The ASX is littered with small-cap shares all vying to be global leaders in their fields. These innovative start-up companies seek to pursue untapped market opportunities that could one day bring them to stardom like industry giants CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH).
The key is to identify which ASX small-cap shares have the potential to grow materially in the future and bring investors large returns.
I believe shares within the healthcare sector are a good place to start. People view healthcare as a non-discretionary spend, including in times of economic downturn.
Paradigm Biopharmaceuticals Ltd (ASX: PAR) is one such ASX small-cap share that has a promising outlook ahead. The company is founder-led and is on the cusp of commercialising its patented hero drug.
Below, I put a microscope to Paradigm and explore whether this biopharma share is a buy.
What does Paradigm do?
This late-stage company is focused on repurposing the drug pentosane polysulphate sodium (PPS) for the treatment of musculoskeletal disorders in humans with degenerative disease driven by injury, virus infection, ageing or genetic predisposition.
Paradigm's leading drug candidate, Zilosul, is used to treat osteoarthrosis (OA), a progressive disease that affects over 240 million globally. The injectable PPS treatment showed its efficacy in patients with OA, resulting in pain reduction, improved joint function, and the prevention of cartilage damaging joints.
Paradigm's update and addressable market
In September last year, the US Food and Drug Administration (FDA) approved the 'Expanded Access Program' whereby Paradigm was able to treat 10 former NFL players who suffer from OA with Zilosul. Trials commenced in February and as of late July, the company revealed that patients reported a 65% mean pain reduction after 12 weeks.
Paradigm confirmed that its primary and secondary Phase III trials are expected to run until late 2022 where results will be announced. However, prior to the completion of these trials, the company will seek provisional approval in Australia with the Therapeutic Goods Administration (TGA).
The potential revenue in the near term is estimated to be $1.5 billion per annum. And should the FDA approve Paradigm's new drug application following its Phase III results, the addressable market in the US alone is US$9 billion per annum. To put that into perspective, Paradigm's market cap at the time of writing is $637 million.
Paradigm's financials
The company released its latest activities statement for the quarter ending 30 June. Paradigm reported a cash on hand balance of $104.6 million, a net operating cash flow of $4.7 million and no debt.
With a strong balance sheet, the biopharma company should be able to fund its operations through 2022 without additional capital raising or loans from creditors.
Should you invest in this ASX small-cap share?
Over the past 12 months, the Paradigm share price has rocketed higher to $2.81, up 102% (at the time of writing).
If the company's drug Zilosul is approved by both the TGA and FDA to treat sufferers for OA, I believe Paradigm will generate multiple returns for years to come. The potential recurring revenue is enormous should the company penetrate even as little as 10% of the OA market.
In light of this, I would rate Paradigm as a buy for the more risk tolerant investor looking to invest in ASX small-cap shares.
