Paradigm Biopharmaceuticals: Non-intellectual property

About the author:

Iain Wilkie
Author name:
By Iain Wilkie
Job title:
Research Analyst
Date posted:
08 March 2022, 12:00 PM
Sectors Covered:
Healthcare and Life Sciences

  • The US Patent Office (USTPO) has issued a final rejection notice for Paradigm Biopharmaceuticals' (ASX:PAR) key osteoarthritis patent application. Patentability has been one of our major issues on the asset which we have flagged over the years.
  • With formal IP protection appearing shaky, we view the remaining bastion of commercial protection surrounding the asset is a long-term exclusive supply agreement with the only FDA approved supplier of the compound and potential short-term exclusivity post marketing approval (if achieved).
  • However, supply aside, we believe the asset is increasingly unattractive from a partnering standpoint with pharma typically partnering to gain access to IP rather than guarantee of supply, at least not to the scale which informed our prior assumptions.
  • With less confidence on existing IP claims, leadership direction, and cost outlook, the chance of achieving a major de-risking event for its major asset (partial exit via partnering) has decreased. As such, we reduce our milestone assumptions in-line with our view of decreasing attractiveness for the asset.
  • Our target price falls to (login to view) and we move to Reduce (from Hold).

Core OA patent rejected in the US

PAR’s major patent application titled “Treatment of Bone Marrow Pathologies with Polysulfated Polysaccharides” (US application number 16/636,545) has received its final rejection by the USTPO late last week (4 March 2022).

The patent application covered the major aspects for treatment of underlying pathologies and treatment of knee osteoarthritis including functional improvements using injectable PPS. The letter claims the submission lacked the definitive description requirements but also states the claims describe functional improvements in knee function which is a latent property of previously published literature. PAR’s claims of gaps in prior literature regarding the link between pain and knee function were dismissed under “obviousness” and that it would be reasonably recognised that one condition to another (i.e. bone marrow lesions / osteoarthritis) is causally linked, and methods of treatment fail to show an inventive step.

Analysis – likely to hamper partnerability

While patent rejections are not entirely uncommon, pharmaceutical companies typically focus on patent life cycle management with multiple layers to keep patent challenges at bay, but that is big pharma. For PAR, these handful of core patents represent one of the only barriers to entry outside of supply agreements, particularly given the generic nature of the underlying asset.

PAR does still have several patents lodged surrounding the asset (treatment of pain/post-operative joint pain), but wording of the rejection in this instance seems likely to flow into the other patents, particularly around claims of pain management.

While the rejection can be appealed via the Patent Trial and Appeal Board or potentially resubmitted at which time novel clinical information is gained, we view the loss of critical IP protections as likely to curb partnering appetite and potential quantum of partnership deal metrics which forms a major aspect of our valuation.

Reducing major valuation assumption

As a result of increased risks around IP, we reduce our milestone assumptions (total package including up-front, milestones, and commercial hurdles) to US$100m (from US$600m) which roll in from FY26 (no change to short-term forecasts). The change results in a decrease in our risk-adjusted valuation to (login to view) and downgrade to a Reduce recommendation.

Investment view – back to a Reduce

With less confidence on existing IP, leadership direction, and cost outlook, the chance of achieving a major de-risking event (partial exit via partnering) has decreased, in our view. Until these issues are addressed, we see no reason to be in the name and look to others in the space for better risk-adjusted exposure.

Risks

Upside risk to our valuation revolves around faster regulatory timeframes and higher or more timely partnership deal metrics.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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