The Sareum (LSE:SAR) stock price has risen 123% from 2.75p to 6.13p this month. Shares in the AIM-listed specialist drug development company have also risen in price by 1,046% over the last year. Something has obviously piqued investor interest in Sareum because before 2020, its share price was fairly flat. Of course, the pandemic has had a lot to do with raising the visibility and price of Sareum stock.
Sareum had a portfolio of developmental small molecule drugs before Covid. One had been snapped up on licence by another company to develop for the treatment of cancer. However, starting in April 2020, Sareum alerted investors to the potential of its drugs as treatments for Covid-19. This looks like it kicked off the Sareum stock price surge.
Additionally, there have been two private equity raises this month, which will in part fund Covid-19 research. This could have boosted the share price too. The high-net-worth individual who was willing to put over £2m of their money into the company was perhaps taken as a vote of confidence. Yet I can’t help but feel that investors are overvaluing Sareum’s potential Covid treatments.
Sareum isn’t all about Covid. It has also collaborated on the development of SRA737, a selective checkpoint kinase 1 (Chk1) inhibitor. At a meeting of the American Association for Cancer Research in April 2021, a paper was presented that suggested SRA737, combined with another company’s drug, caused cell death in cancer cell lines with a certain mutation and warrants further investigation. This mutation is present in about half of all solid cancers. US-based Sierra Oncology acquired the licence for this from Sareum in 2016.
The SRA737 development should have been big news. Sareum is due a $2m milestone payment from Sierra when SRA737 is given to the first trial patient, and the deal has been valued at circa $290m, plus royalties, in total. However, neither the announcement of the presentation in March 2021, nor the presentation itself, specifically moved the Sareum stock price.
Sareum is also developing dual tyrosine kinase 2 (TYK2)/Janus Kinase 1 (JAK1) inhibitors. Two indications have been identified: SDC-1801 targeting autoimmune disease (and the severe inflammatory response from Covid-19) and SDC-1802 targeting cancers. Unfortunately, the Covid-19 pandemic and perhaps the focus on Covid indications have delayed the autoimmune and cancer application development.
Sareum stock price
I do think the Sareum price can rise higher in the future. However, I would not buy this stock at the moment. I think investors have overvalued the potential Covid-19 applications of its treatments. Those severe inflammatory responses — the kind that requires hospital treatment — in Covid-19 patients will become increasingly uncommon as vaccinations are rolled out and the pandemic abates.
I think interest in Sareum might wane as the pandemic fades, so I see the share price sliding in the near term. However, it has raised cash that it can use to fund research into its core indications of cancer and autoimmune disease if it abandons its Covid interests.
I will consider buying Sareum stock in my Stocks and Shares ISA once we are in a post-pandemic world. But even if I do, I am aware that Sareum has no meaningful revenue at this stage. It is a highly speculative investment whose developments could either pay off handsomely or fail.
James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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