Sareum Holdings — Approaching the clinic

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.

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.

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.