In my opinion, biotechnology is the most entertaining industry in the stock market. Why? Three reasons.
1) Biotech tends to be up even when the market is down. Because our ageing population continues to demand the best medicine to sustain a higher life expectancy.
3) Lastly, there is just something about the words “clinical trial” and “FDA approval” that makes your heart race faster than Lewis Hamilton.
Today we will discuss the story of Paradigm Bio Pharmaceuticals, which has shocked the biotech world. Paradigm aims to alleviate the suffering and cartilage degradation of Osteoarthritis through their repurposed drug Zilosul. Youth Investment Group picked Paradigm for future growth at $1.85 and is now trading at $4.17.
Why has PAR surged 40% in 2020?
Paradigm rocked the biotech world with a whopping 240% surge over 2019. To say PAR’s increase was impressive would be an understatement. Throughout 2019, PAR achieved a 50% pain reduction in patients under the TGA scheme, received FDA approval on Zilosul and began their trial on 10 ex-NFL players.
In turn, Investors jumped onto PAR at the back end of 2019 just like a satellite locks onto a GPS. Causing the bullish trend.
Momentum investing is driving PAR’s share price to record highs in 2020. Momentum investing is when a stock performs exceptionally well in the year before, causing investors to rally behind it in the coming year (2020).
Thus, Paradigm’s start to 2020 is bullish because investors fear missing out on the growth and saw its 2019 progress as an indicator of 2020 success.
Moreover, PAR’s 2020 calendar is jam-packed with Price Sensitive Events (PSE’s). Meaning investors are anticipating the price to climb even higher if positive news is produced by the PSE’s. An important lesson to understand here is that investors are betting on an anticipated result rather than a current result.
H1 2020 Financial Update
On Friday PAR released its H1 200 financial update after the market closed at 4:27 pm.
Just like in 2019, PAR’s 2020 financials continue to progress the biotech along the road to economic success.
Paradigm experienced a 614% increase in cash and cash equivalents between 31st Dec 2018 -2019, totalling $70,933,651 million. The cash growth allows PAR to comfortably fund the clinical development of Zilosul.
Moreover, PAR reduced its debt by 27% between 30th June – 31st December 2019, totalling $1,972,889. The debt decrease resulted in D/E ratio of 1:41.6^* or 2.4%. Ultimately, screaming financial confidence as PAR is depending less on debt and raising more equity though the confident investors in the market.
Despite the fairy tale story behind PAR’s financials, we must discuss the negatives (risks). Why? Because YIG believes in providing a balanced perspective, so investors are not lured into companies with an uninformed view.
PAR is unprofitable. Now, unprofitable stocks are risky. Because the business has not technically achieved its aim of making a profit, obviously parking Corporate Social Responsibility aside. Meaning, the success is still uncertain. Also, unprofitable stocks do not pay a dividend. To add insult to injury PAR’s earnings went further negative reporting -$5,104,004 million. Which is a 16% increase in negative earnings between 31st December 2018-2019.
Investors will only tolerate PAR’s unprofitability if Zilosul is brought to market. In which revenue grows and the business enters the green zone. However, you need to learn what type of investor you are.
I personally, am happy to put up with negative earnings as long the D/E ratio is negative or low, cash is high, and the company has an impressive bank of clinical data and/or FDA approval.
Will upward trend continue?
Before we evaluate the evidence and make a concrete decision, I am advised to ask all viewers to do their own research before making any investment decision.
If the 2019 momentum is anything to go off, Paradigm will likely continue the bullish trend in 2020. Especially with Paradigm having an endless number of PSE’s coming up.
Moreover, the improvements around debt and cash in H1 2020 could possibly drive more growth when the market opens on Monday.
Why no broaden your knowledge on the biotech market by understanding these promising stocks: Imugene Ltd (ASX:IMU), Opthea Ltd (ASX:OPT), Clinuvel (ASX:CUV) and Commonwealth Serum Laboratories (ASX:CSL).
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, associate of YIG.