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Paradigm Biopharmaceuticals shares are soaring. Should you buy?

The Paradigm Biopharmaceuticals Ltd (ASX: PAR) share price has gone gangbusters, soaring more than 20% in the past 5 days, before dipping back slightly in yesterday’s trade to close down 1.87%.

Paradigm is a late stage ASX-listed biotechnology company focused on repurposing an FDA-approved drug called Pentosan Polysulfate Sodium (PPS) that has a long track record of safely treating inflammation.

Why has the share price gone gangbusters?

The main focus for Paradigm is on repurposing PPS to treat osteoarthritis (OA). The market has over 31 million sufferers in the US alone. Its product has been granted FDA approval under the Expanded Access Program (EAP) that allows the company to treat 10 patients, all of which are ex-NFL players suffering OA. The treatment begins December 2019.

In Australia, the company is seeking provisional approval from the Therapeutic Goods Administration (TGA) prior to completing its phase 3 trial. If successful, Paradigm could be generating revenue in Australia as early as Q3 2020.

Paradigm also successfully completed a $77 million capital raising back in April. The company currently has $75 million cash on its balance sheet, which de-risks the need for another capital raising in the short–medium term.

Addressable market and revenue potential

Paradigm is targeting the Australian and US markets for the treatment of OA.

In Australia, approximately 3 million people suffer from OA. An aggressive estimation could see the company generating as much as $2.25 billion per annum. While a conservative 10% market penetration at a soft indicative pricing point of $1,000 p.a. could see the company generating $450 million p.a. in revenue.

The US represents a much greater opportunity, with more than 31 million people suffering from OA. Paradigm is targeting for an approval in 2021. The same 10% market penetration at a US$1,500 p.a. pricing point could see the US segment generate more than US$6.2 billion p.a. in revenues.

There are a lot of catalysts in CY20 that could continue the bullish share price trend. This includes the results of its provisional approval from the TGA, which could see Paradigm selling in Australia as early as Q3 2020, as well as its current treatment of 10 ex-NFL players with OA in the US. These results are expected to be released mid 2020, which could have the potential for significant media attention and brand awareness.

Foolish takeaway

Paradigm represents a high risk/high reward investment. It is very common for the market to lose interest in speculative sectors or specific companies. While the opportunity and addressable market is significant, investors should tread carefully and manage their risk appropriately.

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Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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