Sareum Holdings — 2023 to be a year of clinical transition

SDC-1801, a novel TYK2/JAK1 inhibitor, is Sareum’s lead asset, targeting autoimmune indications, with the initial focus on psoriasis (see Exhibit 1). The drug selectively targets the TYK2/JAK1 isoforms, thereby circumventing the safety and toxicity issues related to the JAK2 and JAK3 isoforms. Final preclinical toxicology and safety studies for SDC-1801 were completed in Q421 and Sareum subsequently filed a CTA with the UK Medicines and Healthcare products Regulatory Agency (MHRA) in July 2022, with the intention of commencing a Phase Ia trial in Q4 CY22. However, the company’s efforts to progress its lead drug to the clinic hit a roadblock in November 2022, as the MHRA informed Sareum that it was unable to approve the application until an additional review of certain preclinical data by the UK Good Laboratory Practice Monitoring Authority. Progress on this front remains at a standstill, prompting Sareum to evaluate alternative locations to conduct the clinical studies.

As a result, Sareum recently announced that it had filed an application to commence Phase I studies for SDC-1801 in Australia under the Clinical Trial Notification (CTN) scheme. Sareum submitted the required documents to a Human Research Ethics Committee (HREC) in Australia and the decision regarding HREC approval and CTN acceptance by the Therapeutic Goods Administration (TGA, Australia’s medicines regulator) is expected in Q2 CY23. If approved, the company plans to commence the first part of the Phase Ia/b clinical trial, which will investigate the safety and tolerability of an oral formulation of SDC-1801 in ascending doses administered to healthy subjects. This would be followed by the Phase Ib study in psoriasis patients in 2024, provided safety is established. Sareum had previously planned to enrol up to 120 subjects across the Phase Ia/Ib studies, but it is possible (although currently unclear) that a similar cohort size will be recruited for the Australian trial as well. Sareum has communicated that all prerequisites for the Phase I clinical trial (including synthesis of the drug substance and capsules in accordance with good manufacturing practice) have been completed and the study can commence as soon as approval is received from the Australian authorities.

We view Sareum’s decision to choose Australia as the alternative clinical trial destination as logical given the country’s strong infrastructure and conducive regulatory environment. Study costs are believed to be significantly lower in Australia (as high as 30–50%) compared to the US or Europe, helped by government tax incentives to early-stage companies (rebates of up to 43.5% of eligible R&D expenditure for companies with revenue of less than A$20m). The clinical trial review process in Australia is delegated to ethics committees by the TGA and the regulatory body only needs to be notified once approval is granted and before commencement of the trial. This helps expedite application processing, with approvals received within four to six weeks of the time of application filing in most cases. This is another key positive for Sareum, allowing it to receive a decision on its application by early Q2 CY23 and possibly initiate the Phase Ia study by mid-2023. We highlight that psoriasis afflicts more than eight million adults in the US (125 million worldwide) and was estimated to be worth US$22.9bn in 2021 (expected to grow to US$55.8bn by 2021, at a CAGR of 9.3%).

TYK2 opportunity shows promise

BMS’s success in receiving FDA approval for its first-in-class, selective TYK2 asset Sotyktu (deucravacitinib), without the typical class-level black box warnings (increased risk of malignancy, thrombosis and cardiac events) and without restricted usage (limited to patients refractory to biologics and other available treatments), has heightened the market’s interest in this class of drugs as a safe and potent orally delivered alternative to currently approved intravenous/injectable treatments. EvaluatePharma estimates Sotyktu’s 2028 worldwide sales at US$2.3bn, solely for the psoriasis indication for which it is currently approved (US$2.7bn overall). BMS’s internal estimates peg peak sales potential at c US$4bn (including label expansion opportunities) by 2029.

We believe the recent acquisition of Nimbus Therapeutics’ Phase III-ready TYK2 programme NDI-034858 (now TAK-279) by Takeda for US$6bn (US$4bn upfront and US$2bn related to sales milestones) provides additional validation of the commercial potential for this class of drugs. Takeda recently presented impressive data from the Phase IIb study investigating TAK-279 (oral, once-daily dosage) in people with moderate-to-severe plaque psoriasis. In the study, 259 patients were randomised equally to receive one of four doses of TAK-279 (2mg, 5mg, 15mg and 30mg) or a placebo, once-daily for 12 weeks. The study met both its primary and secondary endpoints, with two-thirds of patients receiving the highest two doses achieving PASI 75 (or 75% skin clearance). More importantly, nearly 50% of patients on the highest dose achieved PASI 90 and one-third of patients on this dose reported a score of PASI 100 (total skin clearance). These are, by far, the best results seen in an oral treatment for psoriasis, although these data would need to be reproduced in larger pivotal Phase III studies to establish confirmed efficacy. We see these results having a strong read-across for other TYK2 programmes in the clinic, including SDC-1801, although we note that the mechanism of action of Sotyktu and TAK-279 is different to that of SDC-1801 (it has an allosteric approach, which allows it to bind to TYK2’s non-active regulatory domain versus the traditional adenosine triphosphate approach that Sareum uses).

Given SDC-1801’s dual inhibition of both TYK2 and JAK1 (versus the selective TKY2 inhibition of the aforementioned drugs), 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). Consequently, we expect its clinical readouts to have a more material bearing on the market perception of Sareum’s TYK2/JAK1 candidate, although we highlight that the initial indications targeted are different – dermatomyositis (Phase III) and systemic lupus erythematosus (Phase IIb). Sareum asserts that by selectively inhibiting both TYK2 and JAK1, SDC-1801 is engineered to supress signalling of a wider range of autoimmunity-linked cytokines, such as IL-6, IL-12, IL-23 and interferon alpha (IFNa). Exhibit 2 provides a snapshot of approved/clinical-stage TYK2 assets.

SDC-1802 progressing with translational studies

With SDC-1801’s clinical progression, the immediate focus for Sareum given the limited funding headroom is Sareum’s other TYK2/JAK1 candidate, SDC-1802 (targeting multiple oncology indications, in both haematological, or blood-related, malignancies and solid tumours), which is making slower progress. The drug continues to undergo translational studies to identify an optimal cancer indication and patient population before undertaking further toxicology studies. We highlight that SDC-1802’s TYK2 selectivity accords it 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

In November 2022, Sierra Oncology returned the rights to the out-licensed checkpoint kinase 1 (CHK1) asset SRA737 (held in partnership with the CRT Pioneer Fund, CPF; Sareum has a 27.5% economic interest) following GSK’s US$1.9bn acquisition of Sierra in July 2022 for its lead asset momelotinib (targeting myelofibrosis, a haematological cancer of the bone marrow). We see this development as a minor setback for Sareum given that GSK’s support could have accelerated development activity on the drug, triggering a US$0.55m payment to Sareum from first patient dosing in a new clinical trial. However, it does provide Sareum and partner CPF with an opportunity to actively assess future development plans for SRA737, leveraging the positive clinical data.

As a reminder, SRA737 is a clinical-stage (Phase I/II) oral CHK1 inhibitor targeting the DNA damage response network for treatment of solid tumours. Developed in collaboration with the Institute of Cancer Research and the CPF, SRA737 was out-licensed by the CPF to Sierra Oncology in 2016 for up to US$328.5m in milestone payments (subsequently reduced to US$290m). Sareum was a passive partner in the programme with a 27.5% stake in future out-license fees and has received a total of US$2.5m in upfront and milestone payments from Sierra for its stake in the deal. SRA737 had completed two Phase I/II trials, as monotherapy and as adjunct to low-dose gemcitabine, with encouraging headline data, before being deprioritised by Sierra due to funding constraints. Data from the second study was published in the November 2022 edition of Clinical Cancer Research (a peer-reviewed journal). Following the return of the clinical study reports and other associated documents in March 2023, Sareum and partner CPF are exploring the potential development opportunities for SRA737.

Sareum reported an H123 operating loss of £1.75m, up from £1.0m in H122, driven by increased investments in preparatory activities to progress SDC-1801 to the clinic. The net loss came in at £1.45m, including an R&D tax credit of £0.3m received in December 2022. Given the higher R&D expenses related to clinical trials, operating expenses will likely continue to increase as SDC-1801 enters the clinic. Reflecting the higher operating expenses during the period, net cash outflow from operating activities increased to £1.34m from £0.78m in H122.

The cash balance at the end of H123 was £2.9m, versus £4.3m at the end of FY22, which was backed by three equity issues to high-net-worth individuals in July, August and December 2021 for total net proceeds of £3.7m. Based on the current run-rate (cash burn of £1.3m in H123), the cash balance would provide funding into Q1 CY24, although we believe spending is likely to be materially higher once the Phase Ia trial starts. While we expect Sareum to be able to commence the Phase Ia trial with the current cash on hand, additional funds (secured either through partnerships and/or equity issues) would be required to advance the programmes further.