Forum Topics PAR PAR PAR valuation

Pinned valuation:

Added a month ago
Justification

2024

Valuation - 25 cents. I think the current market cap of 86 mil is an incredibly low valuation for a business with a drug of pentosan's potential (in OA). That said, the track record of capital management warrants such a low valuation. I'm buggered if I know what it's worth but I think if you've held this long term you may as well see how the phase 3 trials play out. If they somehow get financing and make some progress on their phase 3 trials they could be completely re-rated and I will continue to keep an eye out.

Has taken huge amounts of capital to wade through the clinical trial mire...




2022

PAR I believe is a difficult business to value (perhaps the genre of (essentially) pre - revenue biotechs are all difficult to value and yet if I'm going to hold it I need to value it so here goes:

 

I hold PAR based on the applications of 'zilosul' in OA (although there are many other research trails being pursued by the compant) and I see three broad futures in this regard:

 

1) The drug fails its phase 3 clinical trial due to safety or efficacy concerns (I think this is unlikely given the data already published and long safety record in other indications but to me this is a scenario where the business goes to zero)

2) The drug 'succeeds' in phase 3 trials but has poor uptake for one reason or another (used by 0.1% of the target market in US as the lar

3) The drug 'succeeds' in phase 3 trials for not only pain but also for disease modification and becomes a well recognised and mainstream option for the management of OA (~1% of OA patients use zilosul on an ongoing basis in the US as the largest target market).

 

Clearly there is a huge number of possible futures but I consider these as a basis for forming a valuation recognising how far from the mark they may be.

 

Earnings in 5 years:

1) The drug fails its phase 3 clinical trial due to safety or efficacy concerns (I think this is unlikely given the data already published and long safety record in other indications but to me this is a scenario where the business goes to zero)

2) The drug 'succeeds' in phase 3 trials but has poor uptake for one reason or another (used by 0.1% of the target market each year in 5 years)

3) The drug 'succeeds' in phase 3 trials for not only pain but also for disease modification and becomes a well recognised and mainstream option for the management of OA (~1% of the targeted OA patients use zilosul each year).

Clearly there is a huge number of possible futures but I consider these as a basis for forming a valuation recognising how far from the mark they may be.

 

Earnings in 5 years:

1) Zero. Things have not gone well. Money gone.

2) 175 mil revenue/year based on one treatment/year. Let's assume ongoing costs similar to current costs on R&D/trials etc. ~ 50 million/year. Not a well justified assumption but gross margins for pharma referenced in the literature are 70-80% so not completely unreasonable.

Spitballing perhaps earnings of 100mil/year? Obviously a guess. Let's assume 300 million shares (currently 236 mil prior to current cap raising)

At a PE of 20 this would result in a SP of 6.67 discounting back gives 3.94 as fair value now

3) At a PE of 20 this would result in a discounted share price of @124 at the current time...

Slomo
Added a month ago

I feel your pain @GazD.

This morning's App 4C shows they have about 8 months of cash left, albeit at a reducing burn rate due to slowing R&D costs, so should squeeze another 9-12 months out.

So they remain at the mercy of the market.

They just re-submitted phase 3 to FDA and expecting a response this year.

If all goes well they'll start recruiting in Q1 25 for a trial they can't fund as FDA Phase III will cost US$50-60m and take 2+ years AFTER FDA approval!

But at least that will show a path to getting full approval - assuming the trial is a success. No guarantee but seems promising.

I expect they are negotiating with trial partners / potential buyers that will be waiting on the next FDA response to trigger some action...

Disc: Held (0.1% position)

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Shapeshifter
Added a month ago

This was the last biotech I held IRL before selling out earlier this year.

The share count has doubled in 5 years and they have almost burnt through $250 million since 2016.

The question I asked myself when I owned it was would I buy this now if I didn't own it. I sold as I've shifted my portfolio to profitable only companies hopefully with better downside protection for when the next market crash inevitably arrives.

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GazD
Added a month ago

@Slomo and @Shapeshifter yes I have also sold down… I hold a minuscule (0.3%) package which I hold for 3 reasons:

1) reminder not to do this again

2) so I keep an eye on the stock which despite its history retains a chance of eventual success

3) to maintain access to a cap raise at a very favourable price if it will clearly fund them though to end of phase 3… it would need to be the last cap raise though so I’d need to assess whether that seems likely

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Shapeshifter
Added a month ago

@GazD PAR will definitely cap raise again. Their survival depends on it. For a biotech like Paradigm debt is not an option. Remember management need to get paid!

Having said that I don't want to give the impression they wont be successful with their pentosan polysulfate drug however there are easier and more reliable ways to make money on the market for me.

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GazD
Added a month ago

@Shapeshifter oh yes sorry I wasn’t clear. They will absolutely raise. I guess my point was if it appeared they’d finally gotten to the point where they’d be funded to commercialisation I could be tempted to buy in…

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Karmast
Added a month ago

@GazD @Slomo and @Shapeshifter. It's been my biggest mistake and most painful lesson too but continue to hold given it's now such a small part of my portfolio and the thesis about it being a major and profitable drug is still intact. If only we had leadership that had managed the opportunity better!

It's possible they do a cap raise as they certainly need more cash...but existing investors have been very loud about how that will go down again...

So, they hopefully sign a deal as they have been intimating they want to for several years, that provides the required cash. It will still be dilutive to future profits but not as impactful on share price for current holders.

Or, they could do a convertible note type deal, where they effectively take on debt but it can be converted to equity at a later stage which would be on more favourable terms than regular debt. That requires an investor with confidence in the future though. Collins St Fund does do these kinds of things and was on the register last time I looked.

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Shapeshifter
Added a month ago

@Karmast well if they were given debt it would lower the bar for junk bonds :)

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Karmast
Added a month ago

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