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SDC-1801’s clinical plan modified

Sareum Holdings 23 November 2021 Update
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Sareum Holdings

SDC-1801’s clinical plan modified

Pharma & biotech

Spotlight - Update

23 November 2021

Price

3.95p

Market cap

£133m

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Share details

Code

SAR

Listing

AIM

Shares in issue

3.37bn

Net cash at 30 September 2021

£4.4m

Business description

Sareum is a UK-based drug development company, specialising in small molecule kinase inhibitors. Its lead programmes are its preclinical 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.

Possible COVID-19 opportunity with UK funding.

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.

Analysts

Jyoti Prakash, CFA

+91 981 880 0393

Maxim Jacobs, CFA

+1 646 653 7027

Sareum’s lead asset SDC-1801 is inching closer to completing its preclinical toxicology studies, although the decision to pursue a capsule alternative to the original suspension formulation, at the cost of a further delay in the clinical trial application (CTA) filing (now expected mid-2022), comes as a surprise. Management asserts that the new formulation adds value to the programme (removing the need to develop capsules at a later stage) and is supported by £4.6m of funds raised in calendar Q221/Q321. While we see merits in the strategy, continued delays may concern the market. Encouragingly, out-licensed asset, SRA737, seems to be gaining traction after Sierra Oncology’s decision to reassess it in combination with other targeted therapies. We expect that the next few months will be crucial for Sareum.

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 to be developed in capsule formulation

SDC-1801, Sareum’s lead TYK2/JAK1 inhibitor, is on-track to complete the final preclinical toxicology studies by the end of 2021 and the company has appointed external consultants to help develop the clinical plan and choose the optimal first indication for the clinical studies. A key development in SDC-1801’s clinical plans has been Sareum’s decision to develop its drug in a capsule form versus the original dry powder suspension. We believe these efforts towards optimising the formulation/administration could be a sensible step, although the repetitive delays in taking the asset to the clinic may concern investors.

Encouraging signals for SRA737

The recent in-licensing by Sierra of BET inhibitor AZD5153 from AstraZeneca and subsequent disclosure by Sierra that it may test the compound in combination with SRA737 in two Phase I trials (haematological malignancies and solid tumours) is a positive sign for Sareum, which owns a 27.5% economic interest in SRA737. Sierra will also be undertaking a third Phase I study assessing SRA737 along with immunotherapy/low-dose gemcitabine. First patient dosing in any one study will trigger a $2m milestone payment (thus $0.55m to Sareum).

Financing in place after equity raise

Equity raisings in calendar Q221/Q321 (totalling £4.6m) should allow Sareum to advance SDC-1801 to the clinic and complete preclinical studies on SDC-1802, as per the management. However, additional funds would be required (possibly through out-licensing deals or equity raises) to progress the programmes further.

Sareum Holdings is a research client of Edison Investment Research Limited

Sareum’s pipeline

As part of its FY21 (June 2021) results, Sareum apprised the market on the developmental progression of its pipeline assets (Exhibit 1).

Exhibit 1: Sareum’s asset pipeline

Source: Company presentation, November 2021

SDC-1801’s modified path to the clinic

The company’s core asset, the TYK2/JAK1 inhibitor SDC-1801, is on track to conclude preclinical studies, with the completion of the final toxicology and safety studies expected by management by the end of calendar year 2021. As indicated by the company, consultants have been recruited to guide the study design as well as the optimal first indication in the target autoimmune space for the first in-human study planned in calendar H222. A manufacturing route to produce the SDC-1801 active ingredient under Good Manufacturing Practice (GMP) conditions has been developed and a specialist Contract Manufacturing Organisation has been appointed to provide GMP drug product for clinical trials.

Given more advanced TYK2 assets under development (see our initiation report for more details) have all targeted psoriasis (PS) as the first indication, it would seem to be a likely first choice for SDC-1801 although Sareum may evaluate other, less explored, autoimmune conditions such as lupus where the company has reported encouraging preclinical data. The recent failure of category leader Bristol Myers Squibb’s highly selective TYK2 asset deucravacitinib to meet primary and secondary efficacy endpoints in a Phase II trial for ulcerative colitis is concerning but may also create an opportunity for Sareum courtesy its dual TYK2/JAK1 action, which may potentially offer greater therapeutic gains in the inflammatory bowel disease space, given the role of IL-6 cytokine in its pathogenesis, which can be targeted by both TYK2 and JAK1 inhibitors.

Another key development highlighted in Sareum’s FY21 results was SDC-1801’s modified path to the clinic, where Sareum has decided to develop a capsule formulation for its drug rather than the originally planned orally dosed solution/suspension. Sareum claims the capsule formulation would be more advanced than the typically used solution/suspension in Phase I clinical trials and removes the need to develop capsules at a later stage, in turn increasing the attractiveness of the asset to potential buyers. The additional time required is likely to push out the exploratory CTA and commencement of the Phase Ia clinical trial (assessing SDC-1801’s safety in healthy volunteers) to calendar mid-2022 and Q322, respectively. Sareum is actively seeking partnerships/out-licensing opportunities and the possibility of SDC-1801 being monetised before the Phase I trial cannot be ruled out. SDC-1801’s path to the clinic, as depicted by Sareum, is presented in Exhibit 2 below.

Exhibit 2: SDC-1801’s timeline to clinical progression

Source: Company presentation, November 2021

Read across from Pfizer exiting its mid-stage TYK2 assets

On 2 November 2021, Pfizer announced it is offloading its two Phase II TYK2 clinical assets to a new company formed by Pfizer in partnership with an undisclosed autoimmune player, in return for a 25% stake in the venture (plus retention of certain ex-US rights). The out-licensed assets include Pfizer’s TYK2/JAK1 asset brepocitinib (PF-06700841) and the pure TYK2 compound PF-06826647. The company has indicated this would ‘enable the allocation of resources to advance development of brepocitinib and TYK2 while allowing Pfizer to focus on diversifying its pipeline’. It is possible the recent FDA safety concern disclosure on multiple JAK inhibitors (on toxicity/safety concerns) has played a role in Pfizer’s decision to reduce pipeline exposure to this asset class as a whole, although the company continues to hold other clinically advanced JAK inhibitors in its portfolio, including JAK1 inhibitor abrocitinib (PF-04965842) and JAK3/TEC Inhibitor ritlecitinib (PF-06651600). As a reminder, the toxicity issues related to the class have been widely attributed to broader activity across the JAK2 and JAK3 sub-types. While selective action (against TYK2 and JAK1) of the newest class of drugs (such as SDC-1801) is designed to overcome this issue, clinical validation would be crucial to assuage these concerns.

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

The six-month UK Research & Innovation (UKRI) funded preclinical research study assessing the therapeutic potential of SDC-1801 in severe COVID-19 was completed in June 2021 with Sareum reporting encouraging results. The project concluded that SDC-1801 reduced the levels of cytokines associated with acute respiratory distress syndrome (ARDS) in human lung cells infected with SARS-CoV-2 and demonstrated a superior profile to the anti-inflammatory steroid Dexamethasone and similar to the JAK1/JAK2 inhibitor, baricitinib. Sareum plans to secure further funding from the UK government’s AGILE development platform (launched in February 2021 to support novel COVID-19 treatments) to progress the treatment to clinical trials, although the timing and design of the clinical trials has not yet been crystallised.

Sareum’s other TYK2/JAK1 candidate, SDC-1802 (targeting multiple oncology indications, in both haematological (blood related) malignancies and solid tumours), is undergoing translational studies to identify an optimal cancer indication and patient population before undertaking further toxicology studies. A second US patent grant in October 2021 strengthens the company’s intellectual property (IP position), although we maintain that the clinical progression would be contingent on the headway made with SDC-1801.

SRA737: Early signs of revival

Sareum’s out-licensed CHK1 inhibitor SRA737 (licensed to Sierra Oncology) had been deprioritised by Sierra since June 2019, but has seen a revival in interest following Sierra’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. Since then, Sierra has expanded the potential therapeutic applications for SRA737 as combination therapy in both haematological malignancies and solid tumours, presenting the pipeline plan in its latest November 2021 corporate presentation. The plan lays out a potential three separate trials in combination with SRA737, two with SRA515 in haematological malignancies and solid tumours in combination with standard of care, respectively, and another one in combination with immunotherapy/low-dose gemcitabine.

Sareum holds a 27.5% economic interest in the deal (up to $79.75m in milestone payments plus royalties) and stands to benefit from this development. Sierra, in its latest Q321 results announced that they may initiate new clinical trials for SRA737 in 2022. First patient dosing in any of these studies will trigger a milestone payment of $2m (translating to $0.55m to Sareum).

FY21 results

Sareum’s FY21 operating loss stood at £1.72m (including the receipt of a £0.17m UKRI grant), up from £1.12m in FY20, driven by higher R&D expenses related to preclinical activities. The majority of these expenses were incurred in H221 (operating loss stood at £0.6m in H121) indicating the heightened pace of activities in the second half of the year. Net loss came in at £1.5m in FY21 versus £1.0m in FY20 (£0.55m in H121). We believe it is likely for the operating expenses to continue to increase as the pipeline approaches the clinic.

The cash balance at the end of FY21 was £2.7m (£1.3m at the end of half-year ending December 2020), supported by two equity issues to high-net-worth individuals in June 2021 (£0.9m and £1.47m, respectively). The cash position has been bolstered by two rounds of fund raising in July and August 2021, raising a combined £2.18m. The company reports the net cash position at the end of September 2021 at £4.4m. If the FY21 cash burn rate (£1.6m) is maintained, the cash balance would be projected to provide funding into FY24 although we believe future spending (FY22 and beyond) is likely to be higher as the assets approach the clinic. Management has indicated the cash balance is sufficient to advance SDC-1801 into clinical trials and complete the preclinical work on SDC-1802. Additional funds (secured either through partnerships and/or equity issues) would be required to advance the programmes further.

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 2021 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 2021 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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