Nice note from...

Nice note from fiftyone

http://www.fiftyonecapital.com/fund-performance/2019/1/17/december-2018

High Growth The month of December started out very well for our high growth portfolio. In particular a core holding for the fund in Paradigm (PAR) saw success in their phase 2b trial for osteoarthritis (OA) for their drug Zilosul®. This result we anticipated would be successful and were ultimately proven right. But victory was bittersweet as the stock proceeded to sell off from its high of $2.15, closing the month at $1.05. The company now has a market capitalisation of $135m with over $10m in cash and a drug that works to treat OA! Why did it sell off? We put it down to the result being perhaps different to expectations (the company was releasing data quoting a different measure of pain scores to what was released) and the lack of understanding around the results. The market volatility in December didn’t help which at the time meant that no new buyers or large funds were looking at the company when the results were released. When there was one aggressive seller, it caused momentum to falter and in a month of panic and elevated volatility across markets we think many traders/investors used the opportunity to bank a win. But who really knows - sometimes markets do crazy things? So, while we scratch our heads at the market sometimes, it is also what creates opportunity, so we try not to worry. We have a thesis, and now we have been proven correct, much of the concern/risk around this investment has been removed. Sure, the price doesn’t reflect this right now, but over time the market corrects the short-term fluctuations. Ultimately companies trade to their intrinsic valuations. Now Paradigm is one step closer to selling billions of dollars of product per year, the stock will start to trade significantly higher as more investors begin to realise this. We never bought this position for it to go to $2, we bought it because we believe it can go >$20. Put simply, this drug works to treat a disease of which there is next to no alternative. Those who have taken the drug say it is "life changing" and "the best decision they have ever made". When you have lived with a pain that no drug can help with, it’s easier to understand. Those people we have spoken with that have used the drug, swear by it. It is very easy to sell a drug that helps people who don’t have many other options other than surgery. So, while people look at the trees, we like to see the forest. With the successful phase 2b trial, Paradigm is now poised to become a real business. It won’t be long until big funds start to appear as substantial shareholders. Ultimately, 2019 is going to be a very transformative year for Paradigm and while the stock should probably have a market cap of around $500m - $750m post the successful result, it will probably trade above this valuation by the end of 2019. This successful result also bodes very well for the other indications Paradigm are targeting. Mucopolysaccharidosis (MPS) which has many similar characteristics as OA is particularly exciting. The fact the drug can work in multiple indications has been missed completely by the Australian market. But over time we are very confident investors will begin to realise the potential of this product.