Sareum Holdings — SDC-1801 prepping to enter Phase II

Sareum is a development-stage company specialising in oral formulations of small molecule kinase inhibitors, with an initial focus on autoimmune and cancer indications. While the company has two novel in-house tyrosine kinase 2/Janus kinase 1 (TYK2/JAK1) assets in development, SDC-1801 and SDC-1802, the current focus in on progressing the former through early clinical development and, potentially, an out-licensing/partnering deal thereafter. In September 2024, the company strengthened SDC-1801’s intellectual property position with patent allowances in the US (related to chemical structure, usage in treating inflammatory diseases and in certain methods of chemical synthesis) and China (related to certain crystalline forms).

The third development programme in the pipeline is SRA737, a CHK1 inhibitor targeting the DNA damage response network for treatment of solid tumours. Sareum holds a 27.5% economic interest in SRA737 (Exhibit 1).

Sareum’s core focus over the past year has been on progressing lead asset SDC-1801 through Phase I, which commenced in June 2023 and was read out in June 2024, reporting positive top-line data. The Phase Ia study, undertaken in Australia, was a randomised, placebo-controlled trial (targeted n=96) evaluating safety, tolerability and PK/PD of SDC-1801 in healthy adults. The study included three parts: a single ascending dose (SAD) study (part 1), a multiple ascending dose (MAD) study (part 2) and a food effects study (part 3). Part 1 and part 3 of the study were completed in February 2024 and indicated a favourable safety profile, supporting once-daily oral dosing to achieve therapeutic drug levels in the bloodstream. These observations were confirmed by the top-line results, which included data from the MAD portion, reported in June 2024.

The positive fundings were supported by the release of the full unblinded data in October 2024, which noted that SDC-1801 continued to show a strong safety profile, with no serious adverse events or deaths and the frequency of adverse events similar to placebo. Importantly, no significant changes to any blood components such as blood counts or serum creatinine levels were observed. This is crucial, given the strong off-target toxicity and cardiovascular issues associated with the previous generation JAK inhibitors (leading to class-wide black box warnings), which was primarily attributed to their lack of selectivity for the isoforms. We note that JAK2 and JAK3 inhibition has been implicated as the reason for the off-target toxicities and black-box warnings.

The Phase I study also demonstrated favourable PK/PD. Management noted that SDC-1801 was able to achieve materially higher exposure in blood than predicted therapeutic levels, with a relatively long half-life (17–20 hours), which supports the potential of restricting the treatment to a convenient once-daily dosing (similar to deucravacitinib/Sotyktu). Unblinded data from participants in the multiple ascending dose cohort, who received SDC-1801 for 10 days, also demonstrated dose-dependent reductions in three biomarkers of JAK1 and TYK2 activity (Interferon gamma-induced protein 10, high-sensitivity C-Reactive Protein and interferon alpha), which are key mediators of major inflammatory pathways. The full clinical study report is expected in Q4 CY24.

Based on the Phase I readouts, management has decided to directly move to a Phase II trial (rather than a smaller Phase Ib study as planned previously), likely in psoriasis patients. The Phase II trial, which is likely to be a 12- to 16-week study, requires Sareum to undertake toxicology studies for a similar duration before proceeding to the trial. With funding in place through recent raises and tax credit receipts (discussed in detail later), we expect the toxicology studies to commence imminently, with management targeting completion by Q225 (Exhibit 2). We believe that Sareum also concurrently seeking to secure a licensing deal for SDC-1801 thereafter to support further clinical development work.

SDC-1801 is an inhibitor of both TYK2 and JAK1 enzymes, both part of the JAK family of proteins (four isoforms – JAK1, JAK2, JAK3 and TYK2) recognised for their role in immune regulation. These isoforms are known for their role in facilitating downstream signalling of a number of extracellular, pro-inflammatory cytokines, which lack their own enzymatic activity (Exhibit 3).

An oral administration targeting multiple cytokine pathways, therefore, could offer theoretical advantages over biologics, which tend to target one particular cytokine (four classes of biologics are currently approved for psoriasis: TNF-α inhibitors, IL-12/23 inhibitors, IL-17 inhibitors and IL-23 inhibitors). For example, TYK2 mediates downstream signalling of IL-10, IL-12, IL-23 and type I interferons (IFNs), recognised for their role in driving autoimmunity and associated inflammation. We also note that JAK1 mediates signalling for a number of other cytokines, such as IL-6, IL-13, IL-27 and IL-35, and therefore believe that a dual kinase approach, such as that of SDC-1801, could potentially offer a broader applicability and efficacy in autoimmune diseases. This was reflected in a comparative analysis of clinical data presented by Sareum (Exhibit 4), which noted that dual TYK2/JAK1 inhibition (with brepocitinib) resulted in the highest proportion of patients achieving PASI75 (a 75% or greater reduction in the Psoriasis Area and Severity Index (PASI) score from baseline) after a 12-week treatment. We note, however, that while this comparison provided a directional view, it is not confirmatory given the differences in study designs and patient populations.

A broad and non-selective inhibition of JAK enzymes, although effective, has been associated with off-target toxicities (particularly JAK2 and JAK3), highlighted by the black box warnings (increased risk of malignancy, thrombosis and cardiac events) associated with the previous generation JAK inhibitors Xeljanz, Olumiant and Rinvoq. SDC-1801 has been designed to selectively target the TYK2/JAK1 enzymes and its benign safety profile has been demonstrated in the early Phase I study. The advantages of selective targeting have also been showcased by the TYK2 inhibitor Sotyktu (deucravacitinib), which has a more than 100-fold TYK selectivity over JAK1/3 (due to binding to an allosteric site rather than the traditional adenosine triphosphate-binding site) and which received FDA approval in September 2022 for moderate-to-severe plaque psoriasis. Importantly, this approval was without the class-level black box warnings and without restricted usage (which would have limited the treatment to patients refractory to biologics and other available treatments). Sareum claims that the dual TYK2 and JAK1 inhibition offered by SDC-1801 could result in better efficacy (without safety trade-offs) in psoriasis and other autoimmune diseases compared to agents that target only one of the two kinases, although this would have to be proved in large clinical trials.

While SDC-1801 is designed to target a range of autoimmune diseases (such as rheumatoid arthritis, lupus and inflammatory bowel disease), Sareum is initially focusing on psoriasis, a serious dermatological condition affecting more than 125 million people globally (7.5–8.0 million in the US alone). The psoriasis market holds significant commercial potential, although it is highly competitive, with over 15 approved drugs. According to an article in Nature Reviews Drug Discovery, the psoriasis drug market was worth c US$34bn globally as of June 2023 and comprised c 30% of the total market for immunological disorders.

The psoriasis treatment market has long been dominated by biologics – TNF-α inhibitors, IL-12/23 inhibitors, IL-17 inhibitors and IL-23 inhibitors – which account for c 90% of the market share. The high selectivity of biologics (single targets) is associated with high efficacy rates, although the utility is challenged by a difficult drug administration (injectable or intravenous) and reduced efficacy over time. A sizeable proportion of patients eventually develop resistance to biologics, highlighting the need for other drug classes. The approval of Sotyktu marked the first JAK inhibitor to receive the regulatory nod in psoriasis, and its strong efficacy and safety profile has generated considerable interest from the market for this class of drugs. Several TYK2 programmes are currently under development across various clinical stages, although a majority of the development assets are pure-play TYK2 inhibitors and utilise an allosteric mechanism of action or bind to TYK2, versus the traditional adenosine triphosphate (ATP) approach used by Sareum for dual TYK2/JAK1 inhibition. Exhibit 5 presents an overview of selective TYK2 programmes under development.

While Sotyktu’s FDA approval provides clear clinical validation to this class of drugs, recent deals/licensing agreements also point to sizeable commercial potential. The early 2023 acquisition of Nimbus Therapeutics’ Phase III-ready TYK2 programme, NDI-034858 (zasocitinib), by Takeda for US$6bn (US$4bn upfront and US$2bn related to sales milestones) set a strong benchmark for the market opportunity for this drug class. In March 2023, Biohaven acquired TLL Pharmaceuticals’ preclinical TYK2/JAK1 asset, TLL-041, for US$20m in an upfront payment and up to US$950m in milestones. While TLL-041 will be developed for neurological conditions and not autoimmune disorders, the deal highlights the significant potential for earlier-stage assets as well.

Given the strong clinical efficacy shown by Sotyktu and zasocitinib, we believe other programmes in development would have to demonstrate comparable or superior efficacy while maintaining strong safety signals. As noted previously, the majority of the assets under development are selective for TYK2 and use an allosteric approach for binding and inhibition. In contrast, SDC-1801 is a dual inhibitor of both TYK2 and JAK1 (management believes that inhibition of both could provide superior control of inflammation) and uses the ATP binding site approach to inhibition. As a result, we expect it to be positioned closer to Priovant Therapeutics’ (spun out of Pfizer and Roivant Sciences in June 2022; Pfizer holds a 25% stake in the venture) lead asset brepocitinib (due to its similar mechanism of action and TYK2/JAK1 selectivity), which is currently in Phase III development for dermatomyositis and non-infectious uveitis.

Sareum has compared Phase I data of SDC-1801 with that of brepocitinib, which suggests a potentially superior profile, although we maintain that early clinical data is not necessarily confirmatory for eventual drug performance. Sareum highlighted that cohort D of the MAD arm in the SDC-1801 Phase Ia study was able to achieve plasma exposure equivalent to 100mg per day dosage of brepocitinib, but without the side effect related to the dose (at the 100mg dose in its Phase I MAD study, brepocitinib caused increased serum creatinine (which tends to impact kidney function) and reduced neutrophil and reticulocyte levels (both progenitor of blood cell formation) after 10 days of dosing. Moreover, management noted that brepocitinib has a half-life of six to eight hours, significantly lower than the 17 to 20 hours for SDC-1801. Despite these differences, we believe that the upcoming Phase III results for brepocitinib in dermatomyositis in H225 may offer important read-across for SDC-1801.

Beyond SDC-1801: Activity expected to accelerate

Following the recent financing, Sareum has indicated that it will accelerate translational and pre-clinical development work on SDC-1802, it second TY2/JAK1 asset, which is being developed for oncology indications, an area where we note that the role of JAK inhibitors is not as well established. The company intends to work on translational studies to identify an optimal cancer indication and patient population before undertaking further toxicology and manufacturing studies. The drug holds a patent covering the molecular and pharmaceutical preparations of SDC‐1802 in the treatment of T‐cell acute lymphoblastic leukaemia and other cancers (granted in April 2022). We look forward to further news on the preclinical progression of SDC-1802.

In addition to its two in-house assets, Sareum also holds a 27.5% economic stake in SRA737, an oral checkpoint kinase 1 (CHK1) inhibitor originally developed by the company in collaboration with Cancer Research UK-funded organisations. CRT Pioneer Fund holds the remaining majority stake in SRA737. Initially out-licensed to Sierra Oncology (which completed two Phase I/II trials for SRA737 and was subsequently acquired by GSK), the rights to the drug were returned to the original owners (Sareum and CRT Pioneer Fund) in November 2022. In December 2023, CRT Pioneer Fund out-licensed SRA737 to a privately held US biopharma for an upfront payment of US$0.5m, additional fees of up to US$1.0m in cash and 500,000 shares of the partner, and potential milestone payments of up to US$289m. The deal also allows for tiered high single-digit royalties on net sales. As part of the agreement, Sareum received US$137.5k as an upfront payment. The additional US$1m fees and 500,000 shares were payable earlier of either 12 months of signing of the licensing agreement or the licensee achieving a commercial or funding objective. This could mean that Sareum could potentially receive another US$275k plus 137,500 shares from the collaboration in early 2025. We note that given Sareum’s minority stake, the company has very limited control over any decision-making regarding the asset.

Sareum reported an operating loss of £4.6m in FY24 (12 months ended June 2024), up from £4.1m in FY23, attributable to a period of clinical activity for SDC-1801, which commenced the Phase I study in June 2023 (top-line readouts in June 2024). Reported net loss during the period was £3.4m (£3.2m in FY23), reflecting c £1m in R&D tax credits recognised during the year. Given the higher operating expenses during the period, net cash outflow from operating activities was reported at £3.9m, compared to £3.3m in FY23.

As it is in the pre-revenue stage, Sareum continues to rely on external capital to support its development activities. At the end of FY24, the gross cash balance stood at £1.5m, versus £1.0m at end-FY23 and £0.4m at end-H124. The cash reserves were bolstered post period with the receipt of A$1.9m (c £1.0m) in R&D tax credits by the Australian authorities and a further £3.4m equity raise through a private placement in October 2024. The initial £2.4m in equity funds were raised against an issue of 11.8m new shares at a subscription price of 20p/share. The subsequent £1.0m was raised against a subscription of 4.4m shares at 22.5p/share. We note that each subscriber to the issue will also be entitled to one five-year warrant per share subscribed, exercisable at the subscription price. In case of a subsequent equity raise by the company at a lower issue price, the conversion price for the unexercised warrants will be re-based downwards to the exercise price of the new issue. With these new subscriptions, the company’s shares in issue increases to 124.7m.

Management estimates that along with cash at hand, the new funds raised as well as other expected receipts (likely to be additional R&D tax credits), the company will be funded into H2 CY25, covering further clinical development of SDC-1801 to Phase II (including longer-term toxicology studies) as well as accelerated preclinical work on SDC-1802.