Sareum Holdings — Approaching the clinic

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Research: Healthcare

Sareum Holdings — Approaching the clinic

Sareum’s H122 results (to end-December 2021) provided an update on the company’s progress with its therapeutic pipeline. With final toxicology and safety studies for lead asset SDC-1801 completed in Q4 of CY21 (final report expected by end-Q122), the company is on track to file an exploratory clinical trial application (CTA) in mid-2022 and start clinical studies in H222. The cash balance of £5.6m at the end of H1 should be sufficient to take SDC-1801 through Phase Ia clinical trials and accelerate SDC-1802’s preclinical progress, with the company continuing to assess options to further clinical development. Sareum completed the 50:1 share consolidation it announced at the December 2021 AGM, with the new shares starting trading on 1 March.

Jyoti Prakash

Written by

Jyoti Prakash

Analyst, Healthcare

Healthcare

Sareum Holdings

Approaching the clinic

Pharma & biotech

Spotlight - Update

9 March 2022

Price

£1.5

Market cap

£102m

Share price graph

Share details

Code

SAR

Listing

AIM

Shares in issue

68.07m

Net cash at 31 December 2021

£5.6m

Business description

Sareum is a UK-based drug development company, specialising in small molecule kinase inhibitors. Its lead programmes are its pre-clinical TYK2/JAK1 inhibitors, SDC-1801 for autoimmune diseases and SDC-1802 for cancer. SDC-1801 is undergoing advanced toxicology studies with a target to file a CTA in mid-2022. Other programmes include the CHK1 inhibitor SRA737, out licensed to Sierra Oncology (Sareum holds a 27.5% stake of the economics of the licence agreement) and the de-prioritised FLT3+Aurora kinase.

Bull

SDC-1801’s novel TYK2 selectivity may be attractive to partners, pending clinical validation.

First-in-class opportunity for SDC-1802 in multiple cancer indications.

Potential income generation opportunity from SRA737 offers additional upside

Bear

Safety profile of combined TYK2/JAK1 inhibitor not certain or proved yet.

Potential funding challenges delaying clinical progress of SDC-1801 and SDC-1802.

Markets sought by SDC-1801 and SDC-1802 are highly competitive.

Analyst

Jyoti Prakash, CFA

+91 981 880 0393

Sareum Holdings is a research client of Edison Investment Research Limited

Sareum’s H122 results (to end-December 2021) provided an update on the company’s progress with its therapeutic pipeline. With final toxicology and safety studies for lead asset SDC-1801 completed in Q4 of CY21 (final report expected by end-Q122), the company is on track to file an exploratory clinical trial application (CTA) in mid-2022 and start clinical studies in H222. The cash balance of £5.6m at the end of H1 should be sufficient to take SDC-1801 through Phase Ia clinical trials and accelerate SDC-1802’s preclinical progress, with the company continuing to assess options to further clinical development. Sareum completed the 50:1 share consolidation it announced at the December 2021 AGM, with the new shares starting trading on 1 March.

Historical financials

Year
end

Revenue
(£m)

PBT

(£m)

EPS

(p)

DPS
(p)

P/E

(x)

Yield
(%)

06/18

0.0

(1.5)

(0.06)

0.0

N/A

N/A

06/19

0.0

(1.5)

(0.05)

0.0

N/A

N/A

06/20

0.04

(1.0)

(0.03)

0.0

N/A

N/A

06/21

0.0

(1.5)

(0.05)

0.0

N/A

N/A

Source: Company data

SDC-1801 remains on track to enter the clinic in 2022

SDC-1801, Sareum’s lead TYK2/JAK1 inhibitor, is on track for a mid-2022 CTA filing and a subsequent clinical entry in H2 CY22 after completion of final pre-clinical toxicology studies in Q421. While the full study will be available towards the end of March, early findings are encouraging and Sareum says they support its clinical plans. Development of the capsule formulation is progressing on schedule, with the synthesis of the drug’s active pharmaceutical ingredient (API) under Good Manufacturing Practice (GMP) conditions nearing completion.

SDC-1801 trial design

As per available information, the Phase Ia study would be a safety and dose-finding (ascending doses) study in healthy volunteers, with the initial target indication to be decided thereafter. The trial will also investigate early efficacy signals by looking at SDC-1801’s effect on certain biomarkers of autoimmune disease. The company indicated it is working with specialist clinical trial consultants to design the trial and we expect more details in the coming months. According to management, cash at end-December 2021 (£5.6m) remains sufficient to complete the Phase Ia study, after which the company will assess further fundraising or outlicensing/partnerships to progress SDC-1801’s clinical development.

Share consolidation complete

After the company’s communication of a planned share consolidation in 2022, Sareum effected a 50:1 share consolidation from 1 March. The key objective was to help improve Sareum’s attractiveness to institutional investors.

SDC-1801’s clinical transition progressing to plan

Completion of final pre-clinical toxicology and safety studies for SDC-1801 in Q421 marks a key milestone for the company. While we are encouraged by this, final results from the study (data analysis underway, with results expected by the end of March 2022) would be instrumental in shaping Sareum’s plans for a CTA filing, particularly in light of ongoing toxicity concerns around the janus kinase (JAK) class of assets. Management has indicated that preliminary data from the studies appear promising (meeting the objective of identifying organs/tissues susceptible to high-dose toxicity and determine the appropriate first-in-human dose range) and support SDC-1801’s progression to the clinic. Sareum expects to initiate Phase Ia clinical trials in H222 pending successful CTA filing (with the Medicines and Healthcare products Regulatory Agency) and approval in mid-2022. While the study design is still being finalised (with guidance from external consultants), Sareum has disclosed the trial will investigate the safety of ascending doses of SDC-1801 in healthy volunteers, before the selection of an initial indication for further clinical studies in patients. In addition to safety, the first trial would aim to assess initial efficacy signals by analysing SDC-1801’s effect on certain predictive biomarkers of autoimmune disease. Progress on the manufacturing front remain on track with the SDC-1801 API and oral capsule formulation under GMP conditions expected to be available by the time the trial starts in H222. Sareum’s depiction of SDC-1801’s path to the clinic is presented in Exhibit 1.

Exhibit 1: SDC-1801’s timeline to clinical progression

Source: Company presentation, February 2022

Recent approvals for JAK inhibitors encouraging

While market sentiment around the JAK inhibitor class has been affected by the FDA diktat on class-level boxed warnings (increased risk of malignancy, thrombosis and cardiac events), JAK inhibitors remain an important treatment optionality in autoimmune/inflammatory conditions given their strong efficacy potential. After months of stalemate, we see the recent FDA approvals of second-generation JAK1 inhibitors for moderate to severe atopic dermatitis, Pfizer’s Cibinqo (abrocitinib) and AbbVie’s Rinvoq (upadacitinib), as a positive development and a potentially encouraging signal for the newer-generation JAK inhibitors. Despite the ongoing effects of class-wide label restrictions, the large market size and scope of the autoimmune/anti-inflammatory space means both drugs continue to hold blockbuster potential; Evaluate Pharma estimates 2026 sales for Cibinqo and Rinvoq to be $1bn and $2.2bn, respectively, for the indication.

The TYK2 selectivity of Bristol Myers Squibb’s deucravacitinib and Sareum’s SDC-1801 is more likely to side-step the toxicity issues, although it looks increasingly probable these assets may be subjected to the same black-box warning. Further clarity will be available after the FDA’s decision on deucravacitinib for plaque psoriasis (expected in September 2022) and we feel this will be a major upcoming catalyst for Sareum. However, we also note the mechanism of action for deucravacitinib is different to that of SDC-1801 (allosteric approach, which allows it to bind to TYK2’s non-active regulatory domain versus the traditional adenosine triphosphate approach Sareum uses) and any read-across may not be completely accurate.

Progress with SDC-1801 (COVID-19) and SDC-1802

Sareum expects the Phase Ia results for SDC-1801 to potentially support future clinical trials assessing it in COVID-19 indications and the company is in talks with experts to evaluate the timing and design of these trials. As noted in our earlier update, Sareum plans to secure further funding from the UK government’s AGILE development platform (launched in February 2021 to support fast-track development and fund Phase I studies for novel COVID-19 treatments) or equivalent programmes to fund development for this indication.

Sareum’s other TYK2/JAK1 candidate, SDC-1802 (targeting multiple oncology indications, in both haematological, or blood-related, malignancies and solid tumours), continues to undergo translational studies to identify an optimal cancer indication and patient population before undertaking further toxicology studies. The company expected the recent fundraising to accelerate pre-clinical development for this asset. We highlight that SDC-1802’s TYK2 selectivity accords it a first-in-class potential for therapeutic treatment in cancer, although it remains a risky undertaking given past failures in this space (see our initiation note for more details). We maintain that the clinical progression for SDC-1802 would be contingent on the headway made with SDC-1801.

SRA737 update

As highlighted in our previous note, Sareum’s out-licensed CHK1 inhibitor SRA737 has seen a revival in interest after partner Sierra Oncology’s in-licensing of the BET inhibitor AZD5153 (now known as SRA515) from AstraZeneca (August 2021) and subsequent potential combinations with SRA737 as a possible pipeline expansion opportunity. As reiterated by Sierra in a January 2022 presentation, the plan lays out the potential for three separate trials in combination with SRA737, two with SRA515 in haematological malignancies and solid tumours in combination with the standard of care and another in combination with immunotherapy/low-dose gemcitabine. While Sierra has given no update on the design and timing of these trials, the company’s lead asset momelotinib’s potential market entry after positive results from its Phase III studies in myelofibrosis could free up some of Sierra’s cash and other resources, possibly accelerating Sierra’s plans for SRA737. We also note Sierra recently raised $135m through a public offering, which ameliorates any funding-related constraints in pipeline development and progression. First-patient dosing in any of these SRA737-involving studies will trigger a milestone payment of $2m (translating to $0.55m to Sareum).

Share consolidation complete

After Sareum’s announcement of its plans for a share consolidation (announced in December 2021), the company concluded a 50:1 share consolidation on 1 March 2022 (every 50 ordinary shares consolidated into one). As a results, the number of outstanding shares dropped from 3.4bn to 68.07m, trading at £1.28 on 8 March 2021. The main reason for this was to generate increased interest from institutional investors (who may otherwise have been dissuaded by the previously large volume of shares outstanding and the low absolute trading price). As a reminder, Sareum’s ownership allocation remains heavily skewed towards retail investors.

Financials

Sareum’s H122 operating loss was £1.02m, up from £0.61m in H121, driven by higher R&D expenses related to pre-clinical activities, in particular for SDC-1801 as the asset nears the clinic. Net loss came in at £0.86m during the period, including R&D tax credit of £0.16m. Given the higher R&D expenses related to clinical trials, operating expenses will likely continue to increase as the pipeline approaches the clinic.

The cash balance at the end of H122 was £5.6m, supported by three equity issues to high-net-worth individuals in July, August and December 2021, raising total gross proceeds of £3.9m. This was in addition to two previous rounds raised in June 2021 (total proceeds of £2.4m). If the current run-rate (cash burn of £0.8m in H122) is maintained, the cash balance would provide funding into FY25, although we believe spending (H222 and beyond) is likely to be materially higher as the assets approach the clinic. Management has indicated cash is sufficient to complete SDC-1801’s Phase Ia clinical trials and accelerate the preclinical work on SDC-1802. Additional funds (secured either through partnerships and/or equity issues) would be required to advance the programmes further. We anticipate that Sareum may evaluate outlicensing opportunities following completion of the Phase Ia clinical trials for SDC-1801, using the data from the study to potentially secure a partnership deal at attractive terms.

General disclaimer and copyright

This report has been commissioned by Sareum Holdings and prepared and issued by Edison, in consideration of a fee payable by Sareum Holdings. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Sareum Holdings and prepared and issued by Edison, in consideration of a fee payable by Sareum Holdings. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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