Sareum Holdings — A decisive period ahead for SDC-1801

SDC-1801, Sareum’s lead asset, is an inhibitor of both tyrosine kinase 2 (TYK2) and Janus kinase 1 (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 1).

An oral administration targeting multiple cytokine pathways could offer theoretical advantages over single target agents such as biologics. TYK2, for example is instrumental in mediating the downstream signalling of IL-6, IL-10, IL-12, IL-23 and type I interferons (IFNs), recognised for their role in driving autoimmunity and associated inflammation. We also believe that a dual kinase approach, such as that of SDC-1801, accords applicability in a broad range of potential indications, particularly in the autoimmune space.

While effective, a non-selective and broad inhibition of certain JAK enzymes (particularly JAK2 and JAK3) has been associated with off-target toxicities, highlighted by the black box warnings (increased risk of malignancy, thrombosis and cardiac events) associated with the approved JAK1 inhibitors, Xeljanz, Olumiant and Rinvoq. SDC-1801 has been engineered to selectively target the TYK2/JAK1 enzymes with the aim of circumventing the safety/toxicity issues related to the JAK2 and JAK3 isoforms. Although SDC-1801 is designed to target a range of autoimmune diseases, the initial focus is on psoriasis, a serious dermatological condition affecting more than 125 million people globally (7.5–8.0 million in the US alone). The global psoriasis treatment market was valued by Fortune Business Insights at US$26.4bn in 2022 and is expected to grow to US$51.5bn by 2030.

The psoriasis treatment market has hitherto been dominated by biologics – anti-TNF and interleukin antibodies – although the approval of Bristol Myers Squibb’s first-in-class, selective TYK2 asset, Sotyktu (deucravacitinib) in September 2022 could potentially start to change that. Sotyktu was approved without a black box warning and without restricted usage (such as limitations to patients refractory to biologics and other available treatments), demonstrating the potential of this class of drugs (Sotyktu recorded global sales of US$170m in 2023, its first full year on the market). Sareum claims that the dual TYK2 and JAK 1 inhibition offered by SDC-1801 could result in better efficacy (without safety trade-offs) in psoriasis compared to agents that target only one of the two kinases, although this would have to be proved in large clinical trials.

Sareum initiated clinical studies for SDC-1801 in Australia in June 2023 (Phase Ia), following approval of its clinical trial application by the Australian authorities in May 2023. The Phase Ia study is a randomised, placebo-controlled trial (targeted n=96) evaluating safety, tolerability and pharmacokinetics/pharmacodynamics of SDC-1801 in healthy adults. The study includes 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). In February 2024, the company announced that part 1 and part 3 of the study have been completed, indicating a favourable safety profile and supporting once-daily oral dosing to achieve therapeutic drug levels in the bloodstream. The SAD part randomised participants in a 3:1 ratio to a single ascending dose xof SDC-1801 or placebo in six dose cohorts with eight subjects each. Part 2 (MAD) is ongoing (four sequential and ascending doses tested on four dose cohorts with eight participants each) and is expected to complete by Q2 CY24. Full safety data from the Phase Ia study is planned to be reported in Q2 CY24 and we believe this could be a key inflection point for the company. Sareum had previously planned to initiate the follow-up Phase IIa study (with 24 psoriasis patients) in H2 CY24 (with a planned completion by end-CY24) but given the funding constraint, the timeline for trial initiation has now been pushed out by a few months to end-CY24, subject to the Phase Ia data review and access to financing. If the Phase Ia data are positive, we believe Sareum will likely seek potential out-licensing opportunities, whereby a prospective partner would be responsible for undertaking the next phase of clinical development as well as subsequent commercialisation.

In March 2024, Sareum received a notice of allowance from the European Patent Office, related to SDC-1801’s (application (EP3864009) in the treatment of autoimmune diseases, and certain methods of synthesis. This follows the approval in China in June 2023 (CN113056456), which was the first patent granted to SDC-1801 and Japan. Patent applications in several other regions are under review, including the US (US2021387981).

While Sareum has other assets in its pipeline (including another TYK2/JAK1 inhibitor, SDC-1802, targeting cancer immunotherapy), we understand that development work on these assets has been put on hold to focus resources on the clinical development of SDC-1801. We believe that development work may be reinitiated following a partnering deal for the lead asset.

SDC-1802: management has indicated that work on translational studies is ongoing to identify an optimal cancer indication and patient population before undertaking further toxicology and manufacturing studies. We remind readers that in June 2023, Sareum was granted a patent for SDC-1802 in the US for autoimmune disorders, extending its scope beyond the initial focus immuno-oncology. The first patent for the compound was granted in April 2022, covering the molecular and pharmaceutical preparations of SDC‐1802 in the treatment of T‐cell acute lymphoblastic leukaemia and other cancers.

SRA737: SRA737 is an oral checkpoint kinase 1 (CHK1) inhibitor, in which Sareum owns a 27.5% economic interest (the remaining stake is held by CRT Pioneer Fund). Rights to the drug (previously out-licensed to Sierra Oncology, which was subsequently acquired by GSK) 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 $1m in cash and 500,000 shares of the partner and potential milestone payments of up to $289m. The deal also allows for tiered high single-digit royalties on net sales. As part of the deal, Sareum received $137.5k as an upfront payment and is also entitled to receive 27.5% of any future payments.

Sareum reported an H124 (six months ending December 2023) operating loss of £2.53m, up from £1.75m in H123, driven by increased investments in preparatory activities related to the Phase Ia clinical trial of SDC-1801. The H124 net loss was £2.51m, with the R&D tax credit of £0.77m received during the period offset by the £0.76m finance charge resulting from the £5m RiverFort prepayment facility entered into on 3 August 2023 (£2.3m drawn down to date in two tranches). This finance charge reflects the difference between the amount due to RiverFort as at 31 December 2023 in respect of shares issued to it, and the market value of the shares it still held at that date. Reflecting the higher operating expenses during the period, the net cash outflow from operating activities increased to £2.69m in H124 from £1.34m in H123.

The economics of the deal with RiverFort included Sareum issuing shares to cover the drawdown amount, which RiverFort would subsequently sell in the market. With the recent downward pressure on Sareum’s share price (59.5p at 31 December 2023 vs 100p at the time of deal signing), shares sold (worth £0.7m) and held (worth £0.5m) by RiverFort fall short of covering the loaned amount, resulting in the non-case finance charge of £0.76m in Sareum’s books. Note that this charge is subject to change with the movement in Sareum’s share price and the sale of further shares by RiverFort. Exhibit 2 presents a snapshot of the drawdowns/conversions to date and the outstanding balance.

As of 26 March 2024, £1.1m remains outstanding for repayment under the facility, which Sareum expects to fulfil through share issuances (or cash payment) on or before August 2025. With the SDC-1801 clinical trial in full force, operating expenditure rates may remain at comparable levels (vs H124) in H224, although we note that the company may generate some savings following its decision to minimise cash utilisation (as highlighted by its decision to settle pending salaries of directors/advisors in shares and deferring a portion of their salaries to a future date).

The gross cash balance at end H124 stood at £0.4m versus £1.0m at end FY23 and £2.9m at end H123. This was further supported by the £0.4m tax credit received in January 2024 and the £2.3m conditional equity fund raise (before expenses) announced by the company on 28 March 2024 and subsequently updated on 2 April 2024. This fund raise would result in an issuance of 23.2 million new ordinary shares at the placing price of 10p/share (a ~30% discount to the closing price of 14.5p on 27 March). This includes 9.55m shares in an open placement (‘placing’), 2.255m shares under a direct issue to certain high net worth individuals (‘subscription’), 195k shares to company directors and 11.2m shares in a retail offering (WRAP retail offer) to existing shareholders. The WRAP retail offer closed on 2 April 2024, and new shares are expected to be admitted for trading on AIM on 5 April 2024.

The completion of the placing is conditional, among other things, on the company receiving a commitment of a minimum of £0.205m under the subscription prior to 4 April 2024 and on admission of the new ordinary shares for trading on the AIM exchange. We believe that the need to raise external equity capital was triggered by the company’s inability to make further drawdowns from the £5m prepayment facility with RiverFort.

Management estimates that, along with cash at hand, the tax credits of £0.4m received in January 2024 and the net proceeds from the fundraise will be sufficient to complete the Phase Ia clinical trial of SDC-1801, and it expects to report top-line safety data from the trial in Q2 CY24. Furthermore, the company anticipates receiving tax credits of £0.7m in September 2024, which would support the company in meeting working capital needs. At the company’s current run-rate (cash burn of £1.9m in H124, excluding the £0.76m finance charge), it may need to secure additional funds in H2 CY24 to advance SDC-1801 to the Phase IIa trial.