Sareum Holdings - a pharmaceutical cancer development company that's more of an acorn than an oak!

On average it costs more than $1 billion and takes more than seven years to undertake clinical trials and win regulatory approval before a new drug can be marketed. Only one out of every six (16%) drugs developed ever makes it to marketing approval. With this in mind and with poor productivity from their own internal research and development activities, major pharmaceutical companies are increasingly looking at smaller external development entities to license products from.

AIM listed, Sareum Holdings (SAR) is focused on finding new development compounds to treat cancer for future potential development with third party drug companies. 

Sareum was founded in August 2003 by Dr Tim Mitchell, Dr David Williams and Dr John Reader as a spin out from Millennium Pharmaceuticals' Structure-Based Discovery Department. Following an initial private investment, the company was successfully admitted to the Alternative Investment Market (AIM) of the London Stock Exchange in October 2004.

In 2008, the company restructured its business to concentrate solely on its internal cancer drug discovery programmes. It is based in Cambridge, U.K..

Development focus
Sareum is focusing research on drugs that target the biochemical processes which control cell growth and division in cancerous tumours including

• Checkpoint Kinase 1 (Chk1)
• Aurora Kinase (Aurora)
• FMS-like Tyrosine
• Kinase 3 (FLT3)
• Anaplastic Lymphoma Kinase (ALK)
• Polo-Like Kinase (PLK)
• B-raf

Once a solid cancer tumour reaches a certain size, it needs to be connected to the body's blood and lymph systems to receive nutrients and remove waste. Vascular Endothelial Growth Factor Receptor 3 Kinase, (VEGFR-3, sometimes referred to as Fms-like Tyrosine Kinase 4, FLT4) is importantly involved in the generation of new blood and lymph vessels to a tumour. VEGFR-3 is also involved in the control of metastasis whereby the cancer spreads around the body, which is the main cause of death in cancer patients. Many cancer cells are highly dependent on fatty acid levels of which Fatty Acid Synthase (FASN) is a key regulator.

Sareum’s lead development product is SAR-020106 that has been developed as a CHK1 inhibitor in conjunction with the Institute of Cancer Research and Cancer Research Technology. CHK1 is a serine/threonine kinase involved in regulating cell cycle checkpoint signals that are activated in response to DNA damage and DNA errors caused by defective replication. Activated CHK1 phosphorylates a number of downstream targets, which promote cell cycle arrest in S and G2/M phases of the cell cycle. There is now strong evidence that CHK1 inhibition may selectively sensitise p53 deficient cancer cells to genotoxic cancer therapies, through abrogation of the S and G2 checkpoints. Therefore CHK1 inhibitors may provide a therapeutic strategy for enhancing current genotoxic anticancer therapies. SAR-020106 has been shown to increase the activity of other anti-tumour agents in-vivo e.g. Irinotecan

SKIL® (Sareum Kinase Inhibitor Library) is Sareum’s drug discovery technology platform that has so far produced the Company’s Aurora+FLT3, Aurora+ALK VEGFR-3, FLT3 & TYK2 kinase cancer and auto-immune disease research programmes. SKIL can also generate drug research programmes against other kinase targets.

The Company’s other cancer programmes; targeting Aurora+FLT3, Aurora+ALK and VEGFR3 kinases are being evaluated in in-vivo efficacy models. In February 2011, the Company announced significant progress against AML (acute myeloid leukaemia, the most common form of adult leukaemia) in its Aurora+FLT3 programme. A recent study for the programme showed that the leukaemia regressed to such an extent that no detectable cancer could be found in any of the cases treated (ten in total) with a Sareum compound. By comparison, leukaemia increased five to fifteen fold in the study examples
treated without Sareum’s compound. At six weeks following treatment, no detectable cancer could be found in two of the ten examples dosed with the Sareum compound. In the remaining eight examples, the average time taken for the leukaemia to reappear and increase 5-fold was six weeks, compared
to two weeks in the untreated cases. This study compares very favourablywith similar studies published in the literature for the Aurora kinase inhibitors that are currently in clinical trials.

Funding
Sareum undertook share placings at 0.2p in August and December 2010 to raise £450,000, before expenses. In February 2011 a further £500,000 was raised at 1p a share. The funds raised will be used to progress the Aurora+FLT3 programme, and provide working capital for the foreseeable future.
Cash at bank at the end of December 2010 was £621,000, compared to £740,000 at the end of 2009. Losses on ordinary activities (after taxation) of £258,000 were £37,000 lower than in 2009.

Partnering approach

Sareum does not see itself as a pharmaceutical company and therefore has no intention to undertake a full programme of clinical studies to see a drug compound to market or put such a drug through a regulatory process. Sareum's strategy is to partner early stage programmes with large pharmaceutical companies. On their website they declare they are willing to do a licensing deal on the following basis:

• Sponsored research whereby Sareum research costs are covered in exchange for programme ownership. The parties jointly out-license at a pre-agreed point
• Research collaboration with a major partner on a jointly nominated target. The partner supports research costs of project and has first option to license the programme at a pre-agreed point
• Straight license deal of a Sareum wholly owned programme at a pre-defined stage of development, e.g. Preclinical candidate nomination

SWOT
Strengths
Good molecular targets which have a key role in cancer tumour development
Management team has strong expertise in this area

Weaknesses
Relatively weakly funded - around £1 million cash
Products are early stage development so probability of success is very low (only 1 in 6 development compounds make it to market on average)
Limited clinical data on key development molecules

Opportunities
Large pharma companies are actively seeking development products for in-licensing
Cancer (oncology) market is large and growing

Threats
Financial institutions only funding UK biotech/development companies with strings attached e.g. large discounts on placings
Licensing deals may be on big pharma terms meaning potential of royalties on sales rather than large up front payments

Share outlook
Sareum’s share’s currently trade at 1.5p (52 week range 0.22p-2.48p), with a market capitalisation of £22 million (shares in issue 1,450,597,713). With around £1 million (£621,000 end of December plus £500,000 placing in February) of cash remaining means that it likely that institutions will tapped again for funds, probably in the second half of 2011, after the February fund raising at 1p. This means more dilution for private investors who cannot take place in a placing unlike a rights issue.

Though Sareum’s portfolio of developments looks to have potential, finding a development partner will not be easy as it sounds without early clinical evidence confirming the commercial opportunity for a licensee . It is encouraging that results from the Aurora+FLT3 programme seem to have shown benefit in Leukaemia but the trial size was still very small being a phase I study. I am surprised that the company has not beenmore aggressive in getting funding to undertake more significant early stage research, but this may be a reflection of sentiment towards small pharmaceutical developers after so many recent failures of UK biotechs.

Major pharmaceutical companies will seek to extract a hard bargain on any licensing deals with royalty based model on sales rather than large upfront payments to derisk their investment (why pay up front, when this means increasing the risk for the licensee company). This could mean that significant revenue from royalties may be a decade away given it takes 7-10 years to bring a new drug to market. Assuming of course it succeeds, and 84% of drugs fail!

Of course this share might well double just on the “froth” following announcements relating to its development pipeline but then again it might half if results are disappointing. This is the way with early stage drug development. With less than a £1 million in the bank, Sareum can’t afford many failures. I won't be buying Sareum for the Contrarian Investor UK portfolio but its been a good opportunity to review the company's prospects. Sareum - an acorn that may one day grow into an Oak tree, but could be a long time growing!