No Pain, No Gain: The Paradigm Story (ASX: PAR)

Good morning Armchair Army,

Welcome to today's edition of The Armchair Analyst, a 5-minute daily update on the ASX life-sciences sector.

Ever been to the doctor for a broken bone and they ask the question…

On a scale of one to ten, how much pain are you in?

… "Dunno, maybe a seven."

The doctor nods worryingly, and you think about your pain again.

"Maybe a seven was harsh. Four. I'm a four."

The doctor nods again, taking note.

"Five. 100% a five."

The thing about pain is that it is entirely subjective.

This makes running clinical trials for a pain drug incredibly hard.

And on Friday, we got a brutal reminder of exactly how hard it is.

Cynata (ASX: CYP) handed down the top-line result from its Phase 3 trial with stem cells for knee osteoarthritis pain.

Pain dropped by 26.8 points on a 100-point scale.

The problem is that the placebo, nothing but salt water, dropped pain by 25.3 points.

Cynata’s CEO said that the trial design assumed 35% of the control group would respond to the placebo. 

But 50% did.

This is not the only clinical trial to fail on pain.

Novartis has walked away from a small graveyard of osteoarthritis programs in the last couple of years: 

Pain is tough.

But proving that your drug stops pain… 

Even tougher.

In answering this challenge, I have done a deep dive into Paradigm Biopharmaceuticals (ASX: PAR), as the next company in my Biotech 165 Challenge.

Interim results on a Phase 3 trial in September. 

Topline results early next year.

The target?

Osteoarthritis pain.

So, let’s try to answer the question… 

Why does the placebo effect cause so much pain in pain trials?

Paradigm (ASX: PAR) is chasing the holy grail of joint disease. 

Osteoathrists.

(Knee pain)

Its drug both numbs the pain AND modifies the disease itself.

(at least that’s the theory)

Injectable pentosan polysulfate sodium (iPPS), branded Zilosul.

iPPs have been used by vets to treat osteoarthritis for years in horses and dogs.

The oral version is also sold by Johnson & Johnson as Elmiron for bladder pain.

(It was actually used originally in WW2 as a weak blood thinner)

Paradigm has a number of use patents over various indications, including the main one: osteoarthritis.

The strategy?

Reformulate an old drug. Solve a big problem.

This has been the company’s pitch since the IPO in 2014.

(It had a crack at a number of different conditions, including hay fever, lung issues… but pain was always the one that had the best data).

The current treatment options for osteoarthritis are:

Paracetamol…

… THEN anti-inflammatories.

… THEN a steroid jab.

… THEN a cortisone jab.

… THEN hyaluronic acid.

… THEN, eventually, a surgeon and a titanium joint. 

Not one solution in that list changes the disease.

It just buys time until the last option.

… THEN just deal with it.

Paradigm has supplied its drug through the Special Access scheme in Australia for nearly eight years, with over 750 people taking it for pain.

It is especially popular among athletes who experience joint pain after injuries or from the wear and tear of time.

But a business can’t be built around the small-scale SAS program.

Paradigm needs to get this drug approved through clinical trials.

Just like most small-cap drug developers, taking a drug from benchtop to approval has been a real pain... 

But Paradigm has five phase two studies under its belt.

Hundreds of people have used the drug through the Special Access Scheme.

A recent $21 million raise to fund it through to a top-line readout…

And fully recruited its Phase 3 study.

So, how will the results turn out? 

Who knows…

But today, we look at why pain is such a pain.

Placebo response remains one of the greatest challenges in pain trials.

It has contributed to the failure of numerous late-stage development programs for osteoarthritis.

Pain is a feeling, not a measurement. 

There's no blood test for it, no scan.

You ask the patient. The patient guesses. You write it down.

People enrol in pain trials when their pain is at its absolute worst. 

That's why they finally signed up.

Osteoarthritis flares and settles. 

So a chunk of them were always going to drift back toward "better" no matter what you injected.

Sticking a needle into a sore knee does something.

(even if it’s just salt water)

There's a procedure, a ritual, a sense that something happened when a needle goes in.

Add it all up, and the placebo arm in an OA pain trial routinely "improves" by a country mile. 

In the published literature, about three-quarters of the apparent pain benefit in these trials may be placebo. 

THAT is what Paradigm is up against.

I’ve written before that running a clinical trial is like playing a game of poker with a deck that you chose.

You CAN’T control what cards are dealt.

But you CAN decide what goes in the deck before the game starts. 

And if you're smart, you stack it with as many aces as you can.

In a pain trial, the "aces" aren't the drug. 

The drug is the drug; it either works or it doesn't.

The aces are the design choices. 

The dozens of decisions about who you let into the trial, how you measure them, when you measure them, and how much noise you allow into the data. 

Every one of those choices either lets the true drug signal shine… or gets drowned out by the placebo.

So let's look at Paradigm's deck.

Before running its Phase 3 clinical trial, there have been FIVE Phase 2 trials on iPPS for knee pain.

Each trial provides the company with more information on how to design a final, pivotal trial for FDA registration.

The first two trials gave the company confidence to list on the ASX and conduct a Phase 2b study.

The Phase 2b study 005 showed clinically significant improvements in pain and function that were sustained over six months.

The Phase 2 008 study showed function improvement out to 12 months, and reduced cartilage degradation biomarkers. Also, MRI evidence of bone marrow lesion reduction (an objective measure that indicated the drug was working).

Finally, the Phase 2b/3 002 study identified the right dose.

(Although this was an expensive trial for what it showed… more on the 002 study in a bit)

With all that information (and with consultation with the FDA), Paradigm has built its deck of cards and is ready to deal.

To get into the trial, you must report a pain score of 4–9 at screening AND again across the seven days before randomisation. 

That filters out the patients whose pain is just having a bad week AND the regression-to-the-mean crowd who were always going to drift back to "fine." 

Remove the weeds before you start gardening.

The primary endpoint is read at Day 112, eight weeks after the last injection. 

The placebo bump in OA pain generally peaks early and then fades.

By waiting two months past the final dose, you let the placebo glow burn off while a genuine, durable drug effect should still be standing.

The endpoint is a weekly average of daily pain scores.

So that a single grumpy Tuesday doesn’t affect the results. 

Patients record their pain every day using an electronic smart device rather than relying on retrospective recall over weeks or months. 

This reduces recall bias and captures pain closer to the time it is experienced

Paradigm has brought in a specialist outfit in placebo-response management to train both patients and site staff. 

Videos, inductions, assessments, etc… to ensure the patient's reported outcomes are REAL.

The goal isn't to suppress the response to the drug. 

It's to reduce variance, so that the signal has a cleaner runway.

MRI cartilage measures have been elevated to key secondary endpoints.

(Where they had a good data readout in a recent Phase 2 study)

Pain is subjective. Cartilage thickness on an MRI is not. 

If the drug genuinely modifies the disease, the MRI imaging will show this objectively.

Now, does this guarantee a trial success?

No.

A perfectly stacked deck still loses hands. 

The drug still has to actually do something.

BUT, what it does do is that it works to eliminate one of the biggest killers of any pain trial - the placebo effect.

Now, there was one trial that Paradigm conducted that was expensive, and the payoff was small.

After securing the IND, Paradigm conducted a large Phase 3 study with ~600 patients to determine the minimum effective dose.

Makes sense.

Pain medication (namely opioids) has caused a LOT of trouble for the FDA in the past.

If there is a low-dose solution… the FDA wants to see that.

The problem is that Paradigm’s drug hasn’t really been shown to be effective at anything less than 2mg/kg… and this is exactly what the study showed.

A 600-person Phase 3 that produced no usable signal of efficacy is essentially an expensive, burned card (that the FDA made them play).

But at least they know, dosing is optimal at 2mg/kg, and the 600 patients are now folded in as more supporting safety data.

Here’s the timeline…

1. Interim results (September)

This is a GO/NO-GO with no high-level data.

A major catalyst for the company and a potential re-rating event.

2. Topline Results (Early 2027)

Here we will see what effect Paradigm’s drug has on BOTH pain and slowing/reversing disease progression.

A good result here should be seen very favourably by the markets.

This could also unlock potential licencing opportunities, as a positive readout for a new pain drug would be seen as attractive to big pharma.

The company has spoken in the past about licencing deals… but so far these have all operated in the background, with bigger players waiting for more data.

3. Important FDA meeting (After Topline Results)

After the results, there will be an important meeting with the FDA to answer one simple question…

Is this trial sufficient to get a drug registered?

When the company applied for its IND back in 2020, the FDA said that it would need to run TWO Phase 3 clinical trials.

One large study, and then a second, smaller confirmatory study (with a shorter timeframe).

BUT, the FDA have recently changed their stance on this, stating that one single Phase 3 trial is enough to register a drug:

HOWEVER, it’s important to note that this was from a paper by the CBER director at the time, published in the New England Journal of Medicine (NEJM).

Dr Vinay Prasad resigned from CBER two months after this was published, so this stance may not carry weight.

So there are two options.

So, the outcome of this meeting with the FDA will be very important regarding how much more capital the company will need.

Enrolment is complete, and the last patients went in mid-June.

A date is set for the two major catalysts.

September for the interim results, and early next year for the top-line results.

Data unlocks deals.

So any good result here could be met with licencing deals, as Big Pharma looks to get its foot in the door on this pain drug.

(The company has been in discussions with Big Pharma partners for years, and they are watching this trial).

How will the share price play out?

I think that after the results from Cynata, Immutep and a number of other high-profile late-stage biotech clinical failures, investors will start to pay for results, and not hype.

Avecho went into a trading halt today; the results of that trial will likely affect whether the market is Risk-ON or Risk-OFF.

A good result here = Risk-ON.

BUT, the free option on speculation is getting more expensive. 

Run-ups into readouts are muted, and you're seeing investors de-risk before the data rather than ride it in.

With low expectations, however, comes greater upside for a genuine result.

Paradigm is funded until the Top Line results are available.

With two readouts in 9 months, let’s see how this plays out.

… the sector needs a win.

A big thank you to Paradigm's head of Investor Relations, Simon White, for sharing the story with me.

See you tomorrow.

The Armchair Analyst

Emyria (ASX: EMD) completes training for its NSW clinical workforce of 25 therapists and 6 psychiatrists ahead of the opening of its psychedelic-assisted clinic in NSW. Opening on track for Q3 2026. (EMD)

🪑 Nice milestone. 

This marks the FOURTH clinic that Emyria will be operating in since it signed a deal with Medibank ~10 months ago

It takes 9-12 months for a clinic to reach project breakeven, with revenues and bookings ramping up over that time.

This clinic has 4 rooms and a capacity of ~80 dosing days per month, or $800,000 in monthly revenue.

Breakeven is at 15-20 dosings per month (~20% capacity).

Avecho Biotechnology (ASX: AVE) initiates a trading halt pending an outcome announcement for its Phase III CBD capsule trial for insomnia. (AVE)

🪑 Good luck!

Here is my Bear/Base/Bull case:

Bear case: Interim results show the treatment isn't working. The trial stops. Avecho has to go back to the drawing board on what to do with TPM. This will be bad.

Bull case: Interim results indicate the treatment is working. Huge tick. Additional patient data is needed to complete registration. The trial continues with an additional 319 patients at more sites, with registration in 12-18 months.

Mega-bull case: The interim results are so strong that the trial can be stopped early and called complete. Avecho receives the US$16 million milestone payment from Sandoz. The company moves straight to registration, potentially putting a product on shelves far sooner than anyone expected.

My full take on the company: Don’t sleep on this one: The Avecho (ASX: AVE) Story 

ECS Botanics Holdings Ltd (ASX: ECS) launches Gelonoidz #20, a new premium cannabis flower product. (ECS)

Recce Pharmaceuticals (ASX: RCE) secures ethics approval for a protocol amendment to its pivotal Phase 3 trial in Australia to enrol patients with mild and moderate diabetic foot ulcers. (RCE)

🪑 This should accelerate recruitment.

Osteopore (ASX: OSX) completes its first custom orthopaedic reconstruction in Hong Kong. (OSX)

Two great articles last from Second Opinion on how AI could affect primary care. (Article 1, Article 2)

Tetratherix (ASX: TTX) completes share purchase plan, raising $639K in addition to the $15M placement. (TTX)

🪑 SPP can sometimes be a bit of an overhang as investors play “chicken” with the share price hovering around the SPP price.

Do you take the raise or buy on the market?

It’s closed now, meaning clear skies for TTX.

510(k) approval decision should be any week now.

Oceania Healthcare (ASX: OCA) launches a $100M secured, fixed-rate bond offer to institutional and retail investors. (OCA)