to have coffee in the morning ... I just found myself leaning on walls to get

down the hallway.” 38

Greg Williams – Dual AFL Brownlow Medallist

Perhaps the most famous person treated with iPPS for chronic OA pain is

Greg “Diesel” Williams. Greg Williams is an Australian Rules Footballer. A

midfielder, Williams is a dual Brownlow Medal winner (1986 and 1994) and

at his peak was the then highest-paid player in the history of the sport. For

international readers, the Brownlow Medal is the equivalent of the League’s

Most Valuable Player (MVP).

Post football Williams developed advanced osteoarthritis of his knees, the

condition worsened over time to the point that he gradually gave up going

to the gym, cycling, playing golf. Post iPPS treatment Williams reported

significant improvements in pain and function. Williams said, “My knee’s so

much better. It’s 80 – 90 percent less sore, so the pain is so much better. I walk freely.”39

38. https://www.foxsports.com.au/afl/andrew-walker-reveals-amazing-benefits-of-afl-wonder-drug/news-story/af8713f740332f0928698cb2c47d3a9b 39 https://www.sportsmedbiologic.com.au/greg-williams-knee-arthritis.html



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DECEMBER 2018

The medical team at the Carlton Football, being aware of the positive effect that iPPS had had on Andrew Walker,

commenced treatment of Greg Williams with the results being once again very positive. Greg’s pain scores went

from 5 out of 10 prior to treatment to a manageable 1 out of 10 post treatment and we can report that he is

now cycling again, playing golf on a weekly basis and his quality of life has improved dramatically.40,41

We stress that both Andrew’s and Greg’s experience with iPPS is open label with no control/placebo. However,

we feel that in conjunction with the ever-increasing number of SAS cases (including 50+ elite sportspeople) that

it has weight and importantly points to potential future treatment of elite sportspeople around the globe, in

particular past Football players and including the likes of NFL.

Lastly, iPPS is Australian Sports Anti-Doping Authority (ASADA) and World Anti-Doping Agency (WADA) cleared

and is non-performance enhancing. The AFL CEO, Gillon McLachlan, is quoted as declaring “iPPS has been

approved for use but it is up to the player and his doctor” which is in line with TGA guidelines.

We expect the TGA SAS treatment program will continue to gather momentum going forward and this in turn

will not only increase the profile of iPPS/ZILOSUL® as a viable treatment but will also assist in the recruitment of future clinical trials, as it did with the current Phase 2b OA trial conducted in Australia.

US Compassionate Use/Expanded Access Program

The opportunity to treat retired and current elite sportspeople in the US including NFL Players

In October Paradigm announced it has entered into a Heads of Agreement (HoA) regarding a strategic

partnership with the New York, USA, based retired professional sporting network organization, the Pro Players’

Elite Network (PPEN). The PPEN is a membership organization of over eleven thousand retired NFL players &

elite athletes.

The HoA between Paradigm and the Pro Players Elite Network aims to identify and assist elite US sportspeople

that have existing knee and joint pathologies that would benefit from treatment with injectable Pentosan

Polysulfate Sodium (iPPS).

We believe this provides an excellent opportunity to not only treat people in need, but for Paradigm to gain

significant exposure and promotion for the Company and iPPS in the US. The US market is a key focus for

Paradigm, given the significant number of OA sufferers (31 million) and in particular the large number of

sportspeople and NFL players suffering from OA who are being overprescribed/incorrectly treated with opioids.

The PPEN has an extremely large network and trusted relationships amongst the ex-NFL Player community and

has experience in driving high levels of participation on similar projects. Recently the PPEN successfully

recruited, in a matter of months, over 150 retired players for a study involving the use of Cannabidiol (CBD) for

chronic pain.

PPEN has strong relationships with the NFL Retired Players Association (NFRPA), the NFL Alumni Association

(NFLAA), Athletes For Care, After the Impact (Non-Profit Organization who combats opiate addiction with

numerous top NFL ‘Hall of Famers’ and US Generals sitting on its various committees and boards.

The PPEN also has a Charitable Foundation that is committed to creating awareness about the opioid epidemic

and the impact opioid pain medications have on professional athletes who suffer from the long-term effects of

sport induced pain.

In our view, the associated media from successfully treating high profile sportspeople in the US is incredibly

valuable for Paradigm on both the investment front but also in highlighting to big pharma the mass market

opportunity that exists in treating all US based OA sufferers.

40 Source: Discussions with Greg Williams 41 https://www.9news.com.au/national/2018/01/30/17/12/afl-star-walking-freely-after-using-new-arthritis-treatment-for-knee



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DECEMBER 2018

Given the debilitating nature of osteoarthritis, the lack of effective treatments and the compounding

pressures of the opioid epidemic which is now responsible for 115 overdose deaths per day in the US,

Paradigm and its regulatory advisors are confident in the likelihood that Expanded Access will be granted.

We envisage this program will be initiated over the coming weeks/months and will provide solid ongoing open

label data and newsflow that ideally will coincide with the NFL season and will serve as continued reminders of

the effectiveness of iPPS in treating members of public, alongside clinical trial developments.

Competition

Flexion Therapeutics Inc (FLXN.NASDAQ)

Lead Compound – ZILRETTA®

ZILRETTA® is an extended-release, intra-articular corticosteroid therapy for patients confronting osteoarthritis-

related knee pain. ZILRETTA® employs proprietary microsphere technology combining triamcinolone acetonide

— a commonly administered, short-acting corticosteroid — with a poly lactic-co-glycolic acid (PLGA) matrix to

provide extended pain relief over 12 weeks.

Stage of development

Flexion achieved FDA approval for ZILRETTA® in October 2017, which was launched nationally in the US in

November 2017. Flexion received Fast-Track Designation from the US FDA for ZILRETTA® in 2015.

Phase 3 Results

The randomized, double blind, placebo-controlled trial enrolled 484 patients at 37 centres worldwide. Patients

were randomized to one of three treatment groups: a single IA injection of ZILRETTA® (32 mg), normal saline-

placebo, and triamcinolone acetonide in crystalline suspension (TAcs, 40 mg). The primary study objective was

to assess the magnitude of pain relief in patients receiving ZILRETTA® at 12 weeks, compared with saline-placebo,

as measured by the weekly mean of the average daily pain (ADP) score.

Each patient was evaluated for efficacy and safety during seven outpatient visits over 24 weeks after receiving

an injection. Overall, ZILRETTA® met its primary endpoint, demonstrating a highly statistically significant (P <

0.0001) reduction in average daily pain (ADP) versus saline-placebo at week 12 (approximately 50% reduction in

pain from baseline over Weeks 1 through 12), with durable pain relief in patients with moderate to severe OA

knee pain.

Pros Cons

• Achieved an average of ~50% reduction in pain over weeks 1 through to 12

• Single injection

• Non-opioid

• Non-addictive

• It is a steroid

• Does not treat the underlying pathology of the disease

• Pain reduction only lasts 12 weeks

• Numerous side effects (Hypersensitivity reactions, Joint infection & damage, increased risk of infections, alternations in endocrine function, cardiovascular and renal effects, increased intraocular pressure, gastrointestinal perforation, alternations in bone density and behaviour & mood disturbances).

• Corticosteroids are considered to be contraindicated, i.e. enhance cartilage degeneration

• Currently only approved for one treatment, may achieve approval for multiple treatments, but it is very unlikely to be a long-term solution.

https://flexiontherapeutics.com/external-link/?url=https%3A%2F%2Fzilretta.com%2F



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DECEMBER 2018

Centrexion Therapeutics Corporation (Private Company)

Lead Compound - CNTX-4975

CNTX-4975 (Synthetic trans-capsaicin ultra-pure Injection), is a selective, highly potent, ultra-pure, synthetic form

of trans-capsaicin that is injected directly into the site of pain (knee joint). CNTX-4975 has a short half-life and is

cleared from the body within 24 hours. It works by targeting the TRPV1 receptor that selectively

inactivates/ablates the local pain receptors and fibres transmitting pain signals to the brain, potentially providing

relief that can last for up to six months, until the local pain fibres regenerate.

Stage of Development

CNTX-4975 is currently in Phase 3 for human osteoarthritis pain

Phase 2b Results

CNTX-4975 met its primary endpoint of a reduction in pain with walking through 12 weeks with high statistical

significance and demonstrated duration of effect of at least 24 weeks after a single dose. At the 1.0 mg dose,

two-thirds of patients achieved 50 percent or greater reduction in pain and nearly one-quarter of patients

achieved a 90 percent or greater reduction in pain.

Pros Cons

• Effectively inhibits pain

• Non-opioid

• Non-steroidal

• Non-addictive

• Single injection

• CNTX-4975 inhibits pain but does not inhibit disease progression

− Mechanism of action of CNTX-4975 is limited to targeting pain-no evidence of action on cartilage degradation

• Cannot be administered systemically as it will destroy nerves non-specifically

• Intra-articular injections breach the integrity of synovial barrier and is a notable safety concern

• CNTX-4975-has a very high incidence of treatment emergent adverse events – 30% for placebo and 47% of CNTX-4975

• Osteoarthritis will continue to worsen, whilst pain is masked

• CNTX-4975 effectively cauterises the pain nerves – effects long term are unknown

CNTX-4975 gained “Fast Track” designation by the FDA in January 2018, and the Phase 3 OA trial commenced February 2018. Capsaicin has been used for decades as a medicine and is currently available as a topical OTC analgesic.

Recent Phase 2b trials demonstrated:

• 22% of patients achieved >90% pain reduction

• 67% of patients achieved >50% pain reduction

Nerve Growth Factor (NGF) Inhibitors

Nerve growth factor (NGF), a member of the neurotrophin family, is known to regulate the development and survival of a select population of neurons through the binding and activation of the TrkA receptor. Elevated levels of NGF have been associated with painful pathologies. These NGF drugs block the NGF from binding to the pain receptors.

Clinically, NGF concentration is increased in chronic pain conditions such as interstitial cystitis, prostatitis, arthritis, pancreatitis, chronic headaches, cancer pain, diabetic neuropathy, and noncancer pain, suggesting that NGF-mediated signalling is an ongoing and active process in chronic pain.



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DECEMBER 2018

In 2012, the FDA commissioned an independent arthritis advisory committee to further investigate NGF treatment related adverse events and concluded that joint failures were probably related to anti-NGF treatment and represented a unique clinical form of rapidly progressive OA, citing rapid and considerable joint destruction, typically within 6–12 months of exposure.

Concern about the NGF treatment related adverse event of rapidly progressive osteoarthritis remains the single biggest concern for this class of drug.

Teva and Regeneron’s collaboration on an NGF drug (Fasinumab) has previously been put on clinical hold by the FDA after safety concerns of the drug persisted. This deal was valued up to US$1.3b.

Tanezumab is another NGF drug currently in a Phase 3 clinical trial by Pfizer. Again, not without safety concerns; particularly rapid joint destruction in patients treated with the drug.

Tanezumab – Phase 3 Results

Pfizer Inc. (NYSE:PFE) and Eli Lilly and Company (NYSE:LLY) held a 16-week Phase 3 study in patients with osteoarthritis (OA) pain evaluating subcutaneous administration of tanezumab, an investigational humanized monoclonal antibody, which met all three co-primary endpoints. The study demonstrated that patients who received two doses of tanezumab separated by eight weeks experienced a statistically significant improvement in pain, physical function and the patients’ overall assessment of their OA, compared to those receiving placebo.

Regeneron (NASDAQ:REGN) and Teva Pharmaceutical Industries Ltd (TEVA) (NYSE:TEVA)

Fasinumab – Phase 3 Results

Just a few months after Regeneron and its partners at Teva were forced to drop the two high-dose arms of their Phase III study of the NGF pain med fasinumab, both companies reported that the remaining two low-dose arms cleared a late-stage hurdle, opening the way to more Phase 3 trials.

Top-line data from the trial in patients with OA of the knee or hip showed that at 16 weeks, fasinumab was associated with less pain and improved functional ability compared to placebo, hitting all its primary and secondary objectives.

However, in 2018 Regeneron acknowledged that the independent monitoring board had told them to shelve the two highest doses in the study, citing concerns about the risk/benefit profile. NGF drugs have been tied to adverse events that forced a lull in trial work from 2012 to 2015, until researchers could persuade regulators that they could test it without risk of adverse event on trial subjects. Regeneron and Teva have already endured a clinical hold for their program, which came right after Teva paid $250 million to partner on the therapy.

“This is a high-risk, high-reward program as we’ve described in the past,” R&D chief George Yancopoulos told analysts in May. “It’s pretty well-demonstrated that the molecule has activity, but it also has certain side effects. It’s not osteonecrosis, it’s more defined as rapid progression of the osteoarthritis in some patients. And this is something that obviously has been seen with this class and with our molecule before. And so what the independent data monitoring committee did was they obviously took an analysis to look at the benefit and the risk that is the therapeutic benefit compared to their analysis of the risk coming from these rapidly progressive osteoarthritis events and they decided that we should terminate the upper two doses and continue with the two lower doses.”

Pros Cons

• Achieved statistically significant improvement in pain, physical function

• Non-steroidal

• Non-opioid

• Non-addictive

• 2 injections

• Does not treat the underlying pathology of the disease

• Osteoarthritis will progress • Associated with safety concerns (rapidly

progressive osteoarthritis (rapid joint destruction) in trial subjects treated with the drug)

• It is expensive to manufacture biologicals



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Anti-NGF’s repeat long term use – serious adverse events

If there are say 7%, 5% or even 2% severe adverse events (such as rapid joint destruction) and you need to have repeat anti-NGF treatments every 4 months for maintenance of pain control then every time you receive a new treatment your chance of ending up with a severe adverse reaction increases dramatically (exponentially for certain groups of people). As far as we are concerned even a 0.5% rate of rapid joint destruction is incredibly undesirable and expanded over the US OA population may result in a few hundred thousand people being affected. We struggle to see how the FDA would view this favourably, even in the midst of the current Opioid Epidemic with the current desire to find alternative pain treatments.

This is supported by certain analyst’s in US investment market who are quoted in recent press as saying that the safety issue has pretty much eliminated any perceived value in this drug and that they remain on high alert regarding the safety profile.

For instance, Evercore ISI analyst Uber Raffat recently said in regard to Regeneron ($REGN) and Teva’s ($TEVA) “successful” Phase III study of the NGF pain medication Fasinumab that:

“As it stands now, the placebo-adjusted increase in RPOA is 2% (again, this is the INCREASE – we don’t know the absolute rates in this trial). We did NOT get a clear statement in PR for whether there has been a Type 2 RPOA (rapid progressive OA type).”42

iPPS vs Pfizer’s anti-NGF – Tanezumab

We can now make some comparisons between Paradigm’s SAS patients (Real World Evidence in n=145 patients)

and Pfizer’s Tanezumab (anti-NGF) Trial pain data.

In relation to the safety and efficacy of the trial report of Tanezumab by Pfizer in a randomized, double-blind,

placebo-controlled, multicentre trial (Birabara et al 2018 attached), the table below highlights the effect of PPS

versus Tanezumab in subjects with knee OA pain:

In summary, the data demonstrate that:

• 69.8% Tanezumab subjects versus 85% PPS subjects responded with a 30% reduction in pain from baseline;

• 53.5% Tanezumab subjects versus 64% PPS subjects responded with a 50% reduction in pain from baseline;

• 38.4% Tanezumab subjects versus 37% PPS subjects responded with a 70% reduction in pain from baseline.

Therefore, we can infer that PPS demonstrates a comparable reduction in knee OA pain relative to Tanezumab.

However, PPS has the advantage of improving knee function without further deterioration of the knee joint as

demonstrated with Tanezumab.

Percentage Reduction from Baseline in Pain scores following subcutaneous injections of Tanezumab or PPS.

Please note we have used the highest dose of Tanezumab 10mg.

Subcutaneous injections (Pain Reduction)43 30% 50% 70%

Tanezumab -10mg

N=86

69.8% 53.5% 38.4%

Paradigm’s SAS

N=145

85% 64% 37%

42 https://endpts.com/that-high-risk-high-reward-program-for-ngf-pain-med-fasinumab-from-regeneron-teva-clears-a-revised-phiii-hurdle/ 43 Data sourced from Tanezumab Ph3 trial and Paradigm TGA SAS Data



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Pentosan Polysulfate Sodium (PPS)

Pros Cons

• Treats underlying pathology of the disease (doesn’t simply mask pain)

• Initial results show clinically meaningful reduction in pain and improvement in function

− Positive effects on pain by anti-inflammatory action and bone/cartilage protective effects

• Well established safety profile

• Non-opioid

• Non-steroidal

• Non-addictive

• No issues with subcutaneous, intra-muscular or intra-venous injections

• Safe for repeat use

• No reported cases of rapidly progressive osteoarthritis in over 400 SAS patients treated.

• Requires 6 – 12 subcutaneous injections over 3 – 6 weeks (2 per week)

• Occasional sore injection sites reported • Pain relief and improvement in function is not

instantaneous

• Mild anticoagulant properties

Regulatory pathway and next steps The regulatory pathway and hence commercialisation is governed by the regulatory bodies in each respective country, however for the purposes of drug development and commercialisation one must look to the US Food and Drug Administration (FDA) as the guiding body as the US is the single largest pharma market in the world and often has the highest bar set in regard to drug approvals. We note:

• that iPPS is approved for SC use in Europe via the EMA, since 1949

• Over 100 million injectable doses have been administered

• This regional approval allowed the TGA to approve via Doctor/Patient care the use of iPPS in Australia via the SAS

• This has built and continues to build a growing body of open label SAS data. o In the US this SAS data is called “Real World Evidence”

• The US has recently enacted the “21st Century Cures Act” o The 21st Century Cures Act, amongst other things, specifically deals with shortening the time

it takes to get beneficial treatments/drugs to the market and was enacted in response to many years of bureaucratic hold up of new drug approvals via the FDA, which in turn was not helping the deteriorating public health sector in the US.

• Real World Evidence can be used to supplement placebo-controlled data and other clinical data to help



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assist with the drug registration process.

• By early CY2019 Paradigm will have a significant amount of in human data on iPPS, namely: o 500 SAS patients with OA or orthopaedic pathologies (+ another potential ~200 patients that

will be going through the SAS program). This 500 can be broken down in to: ▪ 300 with OA of Knee ▪ 100 with other OA in other joints – hip, lower back, hands, shoulders etc ▪ 100 Sportspeople with joint issues ranging from knee, lower back, shoulders and hip

(osteo-pubis). ▪ 20 treated under the open label KOA study conducted by Kumagai et al, 2010

o Human placebo controlled clinical data: ▪ 110 patients treated under the Phase 2b placebo-controlled KOA trial ▪ 20 patients treated under the Phase 2a placebo controlled for viral arthritis (RRv) ▪ 114 treated under Phase 2b placebo-controlled study for KOA by Ghosh et al, 2005

• This provides 244 patients treated with iPPS under 3 different placebo controlled clinical trials (the number receiving iPPS was ~127), and

• ~390 patients treated in an open label setting via SAS or other open label studies (inc Kumagai et al). When grouped together we believe this combination of placebo controlled clinical data in combination with the sizable amount of open label data will allow Paradigm’s regulatory advisors (based in the US) to show the very good safety profile of iPPS and its efficacy in a range of joint pain settings. We believe this puts Paradigm in good stead to receive Fast-Track designation by the FDA.

What is US FDA Fast-Track? Also known as the Special Protocol Agreement (SPA), Fast Track is a process designed to facilitate the development, and expedite the review of drugs to treat serious conditions and fill an unmet medical need. Filling an unmet medical need is defined by the FDA as providing a therapy where none exists or providing a therapy, which may be potentially better than an available therapy.44 Any drug being developed to treat or prevent a condition with no current therapy obviously is directed at an unmet need. If there are available therapies, a fast track drug must show some advantage over available therapy, such as avoiding serious side effects of an available therapy or an ability to address emerging or anticipated public health need. Paradigm’s iPPS is neither an opioid nor a steroid and most importantly is non-addictive, thus has the potential to positively impact the opioid epidemic and treat OA pain, hence our view it may be able to receive Fast-Track designation.

Next Steps in Paradigm’s Clinical OA Program

1. Release Headline Data for the Phase 2b OA Trial – expected mid/late December 2018 – 2-3 weeks from now

2. Paradigm and their Regulatory advisors request Pre-IND meeting with US FDA (expected Q1CY2019). 3. Paradigm receives the final trial report and announces its results to the ASX – expected late Q1CY2019

– the full trial report will provide 6 month pain and function data on iPPS. 4. Paradigm/Reg advisors meet with FDA for Pre-IND meeting. 5. Paradigm’s regulatory advisors, using feedback and suggestions from FDA Pre-IND meeting, combine

all the information they have available request a IND meeting with the FDA. 6. Prepare and lodge a NDA with the US FDA using the repurposed drug pathway, 505(b)(2). 7. Paradigm will also present the case for receiving a Fast-Track designation for addressing KOA pain.

In parallel, Paradigm has:

44 6 https://www.fda.gov/ForPatients/Approvals/Fast/ucm405399.htm



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8. In-licensed the valuable Orphan Indication of Rare Joint Diseases - mucopolysaccharidoses (“MPS”) and other Lysosomal Disorders and has commenced preparations for a pivotal phase 2b placebo controlled trial in this area – expected commencement date mid CY2019.

9. Paradigm is also preparing for its phase 3 pivotal clinical trial, which will be conducted at multiple sites in the USA and Australia.

10. Flexion’s pivotal phase 3 trial was designed as follows: randomised, double-blind, placebo-controlled, active-comparator trial that enrolled 486 patients at approximately 40 centres worldwide. Patients were randomised to one of three treatment groups (1:1:1) and received either a single intra-articular injection of 40 mg of ZILRETTA®, normal saline (placebo) or 40 mg of immediate-release TCA.

11. Therefore, will believe a circa ~500 patient trial design would be possible for iPPS in the treatment of KOA pain.

12. By 2HCY2019 Paradigm will hope to have received Fast-Track designation and have commenced recruitment for their Pivotal Phase 3 KOA trial

13. This trial is expected to take 12-18 months to complete from first patient being dosed so results could be read out 1HCY2021

14. Final drug registration for MPS could occur 2HCY2021. 15. Final drug registration for OA could occur 2H CY2021

Rare Joint Diseases – MPS In November 2018, Paradigm executed an Exclusive License Agreement with the Icahn School of Medicine at

Mount Sinai, New York, for the treatment of rare, Orphan Diseases; mucopolysaccharidoses (“MPS”) and other

Lysosomal Disorders.

The Company stated that the Licensing Agreement was executed on attractive commercial terms (single-digit royalty – no payment of equity or dilution to existing shareholders).

The license agreement included highly valuable Intellectual Property:

• Patents: Granted patents in all key regions, USA, Japan, Europe, Australia and New Zealand

• Clinical Data: Successful in-human phase 2a clinical trial that demonstrated safety and strong signs of efficacy (Hennermann et al).

What is MPS?

Mucopolysaccharide (MPS) are Lysosomal Storage Diseases. These are rare, life-limiting, progressive, genetic

conditions.

MPS diseases are caused by a missing enzyme (α-L-iduronidase), which inhibits the body’s ability to metabolise

certain molecules called GAGs (Glycosaminoglycans). GAGs are structural molecules that are integral to

connective tissues such as cartilage, tendons and other tissues in the body. They accumulate in cells in tiny

structures called lysosomes. Without essential enzymes to break down, recycle and build new

mucopolysaccharides they continue to be stored inside the lysosome. This causes the lysosome to swell and

disrupts cell functioning.

These are multi-organ storage diseases which cause progressive physical disability and, in many cases, severe

neurological deterioration and can result in death in childhood.

Occurrence and Types of MPS

There are seven ‘types’ of MPS, with each including ‘sub-types’. The approximate cumulative rate for all types of MPS is around 3.5 in 100 000 live births and generally the patients present in one of three ways:

1. As a dysmorphic syndrome (MPS IH, MPS II, MPS VI) often with early onset middle ear disease, deafness, or upper airways obstruction

2. With severe neurological symptoms - degenerative learning difficulties, behavioural disturbance, dementia and mild somatic abnormalities (MPS III)

3. As a severe bone dysplasia (MPS IV)



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DECEMBER 2018

Rationale for PPS treatment in MPS:

• Oral and subcutaneous (sc) PPS in preclinical animal models (rat MPS VI; dog MPS I and mouse MPS III) reduced inflammation and resulted in significant pathological and clinical improvements.

• PPS reduced GAG storage in the MPS animals, an unexpected result that was confirmed in urine and tissues.

• The effects of subcutaneous administration (once weekly) were greater than for daily oral treatment in the MPS VI rat model, particularly in avascular tissues such as the cartilage and bone.

• Safety of chronic PPS treatment in a large animal model of MPS prior to the initiation of clinical trials.

• Safety in two human clinical trials of MPS (MPS I and MPS II).

• Safety and efficacy in long term treatment of PPS -for weekly treatment for 24 weeks

− GAG concentrations decreased significantly to near normal values in all patients

− Improvement in pain scores

− Improvements joint mobility scores

• Clinical experience of safety in treating juvenile patients with PPS

MPS Phase 2a Clinical Trial (Hennermann et.al.)

Type Phase 2a – Open Label

Number of Patients 4

Dosing Range 1mg/kg – 2mg/kg

Treatment Length 24 Weeks

Results

Safety

The 24-week treatment with PPS was well tolerated

by all patients. There were no serious adverse events

GAG Concentrations

− At baseline, urinary GAG concentrations

were increased in all patients.

− After 12 weeks of PPS treatment, there was

no significant change in urinary GAG

concentrations

− After 24 weeks of PPS treatment, urinary

GAG concentrations decreased significantly

to near normal values in all patients

Joint Function

After 24 week treatment with PPS it was noted that there was an improvement of:

− range of motion was noted in 3/4 patients

− hip retroflexion was noted in 4/8 examined joints,

− knee extension in 5/8

− knee flexion in 2/8,

− ankle supination in 6/8

− ankle pronation in 3/8.



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Pain

After the 24 week treatment with PPS, the

pain intensity score was reduced in those

patients receiving 1 mg/kg PPS from 4.5 ±

1.77 to 1.8 ± 0.47, whereas patients with 2

mg/kg PPS already had minimal pain at the

start of the study (2.0 ± 0.35 at screening;

1.9 ± 1.59 after 24 weeks of PPS treatment).

Conclusion

“In conclusion, PPS treatment in a small number of adult MPS I patients was well tolerated and showed a good

safety profile. Efficacy of PPS treatment did not differ between the 1 and 2 mg/kg group. PPS treatment resulted

in a significant reduction of urinary GAG excretion, and in an improvement of joint mobility and pain. These

changes indicate an impact of PPS treatment on the natural course of the disease. This study must be followed

by a placebo-controlled trial in a larger cohort of presumably younger patients with MPS to evaluate if PPS may

be a supplementary treatment option for patients with MPS I and also other MPS forms.”

MPS - Orphan Drug Status

Due MPS’ rarity and seriousness, it has received Orphan Designation across its various types. Utilising the above

cumulative occurrence of 3.5/100,000 live births, there are approximately 14045 cases per year, easily satisfying

the FDA ceiling of 200,000 total cases in the US.

Faster Approval – May only need one Phase 2b Clinical Trial

Generally, the FDA typically requires one or two phase 3 clinical trials for approval of a drug, but the legislation

authorises the FDA to approve a drug based on one multi-centre study in appropriate circumstances. Because

the number of patients available to participate in a clinical trial involving a rare disease is often very small, FDA

frequently approves orphan drugs with less extensive requirements for clinical studies

An example of this is:

Alglucosidase alfa (Myozyme), which was approved in April 2006 as enzyme replacement therapy for Pompe

disease. Pompe disease is also a rare autosomal recessive lysosomal storage disease. Without treatment,

infants with the disease usually die by 18 months of age from respiratory and heart failure. Myozyme was

approved based primarily on the results of a randomized, open-label, historically controlled study in 18 infantile-

onset patients. (Beitz, 2006).

Potential for this Orphan Indication

It is difficult to estimate the number of people living with the various types of MPS across Paradigm’s patented

regions. Due to the limited life expectancy of MPS sufferers (ranging from 10-30 years), we have discounted the

1:26,000 birth rate, formulating a conservative figure of 10,000 patients.

We anticipate that MPS sufferers will require weekly injections of iPPS.

We do not anticipate that Paradigm will be able to charge the same extremely high yearly treatment cost of

other Orphan Drugs ($500,000 - $1,000,000), although even a more modest price results in blockbuster market

potential.

45 Based on 4m new births per annum in the USA - https://www.cdc.gov/nchs/fastats/births.htm

https://www.ncbi.nlm.nih.gov/books/n/nap12953/appendixes.app4/def-item/appendixes.app4.gl2-d20/

https://www.ncbi.nlm.nih.gov/books/NBK56185/box/ch3.box3/?report=objectonly

https://www.cdc.gov/nchs/fastats/births.htm



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DECEMBER 2018

Therefore, we feel it is safe to assume the potential yearly price of iPPS: US$50,000 – US$100,000, especially in

light of the more regular dosing regimen.

Based on these assumptions, the market potential for iPPS across the patented regions may be US$500m –

US$1bn p.a.

We understand that due to the severity of the condition, MPS sufferers generally live in close proximity to

hospitals and health centres that can specifically cater for their treatment. This means that treating

physicians/specialists and the various MPS communities would be more aware of iPPS being a new MPS

treatment. Therefore, we anticipate that iPPS treatment would not only be much more accessible for these

patients but that take-up (market penetration) would occur much quicker than for other more mainstream

pharmaceutical products. All of this enhances the commercial aspects of the potential iPPS MPS treatment for

either Paradigm or an interested pharma partner.

Given the positive phase 2a data and the preliminary work that Paradigm has done with the scientists from Mt

Sinai Icahn School of Medicine and other scientists that have worked with PPS and MPS previously we believe

that a pivotal FDA compliant phase 2b placebo controlled trial could be initiated by mid CY2019 and would likely

run for 12-18 months including recruitment (treatment with drug would likely be 12 months) and consist of 30-

50 patients (in line with other orphan indications). Assuming positive results and due to its Orphan Designation

and accelerated regulatory dialogue with the FDA, it is possible to achieve drug registration and first sales by

mid/late CY2021, i.e. 24-30 months after initiating the Phase 2b clinical trial.

BioMarin Pharmaceutical – Orphan Drug Developer

Market Capitalisation - ~US$17.23bn

BioMarin Pharmaceutical (“BioMarin”) is a world leader in developing and commercializing innovative

biopharmaceuticals for rare diseases driven by genetic causes. With seven products on the market

(three MPS drugs below) and a fully-integrated multinational organization in place, BioMarin is

providing innovative therapeutics to patients with serious unmet medical needs.

Drug Price Per Annum** CY18 Revenue*46 No. Patients Treated

Aldurazyme (MPS I) $200,00047 $155,996,100 780

Naglazyme (MPS VI) $365,00048 $358,657,700 982

Vimizim (MPS IV) $380,00049 $490,654,400 1291

Total 1,005,308,200.00 3028

MPS Revenues account for 68% of BioMarin’s total revenue

*Estimated from 9 months to Sept Revs

We also note that BioMarin is not profitable, which further highlights the strong valuation

metrics placed Speciality Pharma/Orphan Drug developers.

46 https://investors.biomarin.com/2018-10-25-BioMarin-Announces-Third-Quarter-2018-Results?printable=1 47 http://pharmaceuticalcommerce.com/latest-news/the-worlds-most-expensive-drug-alexion-pharmaceuticals-soliris-at-409500-per-year/ 48 https://www.health24.com/Medical/Meds-and-you/News/7-of-the-most-expensive-treatments-in-the-world-20180129 49 https://www.fiercepharma.com/sales-and-marketing/biomarin-s-380k-price-tag-on-vimizim-high-but-far-from-highest

https://investors.biomarin.com/2018-10-25-BioMarin-Announces-Third-Quarter-2018-Results?printable=1

http://pharmaceuticalcommerce.com/latest-news/the-worlds-most-expensive-drug-alexion-pharmaceuticals-soliris-at-409500-per-year/

http://pharmaceuticalcommerce.com/latest-news/the-worlds-most-expensive-drug-alexion-pharmaceuticals-soliris-at-409500-per-year/

https://www.health24.com/Medical/Meds-and-you/News/7-of-the-most-expensive-treatments-in-the-world-20180129

https://www.fiercepharma.com/sales-and-marketing/biomarin-s-380k-price-tag-on-vimizim-high-but-far-from-highest



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DECEMBER 2018

IP Portfolio & Market Exclusivity First Layer - Patent Protection

Over the last 10 years we have seen the use of Medical Resonance Imaging (MRI) in the diagnosis and

understanding of orthopaedics increase dramatically. This is relevant as MRI is used to identify bruising of the

bone – BMEL, which is obviously the basis of determining whether to use iPPS as a treatment. Paradigm also

know that it would be hard to get IP on PPS treating OA due to ‘Prior Art’. But armed with the knowledge that

essentially all OA has BMEL, Paradigm first secured the IP around using PPS to treat BMELs and then secondly

(under application) is securing the use of PPS to treat OA with concurrent BMEL. This in itself was quite ingenious

as the global patents for BMEL are broad, granted in practically all major markets (US, EU, Japan etc) and

importantly cover the use of PPS for all BMEL (and BMEL with anything else) – so the indications are far greater

than just OA i.e. acute injuries through to BMEL from surgeries.

Current patent applications are for BMEL and OA and are based on the view that by treating BMEL you can treat

the symptoms of OA and it is thought the underlying cause.

This strategy of treating BMEL/OA with PPS means anyone treating OA with PPS must prove there is no BMEL

and they are not treating the BMEL or they are infringing the patents.

Second Layer – Exclusive Rights to only FDA approved PPS

Paradigm has executed a 20 year exclusive supply agreement (+10 year option to extend) with the German API

manufacturer, bene PharmaChem Gmbh & Co. KG. Bene pharmaChem are the original developer of PPS and

the only FDA-approved manufacturer.

The Agreement grants exclusive supply of only FDA approved PPS for all orthopaedic (inc. alphavirus), respiratory

and cardiovascular indications. Paradigm has the right to add additional indications in the future. Under the

Agreement Paradigm pays bene pharmaChem a small single digit royalty on commercial sales plus the cost of

produced API, which we understand is not significant.

Third Layer – Data Protection

Paradigm’s third layer is what is called ‘Data Protection’ which means no other company can get access to PAR’s

trial data etc for a period of 5-10 years depending on the geographic location – this prohibits any company using

PAR’s data to try to register a generic or similar treatment using PPS.

Fourth Layer – Trade Marks and Copy Rights

The fourth layer are Trade Marks and Copy Rights around the name of PAR’s PPS treatment – ZILOSUL® – these

names have already been registered and will provide incumbent advantage as ZILOSUL® becomes well known

brand for the product which treats painful OA with concurrent BMEL.



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DECEMBER 2018

So what happens if a global generic supplier is considering making a generic iPPS treatment for OA?

• First, they would have to secure the FDA approved PPS – and there is only one supplier being bene pharmaChem who is exclusively contracted with PAR.

• Whilst PPS is not expensive to manufacture it is inherently hard to manufacture and bene has manufacturing secrets around its production – the fact that no other supplier has attained FDA approval for manufacture of the drug is evidence of this.

• bene will not share its drug master file with any other companies, except Paradigm, which it is obliged to do so under their Supply and License Agreement.

• Other PPS suppliers (e.g. Indian suppliers) have been shown to have a different chemical ‘finger print’ or ‘signature’ to bene pharmaChem’s PPS – thus resulting in their PPS not being approved by FDA for human use.

But let’s assume the global generic supplier could get an Indian manufacturer to provide the PPS who after years

of trying could prove their PPS has the correct signature and the FDA approves its use in humans.

• Then, the global generic supplier would have to repeat the human clinical trials (Phase 2 & 3) to show that their PPS is effective in treating OA – this would take a number of years.

• Post successful Phase 3 they could then apply for registration and may get approval to market the drug – BUT they would only be able to market it for treating “OA WITHOUT BMEL” – otherwise they would be infringing on Paradigm’s patents.

• The fact that the vast majority of OA patients have BMELs make the “OA without BMEL” market small in comparison.

• Also, there are substantial difficulties in proving that they will not be treating patients who in fact do have a concurrent BMEL.

• In our opinion, it therefore drastically reduces the market opportunity, now that Paradigm has locked down what is arguably the majority, if not the whole market by using the BMEL angle.

We also have comfort that Paradigm will be able to prosecute the claims over the “Use of PPS” given the recent

example of where a Use Patent was upheld was the Sanofi-Aventis V Apotex. Here the Method of Treatment

Claim was found valid and Infringed (Sanofi-Aventis Australia Pty Ltd v Apotex Pty Ltd (No. 3) [2011] FCA 846).50

In a decision which considers both patent and copyright issues, the Federal Court recently found in favour of the

patentee/originator (Sanofi), distinguishing between the purpose of administration and the result achieved in

order to clarify construction of a method of treatment claim. Whether copyright subsisted in a Product

Information document was also considered.

Finally, we note that MPS due to its Orphan Indication status, will enjoy far greater market protection of a likely

7 years automatic market exclusivity in the US – which is guaranteed by the FDA. Something that gives us a

further added level of comfort around the ‘company making’ potential of this newly in-licensed indication.

50 http://www.davies.com.au/ip-news/sanofi-aventis-v-apotex-method-of-treatment-claim-found-valid-and-infringed



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DECEMBER 2018

Paradigm’s other Programs

Viral Arthritis ▪ Paradigm acquired the patent from the Institute for Glycomics research at Griffith University. ▪ The patent claims the use of PPS to treat alphaviruses, including Ross River Virus (RRV) and Chikungunya

Virus (CHIKV). ▪ Alphavirus infections result in the clinical symptoms of

joint and muscle pain, fever and joint inflammation. ▪ Ross River Virus (RRV) and Chikungunya (CHIKV) are

mosquito-transmitted arthritogenic alpha viruses that cause epidemics of severe musculoskeletal disease in many countries.

▪ No effective treatment, with sufferers left incapacitated ▪ Symptoms can persist for a number of years

Paradigm’s Phase 2a Ross River virus clinical trial recruitment finalised

• Paradigm has finalised the recruitment of its Phase 2a randomised, double-blinded placebo-controlled pilot clinical trial in participants with persistent Ross River virus (RRv) induced arthralgia (painful joints) treated with iPPS.

• Paradigm decided to cap recruitment at 20 instead of 24 participants due to the significantly lower RRv incidence in 2018 compared to the 2017 outbreak.

• Paradigm noted that ‘the key objective of safety in the target population with RRv-induced arthralgia is expected to be met despite the shortfall of 4 participants.”

The safety and efficacy signals with the RRv trial will support the design of future clinical trials for the viral induced arthralgia caused by the related Chikungunya virus (CHIKV).

Strategic Discussions

Paradigm will be continuing strategic discussions with the United States Department of Defence for the treatment of Chikungunya virus induced arthralgia following data read-out of the current RRv Phase 2a clinical trial – due late Q4 CY2018.

Prevalence of Chikungunya Globally

Source:

https://www.sciencenews.org/article/chikungunya-move

https://www.sciencenews.org/article/chikungunya-move



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DECEMBER 2018

Heart Failure In June 2017, Paradigm executed a worldwide exclusive in-license agreement for the patent entitled “Inhibitors of ADAMTS4 or ADAMTS5 for use in preventing or treating cardiac remodelling and chronic heart failure” from the University of Oslo.

What is Heart Failure?

Heart failure is a disease whereby the heart experiences high blood pressure as a result of a blockage of vessels or a heart attack that results in damage to the heart muscle. When damaged, the heart has great difficulty pumping blood to organs such as the lungs, liver and kidneys. To allow blood circulation to these organs, the heart compensates by changing its shape and the chambers of the heart. These changes make the heart work harder, causing heart muscle to degenerate further, eventually leading to death. Mortality is high for patients with heart failure, reaching 50% at five years from diagnosis.51 Market Size: The global market for heart failure drugs is estimated to be US$18 billion per annum52 with all currently available treatments unable to stop or reverse disease progression

PPS to Treat Heart Failure

The patent is founded upon compelling preclinical data (peer-reviewed and published) using Pentosan Polysulfate Sodium (PPS) as the inhibitor of ADAMTS4 versicanase, a key enzyme involved in the degenerative process in heart failure This data demonstrates that PPS reduced the amount of ADAMTS4 versicanase activity in a recognised heart failure model. Studies also showed that PPS treatment improves systolic function of the heart (the amount of pressure in the arteries during contraction of the heart muscle) in the heart failure model and that it has the potential to stop or reverse disease progression in heart failure, addressing an important unmet medical need for patients.

Clinical Development

We understand that Paradigm intends on progressing the Heart Failure clinical program in CY2019.

Allergic Rhinitis Paradigm patent portfolio covers the use of Pentosan Polysulfate Sodium to treat respiratory conditions, namely

allergic rhinitis (hay fever), allergic asthma and COPD.

Paradigm undertook a Phase 2a clinical trial which did not meet its primary endpoints (total nasal symptom

score and peak nasal respiratory flow) using the current nasal formulation.

The company stated that “indications suggest that the formulation used in the allergic rhinitis clinical trial may

need to be optimised.”

Whilst the AR (and greater respiratory) program represents a large opportunity Paradigm has quite rightly been

focusing on their orthopaedic indications. We understand that Paradigm have not made a definitive decision in

regard to the progression of the allergic rhinitis clinical development program. Next steps would likely involve

specialist reformulation and pilot testing.

51 New England Journal of Medicine, Levi D et al. 2002 52 Calculated from information relating to the sales of compounds/treatments in the heart failure market from 2014-2016 – Statins US$13.1bn (Research and Markets - Global Statin Market 2015-2016), Clopidogrel bisulphate US$1.8bn, Beta-blockers US$1.55bn, Ace inhibitors US$0.47bn, Aspirin US$0.54bn, Vitamin K antagonist US$0.5bn (www.pharmacompass.com), http://www4.dr-rath-foundation.org/Newsletter/articles/bad-news-for-the-pharma-cartel-statin-profits-collapsing-cholesterol-bubble-has-burst.html, www.gbiresearch.com



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DECEMBER 2018

Investment View

There is an ever-increasing focus on developing safe, non-addictive, opioid alternative treatments for OA pain

relief. It is widely accepted that Western countries are suffering the effects of the ‘Baby Boom’ where large

segments of the population are retiring, and this is putting pressure on budgets from both a tax income and a

public health angle. One of the largest physical health issues that governments are facing is the treatment of

osteoarthritis within this aging population. 30+ million people in the US and 2.1 million people in Australia is a

large proportion of the market that is currently very poorly served in the area of joint pain treatment. There is

literally nothing currently in the market to treat the underlying cause of chronic Knee OA pain apart from NSAIDS,

opioids, corticosteroids or an eventual knee replacement – all of which have serious negatives and drawbacks.

Other non-opioid drugs in development for pain, such as NGF inhibitors have unknown long-term safety or

‘serious adverse event’ issues and have been put on clinical hold by the FDA at various points along their

development.

One of the key factors in making Paradigm a desirable biotech investment revolves around the repurposing of an existing, safe drug that is known to work on various inflammatory pathways. Thus, we believe Paradigm is well positioned to provide a treatment not only for OA but also a raft of other joint issues and injuries via treating the underlying cause, the concurrent BMEL. The established medical evidence and extensive publications confirm PPS’s use in other areas of inflammation and importantly confirm and reconfirm its safety profile. We believe Paradigm and iPPS tick all the necessary boxes to be positioned to enter partnering discussions on OA/BMEL, assuming Phase 2b clinical success:

• Excellent safety profile and very well-known drug tolerability • Hypothesis backed by very good pre-clinical and clinical data • Long history of being a safe effective treatment for OA in animals • Very effective treatment in a large and growing group of SAS patients with known OA/BMEL and joint

pain – currently >300 patients that have been successfully treated via the TGA SAS • Known and well understood mechanism of action • Multi-faceted IP protection comprised of Use Patents and manufacturing IP surrounding the production

of PPS • Trials have been designed following the same protocols as expected by the FDA and big Pharma • The closest comparator OA pain drugs being developed either have serious dangerous side effects or

have unknown long-term use profiles • Potential for PPS to treat other joints (hips, ankles, shoulders and elbows) will increase the overall

attractiveness of PPS

Due to existing long-term contracts struck with bene pharmaChem Paradigm has security over supply. It is in

bene pharmaChem’s best interest that Paradigm sells as much PPS as possible, so they are very much aligned to

Paradigm’s success. PPS is not an expensive drug to make or deliver and perhaps its only drawback, being its

route of administration, can be very easily solved in the future by developing an auto-injector pen, much like

what is currently available for diabetics.

In addition, we see the recent in-licensing of the Rare Joint Disease indication of MPS as not only being a

company maker in its own right but potentially being the first product to market for iPPS.

We have modelled the potential value of the MPS indication for Paradigm and estimate it to be worth A$104m

(via risked NPV) conservatively in its own right under a licence agreement with an established speciality pharma

company that focuses on orphan indications. Under this circumstance, it could attract a US$250m licensing

transaction (subject to standard milestones) with net royalties being mid to high teens. We believe the MPS

indication underwrites a large part of the share price that PAR is currently enjoying and potentially acts as a safe

guard in the event of OA Phase 2b trial not achieving its primary end point.

Strong Newsflow will stoke and maintain investor interest From an investor viewpoint the key attractiveness for investing in Paradigm now as opposed to six months’ time is a strong amount of newsflow from this point well into CY2019. This newsflow can be summarised as the



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DECEMBER 2018

following major events:

• Headline results from the Phase 2b placebo-controlled KOA trial – late Q4CY2018 – This is a Major Value Inflection Point.

• Additional groups (~25 per group) of SAS patients with KOA pain successfully treated with iPPS.

• The initiation of the US equivalent of the SAS program - the US Expanded Access/Compassionate Use Program, whereby people resident in the US will via their doctor and clearance of the FDA be treated for OA and other joint pathologies. Under this program data will likewise be collected as Real-World Evidence and used to support Paradigm’s regulatory submissions.

• News of elite/high profile people in the US being successfully treated via the Expanded Access/Compassionate Use Program. This will likely generate significant US/Global Media.

• News around completion and results of the Phase 2a placebo controlled viral arthritis trial – late Q1CY2019.

• News around joints other than the knee (back, hip etc) being suitable for iPPS treatment.

• Assuming Phase 2b success - potential for Peer Review Journal publication of the results.

• Initiation of the pivotal phase 2b placebo-controlled trial in MPS and associated positive regulatory guidance/commentary for this Orphan Indication.

• News around the regulatory process and feedback from the US regulatory advisors and ultimately the US FDA re the OA program and viral Arthritis program.

• Potential for Fast-Track designation for the treatment of KOA pain. This is a Major Value Inflection Point.

• Potential engagement with the US DoD on the viral arthritis program. This is a Major Value Inflection Point.

• Preparation for the pivotal phase 3 clinical trial.

This newsflow will stoke investor interest, both domestically and internationally and will display to the market (and potential partners) the company’s ability to achieve important milestones. The Phase 2b KOA trial results will ultimately determine the near-term value for PAR stock as they will dictate the ability of the program to be partnered or whether PAR has the ability to raise capital and enter phase 3 trial itself. We note that investor interest in biotechs always starts to increase with upcoming clinical trial outcomes and given the process is effectively ‘sped up’ with Paradigm we don’t expect it to be any different, suffice to say more pronounced. Given the inherent difficulty in arriving at a current value for Paradigm we have used the probability weighted

DCF methodology of what iPPS (ZILOSUL® and hence Paradigm) would potentially be worth under licensing transaction (inc future iPPS royalties) and have included in our valuation the new MPS Orphan Indication. This gives us a fully diluted risked DCF valuation of A$587m, assuming Phase 2b trial success, down to A$104m in the event OA is not successful and the MPS indication is the only successfully commercialised product for the Company. We note corporate transactions in this space demonstrate the interest by big pharma and the large sums they are willing to pay to acquire such companies. We look no further than the recent market value ascribed to FLXN of A$1bn – 1.25bn and rumored US$1bn take-over that Sanofi was said to be pursuing which just further reinforces the fact that Paradigm is hunting in elephant country and in the event their Phase 2b trial results point to a new treatment for OA pain, it will likely result in at least a circa US$650m licensing transaction with potential $60-100m upfront payment.



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DECEMBER 2018

Peer Comparison

Recent Transactions Recent transactions highlight big pharma interest in BMEL/OA

There have been 41 licensing and asset acquisition deals involving osteoarthritis drugs during 2013-18.

Galapagos – Servier Licensing Transaction

Details

• Galapagos licensed GLPG1972, a potential disease-modifying oral therapy for osteoarthritis to Servier

• GLPG1972 is a potent and highly selective inhibitor of ADAMTS-5.

• Licensed post Phase 1

When: • July 2017

Deal Value • US$346m EU Rights Only



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DECEMBER 2018

Flexion – Sanofi (Rumoured deal)

Details

• In March 2017 Sanofi was rumoured to be in talks to buy Flexion Therapeutics for >US$1 billion in cash1.

• Flexion’s knee injection for osteoarthritis, ZILRETTA®, said to fit in with Sanofi’s bio surgery division.

• Both companies did not comment on why transaction did not occur.

• Post phase 3 – Pre FDA approval

When: • March 2017

Deal Value • US$1bn+ (Rumoured – did not occur)53

TissueGene, Inc – Mitsubishi Tanabe Pharma

Details

• TissueGene, Inc. licensed the rights for its degenerative osteoarthritis drug Invossa to Japan's Mitsubishi Tanabe Pharma

• Invossa is the world's first cell-mediated gene therapy for degenerative osteoarthritis

• Japan rights only

• Post phase 2 – pre phase 3

When: • November 2016

Deal Value • US$434m54

Pfizer – Eli Lilly of Indianapolis

Details

• Pfizer struck a deal with Eli Lilly to jointly develop its anti-nerve growth (NGF) factor drug, tanezumab.

• Eli Lilly committed to:

− hand over a $200 million upfront once the FDA addresses its hold on the program, another $350 million in regulatory milestones and $1.23 billion in sales milestones.

− share the cost of the Phase III, frozen since safety risks highlighted in 2009

When: • January 2014

Deal Value • US$1.8bn55

Regeneron – Teva

Details

• Teva Pharmaceutical Industries Ltd executed a global agreement to develop and commercialize fasinumab, Regeneron's investigational NGF antibody in Phase 3 clinical development for osteoarthritis pain and in Phase 2 development for chronic low back pain.

• Under the terms of the agreement, Teva will pay Regeneron $250 million upfront and share equally in the global commercial value, as well as ongoing research and development costs of approximately $1 billion.

When: • September 2016

Deal Value • US$1.25bn

53 https://www.fiercepharma.com/pharma/sanofi-verge-1b-plus-deal-for-arthritis-focused-biotech-flexion 54 https://www.tissuegene.com/en_US/investors/pr/detail/10/tissuegene-licensee-kolon-life-science-partners-with 55 https://www.fiercebiotech.com/partnering/eli-lilly-spells-out-1-8b-deal-to-partner-pfizer-on-tanezumab

https://www.fiercepharma.com/pharma/sanofi-verge-1b-plus-deal-for-arthritis-focused-biotech-flexion

https://www.tissuegene.com/en_US/investors/pr/detail/10/tissuegene-licensee-kolon-life-science-partners-with

https://www.fiercebiotech.com/partnering/eli-lilly-spells-out-1-8b-deal-to-partner-pfizer-on-tanezumab



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DECEMBER 2018

Valuation Methodology & Assumptions Given the inherent difficulty in valuing junior biotech companies we have had to make a series of assumptions and

use the probability weighted valuation methodology which we feel is most appropriate for a company like

Paradigm.

• Market size and sales are predicted in US$ but revenues to PAR are converted to AU$ using a AUD:USD

exchange rate of 0.70

• Market size. We have used Flexion’s (FLXN) intel in relation to the number of patients injected to treat OA

in the US as the starting point of our market estimate, given ZILOSUL® is an injectable.

• The injections cover both IA and HA, and we believe PPS is a substitute for both treatments. FLXN suggest

the 2016 starting base was 5.4m patients (3.0% of the US population).

• Market growth. Due to an ageing population and greater understanding of BMEL’s and their role in OA, we

have assumed a market growth rate of 8% from the 2016 base assumption, in-line with CDC forecasts.

• Penetration rate. Given the move away from Opioid’s and Corticosteroids, we have assumed the non-

opioid/non-corticosteroid/less invasive ZILOSUL® eventually takes 25% of the “injection” market in the US.

• Peak penetration. We have used “industry rule of thumb” ramp-up rates to peak sales given the issues

around reimbursement codes, sales force education and word of mouth.

• Our peak sales assumption for ZILOSUL® is FY30, with the ramp-up assumptions tabled below.

Table heading: ZILOZUL ramp-up rate to peak penetration post market launch

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

7% 18% 24% 34% 45% 56% 67% 78% 89% 100%

Source: AEP Estimates

• Price per treatment. We have adopted Paradigm’s estimated treatment cost of $US2,000 (for 12 injections

over 6-weeks) in the first year of launch, noting this price point is yet to be tested commercially and

excludes related nurse/doctor costs.

• We have assumed a steady price until FY30, at which time we forecast a 50% reduction (near patent expiry).

• Upfront and milestone payments. Perhaps the most subjective assumption in our valuation is the structure

of a licensing deal, incorporating upfront payments and milestones.

• We have assumed a US$650m deal comprising:

• US$65m upfront payment in FY20 upon execution of transaction

• US$130m milestone for successful Phase 3 completion in FY21

• ~US$163m milestone for NDA registration in FY22

• ~US$293m for the first year of sales above US$1Bn (FY25)

• Royalty rate. We have assumed a 13.5% royalty rate on all ZILOSUL® revenue to Paradigm. We have been

guided by a Medtrack analysis across 2,100 indications and 105,000 deals looking at mean royalty rates

struck across various Phases and various Therapies.

Of particular relevance to Paradigm is the mean rate struck in Phase 3 (14.1%) and the mean rate for

Musculoskeletal Therapies (10%), which appear the two key drivers in setting royalty rates. We have taken

slightly above the mid-point of both given accompanying supportive RWE data.

For the MPS indication we have applied the following assumptions:

• Total cost of full year treatment with iPPS is $75,000 being mid point of estimated $50,000-$100,000 pa

cost and note this is significantly lower than existing enzyme replacement treatments which range from

$500,000-$1m p.a.



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DECEMBER 2018

• We believe there is strong potential for iPPS to be used in combination with existing enzyme replacement

treatments due to its very strong safety profile and high reduction in joint pain data.

• We estimate the target market to be 10,000 patients per year, but this could well be conservative

• We believe due to concentration of patient treatment centres that an iPPS treatment would be publicised

and promoted in the MPS community and therefore would be adopted rapidly. Thus, we believe market

penetration could be as high as 20-25% in the first 1-2 years.

• We have assumed a peak market penetration of 31% and constant for the life of the patent (10 years).

• We believe these market metrics fairly justify a US$250m partnering transaction with an established

specialty pharmaceutical company (subject to industry standard milestones and 10-20% royalties).

• We do note, that due to the attractive potential marketability of a MPS iPPS treatment, Paradigm may be

in a position to pursue this indication itself (i.e. would not need to partner) and therefore would receive

full drug sale revenues less marketing and manufacturing costs.

• Probability weighting to reach market. Using the Biotechnology Innovations Organisation (BIO) “Phase

Transition Success & Likelihood analysis” (n: 3,582) as a guide, we attribute a 37% weighted average chance

of success of ZILOSUL® getting to market.

• This is higher than the strict application of their model (15%), as we have applied a 75% probability

weighting for Phase 2b success given the strong early look-through results from the SAS as discussed.

Interestingly the transition from Phase 2 to Phase 3 has the lowest probability of success of any transition

phase (30.7%) according to BIO.

• Our probability weighting would increase to 49% if the current Phase 2b trial meets its primary endpoint

and progresses to Phase 3. The table below summarises our weightings.

Table heading: Analysis of weighted probability to market

Transition BIO Guideline AEP estimate Successful P2

Phase 2 to 3 31% 75% 100%

Phase 3 to NDA 58% 58% 58%

NDA to market 85% 85% 85%

Weighted Probability 15% 37% 49% Source: BIO and AEP estimates

• All revenue assumptions (royalties and upfront/milestone payments) are probability weighted.

• Operating costs. We have assumed an ongoing cash burn rate of A$3m/year, which covers head office,

modest R&D and relationship costs but excludes recent elevated trail costs.

• Given our analysis is solely based on the US OA opportunity we have not forecast additional trial or R&D

costs that may be associated with other indications or jurisdictions.

• Manufacturing royalty costs. We assume 2% of gross sales are paid to manufacturer Bene for both

manufacturing costs and royalties. In the event of partnering we assume this cumulative 4% to Bene will

continue to be paid and will need to come out of what Paradigm receives from the transaction.

• Discounted cash flow. The resulting probability weighted royalty rates, upfront/milestone payments and

costs are then discounted by a further 15% (in-line with industry standards for early stage drug

development companies) and taxed at a 30% corporate tax rate to arrive at a probability weighted DCF.

• Capital management. We have assumed that Paradigm will take ZILOSUL® to Phase 3 themselves, and as a

result will need to raise capital to fund this pursuit. Our numbers incorporate one equity raise and an

additional 30m shares on issue.

• Summary. After all the assumptions above, we arrive at a valuation of A$587m (A$3.67 per share), with

significant flex on both the upside and downside.

• Sensitivities. There are a multitude of sensitivities in this valuation, with some key sensitivities listed below:



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DECEMBER 2018

Table heading: Key PAR OA DCF sensitivities

Variable Current Assumption

+/- Change (A$) % Chg

Market Penetration 25% 1% 0.08 3.1%

US$ treatment price 2,000 200 0.10 3.8%

Royalty rate 13.5% 1% 0.26 9.8%

Weighted Probability 37% 1% 0.12 4.6%

Deal Size (US$m) 650 65 0.08 3.1% Source: AEP estimates

Cross checking our deal size assumption we highlight the following:

On the low end:

• Galapagos licensed GLPG1972, a potential disease-modifying oral therapy for osteoarthritis to Servier, for US$346m EU Rights Only.

On the high end:

• Teva entered a US$1.25 billion partnership with Regeneron for their Phase 3/2 anti-NGF pain relief program, with US$250m being the upfront component and US$1bn in development milestones.

• Sanofi was rumoured to looking to acquire FLXN for US$1bn post FLXN’s successfully Phase 3 trial for treating OA pain.

• Pfizer entered into a US$1.8bn transaction with Eli Lilly, to jointly develop its anti-nerve growth (NGF) factor drug, tanezumab. Eli Lilly’s paid $200 million upfront and once the FDA addresses its hold on the program, another $350 million in regulatory milestones and $1.23 billion in sales milestones.

• We would also note the market cap of FLXN during their phase 2 study was US$200-300m.

Top 20 Shareholders

Rank Name Units % of Units

1. PAUL JOHN RENNIE 11,080,135 7.93

2. KZEE PTY LTD <KZEE SUPERANNUATION FUND A/C> (Paul Rennie)

10,301,075 7.37

3. MJGD NOMINEES PTY LTD <BSMI A/C> 6,242,286 4.46

4. IRWIN BIOTECH NOMINEES PTY LTD <BIOA A/C> 5,210,313 3.73

5. J P MORGAN NOMINEES AUSTRALIA LIMITED 4,157,390 2.97

6. NANCY EDITH WILSON-GHOSH <GHOSH FAMILY A/C> 3,910,935 2.80

7. MR BRETT LANGAN 3,130,672 2.24

8. CITICORP NOMINEES PTY LIMITED 2,739,758 1.96

9. V REDFORD PTY LTD <REDFORD SUPER FUND A/C> 2,505,419 1.79

10. JGM INVESTMENT GROUP PTY LTD <MUCHNICKI FAMILY A/C> 2,205,715 1.58

11. GRAEME ROY KAUFMAN 1,931,250 1.38

12. MS LENNA YU LING TYE 1,884,266 1.35

13. MR EVAN PHILIP CLUCAS + MS LEANNE JANE WESTON <KURANGA NURSERY SUPER A/C>

1,812,729 1.30

14. HIMSTEDT & CO PTY LTD <THE HIMSTEDT FAMILY A/C> 1,708,330 1.22

15. VIEW 26 PTY LTD <VIEW 26 A/C> 1,527,707 1.09

16. NATIONAL NOMINEES LIMITED 1,242,824 0.89

17. MR MICHAEL PIPEROGLOU 1,241,916 0.89

18. MR ANIL BHASKAR UTTURKAR + MRS REKHA ANIL UTTURKAR <RUTNA SUPER FUND NO 2 A/C>

1,200,000 0.86

19. TASS INVESTMENTS PTY LTD 1,160,135 0.83

20. KANNE HOLDINGS PTY LTD <KANNE FAMILY A/C> 1,143,592 0.82

Totals: Top 20 holders of ORDINARY FULLY PAID SHARES 66,336,447 47.45

Total Remaining Holders Balance 73,472,164 52.55



45


DECEMBER 2018

Board and Management

Paul Rennie, Managing Director & CEO

Paul Rennie BSc, MBM, Grad Dip Commercial Law, MSTC, has sales, marketing, business development,

operational and IP commercialisation experience in the biopharmaceutical sector. Paul’s experience includes

working for Boehringer Mannheim (now Roche Diagnostics), Merck KGGA as national sales and marketing

manager and Soltec (FH Faulding Ltd) as their director of business development. Paul also led the

commercialisation of Recaldent® a novel biopharmaceutical arising from research at the dental school,

University of Melbourne. Paul took an R&D project from the laboratory bench to a commercial product now

marketed globally as an additive to oral care products. More recently Paul worked in a number of positions with

Mesoblast Ltd (ASX.MSB). Paul was the inaugural COO and moved into Executive Vice President New Product

Development for the adult stem cell company. For the past 5-6 years Paul has worked full time at Paradigm

Biopharmaceuticals Ltd.

Graeme Kaufman, Non-Executive Chairman

Graeme Kaufman BSc, MBA, has wide ranging experience across the biotechnology sector, spanning scientific,

commercial and financial areas. His experience with CSL Limited, Australia’s largest biopharmaceutical company

included responsibility for all of their manufacturing facilities, and the operation of an independent business

division operating in the high technology medical device market. As CSL’s General Manager Finance, Mr Kaufman

had global responsibility for finance, strategy development, human resources and information technology. Mr

Kaufman has also served as an executive director of ASX-listed Circadian Technologies and a non-executive

director of Amrad Corporation, and held the role of Executive Vice President Corporate Finance with Mesoblast

Limited until 2013. He was previously Chairman of Bionomics Limited (ASX.BNO) and IDT Australia Limited

(ASX.IDT), and is currently non-executive director of Cellmid Limited (ASX.CDY)

Mr Christopher Fullerton, Non-Executive Director

Christopher Fullerton, BEc, has extensive experience in investment, management and investment banking and

is a qualified chartered accountant. He is an investor in listed equities and private equity and his current unlisted

company directorships cover companies in the property investment and agriculture sectors. Mr Fullerton’s

exposure to and experience in the fields of biotechnology and health care technology was gained through his

non-executive chairmanships of Bionomics Limited, Cordlife Limited and Health Communication Network

Limited and his non-executive directorship of Global Health Limited and he is currently a NED of ASX Listed Xtek

Ltd.

Mr John Gaffney, Non-Executive Director

John Gaffney LL.M is a lawyer with over 30 years experience and has undertaken the AICD Company Directors

qualification. He brings to the board a compliance and corporate governance background and is experienced in

financial services compliance. John also has corporate and commercial experience having worked with a major

national law firm as a senior lawyer and also practised as a Barrister at the Victorian Bar. Previously John has

been a non-executive director of a US based biotechnology company.

Chief Scientific Officer - Dr Ravi Krishnan

Dr Ravi Krishnan is a basic scientist with a long-standing interest and experience in experimental pathology,

transplantation immunology, gene and stem cell therapy. He has also had significant experience in investigating

novel compounds with immune modulatory effects, anti-inflammatory and anti-angiogenic properties. Dr Ravi

has both biotech and large pharma experience having previously worked at Mesoblast.



46


DECEMBER 2018

Key Risks

Funding Risks: A delay in achieving adequate funding or a partnership and subsequent upfront/milestone payments may have an impact on Paradigm’s clinical program development.

Competing products: As highlighted, there are several OA drugs in or about to enter Phase 3, providing a potentially crowded market in outer years for the treatment of OA. That said OA is clearly being viewed as an “unmet need” by the FDA, particularly considering the desire to find alternatives to opioid treatments.

Clinical Trial Risk: Despite there being ample evidence that PPS could be an effective treatment for the indications that Paradigm is investigating, there is no guarantee that trials will be successful and that the Company’s drugs will make it to market.

Manufacturing Risk: Given Bene-pharmaChem are the sole manufacturer of the only FDA approved Pentosan polysulfate sodium, there is a short-term manufacturing/supply, redundancy risk. Paradigm will likely address this risk on approach to commercialisation.

Timing risks: Delays in timelines may inhibit optimal partnerships, milestone payments and long-term revenues. Timeline delays can be caused by but not limited to:

• Trial requirements & recruitment rates

• The FDA approval process

• Other products reaching market

Given our valuation has a probability weighting and a WACC discount rate applied to it, delays in expected licencing deals and royalty rates have a negative impact on valuation.

Regulatory compliance issues: Anything from accounting issues, manufacturing practices and product recalls could materially impact our current earnings forecasts.

Poor Design of Clinical Studies: It is imperative that the correct personnel are in place to optimally design all clinical trials. As many biotech companies have experienced, an incorrectly designed study will inevitably lead to detrimental results, which will adversely affect our valuation and forecasts.



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DECEMBER 2018

Disclaimer and Disclosure Important Disclaimer:

This document is a private communication to institutional and wholesale investors and is not intended for public

circulation or for the use of any third party, without the prior approval of Adelaide Equity Partners Limited. In

the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution

in whole or in part to any persons in the specified countries.

This document is not investment advice and does not constitute personal or general advice to any person. This

document has been prepared without consideration of any specific investors’ financial situation, particular

needs and investment objectives (‘relevant personal circumstances’), and is not an offer, invitation or suggestion

to purchase shares in the said company.

While this document is based on information from sources which are considered reliable, Adelaide Equity

Partners Limited has not verified independently the information contained in the document and Adelaide Equity

Partners Limited and its directors, employees and consultants do not represent, warrant or guarantee, expressly

or impliedly, that the information contained in this document is complete or accurate. Nor does Adelaide Equity

Partners Limited accept any responsibility for updating any advice, views opinions, or recommendations

contained in this document or for correcting any error or omission which may become apparent after the

document has been issued. Except insofar as liability under any statute cannot be excluded. Adelaide Equity

Partners Limited and its directors, employees and consultants do not accept any liability (whether arising in

contract, in tort or negligence or otherwise) for any error or omission in this document or for any resulting loss

or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this document or

any other person.

Disclosure of interest:

Adelaide Equity Partners Limited, its employees, consultants and its associates within the meaning of Chapter

7 of the Corporations Law in the future may receive commissions, underwriting and management fees from

transactions involving securities referred to in this document (which its representatives may directly share)

and may from time to time hold interests in the securities referred to in this document.

DISCLOSURE: Adelaide Equity Partners is retained as Investor Relations and Corporate Advisor to PAR and

receives fees for these services. However, researching and completing this report has been carried out as a

separate assignment purely on the part of AEP to further AEP wholesale client understanding of PAR.

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that with respect to each security or issuer that the analyst covered in this report: all of the views expressed

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PARADIGM BIOPHARMACEUTICALS LIMITED · 2018. 12. 3. · with detailed information about Paradigm...

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