PAR Capital Position and 2024 Raising Requirements

There’s a lot of justifiable anger about PAR at the moment. We’re all facing the same quandary as to whether to support the upcoming rights issue. In so doing, its important to (try and) be as objective as possible if the right decision is to be made.

The aim of this post is to:

1. Share my views on PARs funding requirements for next year (2024)

2. Outline what I see as the key risks for next year (from an investor’s perspective), and how I see 2024 playing out

3. Generate constructive discussion/feedback, particularly on key assumptions

Context

Its important to keep in mind why most of us invested in PAR in the first place. To summarise, the main driver for me was the risk/return equation: whilst biotech is clearly very risky, in PAR’s case, the potential market size is enormous, there is a significant unmet need, and the drug appears to have solid efficacy, with no major safety issues.

As disappointing as the share price is, I continually remind myself that the only way to make a significant (say 10-20 x) return is to accept significant risk. As uncomfortable as it is, that is what we are facing with PAR.

In my view, the main risks for PAR historically have been:

1. The drug won’t work/will fail its trials

2. The Company may get taken-over prematurely, with shareholders missing out on significant upside

3. The Company fails due to funding

The last of these risks is clearly elevated, and has been the primary driver of the share price for the last 12 months or so. In short, PAR is facing an existential funding crisis.

My view is that the share price will continue to deteriorate until either a marketing deal for OA is signed, or a major positive announcement is made. My view is based on a number of assumptions:

· A deal for MPS will not have an impact - in my view the market for MPS is too small, and I also suspect that PAR will need to conduct a phase 3 study before gaining regulatory approval. In short, PAR’s pitches to the market about an MPS deal is just noise, and should be discounted

· We have been continually let down by management with respect to a marketing deal. I can’t see a deal being signed before we get a read out on PARA OA 002

· Given market sentiment, I don’t believe that a submission for TGA provisional approval will significantly impact our share price. In any event, the earliest we could expect TGA provisional approval is 2025. Having said that, if the TGA refuses to accept a provisional application, then PAR’s share price will be marked down accordingly

· The PARA OA 002 readout will be hugely significant for the Company. Given the large study size (470 participants, including 235 on placebo), these results will give a clear indication of the likelihood of PPS gaining regulatory approval. A strong readout will drive a major re-rating of the stock, which should make any subsequent raise significantly easier

The key question for us is whether the current raise is enough to get PAR through to the 002 read-out.

Current Cash Position/Future Requirements

Post raising, PAR will have ~ $69 million in cash, consisting of:

· Current cash on hand $33.6 million (30 Sep 23)

· $28.5 million proceeds from the current raising net raising costs

· $7 million expected R&D refund

So, how long will this last?

The company’s claim that it is funded to mid 2025 ispatently false. It relies on the options issued during this raising being fully exercised – this is highly unlikely, as the company won’t be re-rated without the OA 002 readout (unlikely to be before option expiry).

My base case is that the current funding will last to ~ mid November 2024:

· $10 million outlay for ‘quiet’ quarters ie quarters where we aren’t conducting major studies/recruitment (based on Q1 and Q2 FY23 quarterlies)

· $20 million per quarter where 002 is fully underway

· I note that PARA OA 003 is due to be conducted in parallel with 002. I’m assuming that the cost of this won’t increase the $20 million quarterly run-rate….ANY VIEWS ON THIS WOULD BE MOST WELCOME!

· I’m assuming that the FDA will give the go ahead for OA 002 (ie approve our proposed dosing regimen) ~ April 2024

· Hence, $20 million will get PAR through this quarter and the next, $40 million will get the company through Q4 FY24 and Q1 FY25, with the remaining $9 million funding Oct and part of Nov 2024

· I also believe its reasonable to expect the company to receive an additional $ 7 million R&D rebate in Q2 FY24. This may help fund PAR to Dec 2024

The next question is whether this is enough to see the company through to the 002 readout?

Possibly.

If things go well, then it is reasonable to expect the FDA to give the go ahead for Stage 2 of OA 002 by April 24 (nb this is a critical risk for us, and we could easily expect delay here).

PAR now appears to have 160 trial sites. Assuming each site is able to sign up 1 trial participant per month (seems a reasonable assumption?), then we can expect the trial to be fully enrolled by 30 June 24. The trial’s endpoint is at day 56, so if it is fully enrolled by 30 June, we could expect trial completion by September, and subsequent readout Q2 FY25….

So, current funding may potentially be sufficient to see the company through to its critical readout, but it is extremely risky, with key risks being (1) gaining FDA approval for the proposed dosage, and (2) rates of trial participant enrolment. A rebuff from the TGA is also a significant risk.

For what its worth, at these prices I will take up my rights entitlement, but through gritted teeth. The uncertainty for the company should be removed – for better or for worse – in ~ 14 months time, and whilst the company has failed to meet its publicly promoted targets, trial results are still consistently pointing towards a potential block-buster drug (as an aside, it is appalling that we don’t have an independent chair, and given that the company is transitioning to a new stage of life, we will also need a new CEO. If appropriate governance was followed, the current CEO salary would be enough to fund a good CEO and an experienced Chair!).