Heat the oven to 350 F and coat a small baking dish with non-stick spray.
Cook the orzo pasta according to package directions, reducing the cooking time by one minute. Drain and set aside.
In a saucepan over medium heat melt the butter until it foams. Add the shallot and garlic and cook for one minute. Add the chopped mushrooms, salt and pepper. Cook until the mushrooms are soft and have reduced in size by half.
Add in the flour and cook for one minute, making sure there are no clumps of dry flour remaining. Add in the milk slowly, stirring constantly, until there are no lumps remaining. Add the cayenne pepper and cook until it simmers and has thickened.
Turn off the heat and add the shredded cheese in three additions, making sure the cheese is completely melted before adding the next addition. Stir in the orzo. Pour the mixture into the prepared pan and top with the panko, Parmesan, and paprika. Bake for thirty minutes, or until the edges of the dish are bubbling and the topping has browned.