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Paradigm Biopharmaceuticals shares have skyrocketed. Should you invest?

Growing ASX-listed biotech company Paradigm Biopharmaceuticals Ltd (ASX: PAR) has performed strongly over the last year, with Paradigm shares skyrocketing more than 250% higher to $4.20 as at the time of writing. This means it has outperformed other young healthcare growth stocks like Medical Developments International Limited (ASX: MVP) over the same period.

What does Paradigm Biopharmaceuticals do?

Paradigm specialises in the treatment of inflammation, including that which contributes towards the pain and other symptoms of osteoarthritis. The company repurposes pentosan polysulphate sodium (PPS), an existing drug long known to treat inflammation, but that had historically only been used to treat bladder inflammation and for the prevention of deep vein thrombosis.

This makes Paradigm a reasonably unique junior company in the biotech and pharmaceuticals space. Whereas other emerging companies like Opthea Ltd (ASX: OPT) have had to go to great lengths and expense to prove the safety and efficacy of their new treatments, because Paradigm focuses on repurposing PPS it can leverage extensive existing knowledge and data. This makes the company a far less risky proposition for investors.

Additionally, there is a large addressable market for sufferers of osteoarthritis. According to information provided in Paradigm’s most recent quarterly results, over 100 million people across the United States (US), Europe and Japan suffer from osteoarthritis. This number is only expected to increase, given the world’s ageing population and the obesity epidemic that is afflicting many particularly Western countries.

Paradigm repurposes PPS under the name Zilosul. According to the company’s November AGM presentation, phase 2b clinical trial results in the US have delivered positive results and demonstrated Zilosul’s increased effectiveness over current competing osteoarthritis treatments like steroids and opioids. The company is now expected to move to a phase 3 trial in 2020.

In Australia, Paradigm is progressing its application for provisional approval for Zilosul from the Therapeutic Drugs Administration. If the applications are successful, Paradigm claims it may be able to start generating revenues from its Australian operations as early as the third quarter of 2020. While there is a much smaller addressable market in Australia than in the US or Europe, Paradigm still estimates that if it was able to capture a 20% market share this could generate as much as $1.5 billion in annual revenues.

Foolish takeaway

Paradigm is a pretty unique healthcare company. To a great degree, its flagship drug is already a known quantity amongst healthcare professionals. Paradigm has signed an exclusive agreement for the supply of PPS from a Federal Drugs Administration-approved facility, so there is no shortage of its product and it can quickly scale production once the relevant approvals are granted.

In sum, it has a large (and growing) addressable market, a shorter onramp to commercialisation, and a quickly scalable product. And while the company is not yet generating revenues, it has over $73 million in cash sitting on its balance sheet.

No wonder it has been generating so much market interest over the last 12 months.

But that’s not to say it’s not still very risky. It’s important to stress that Paradigm is not a guaranteed winner: any number of setbacks or delays in the approvals processes could occur to cloud over that sunny outlook. The company must prove it can first generate revenues from its product, and then turn those revenues into profits – and that is still a long way off by anyone’s estimations. But Paradigm is definitely an exciting prospect for investors who favour the healthcare sector, and one worth at least watching closely over the next year.

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Rhys Brock owns shares of Medical Developments International Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Medical Developments International Limited. The Motley Fool Australia has recommended Medical Developments International Limited. 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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