Sareum (LSE:SAR) shares jumped by 22% in Wednesday trading. Sareum Holdings is a UK-based pharmaceutical company developing drug candidates, focused on cancer and autoimmune disease.
What’s behind Wednesday’s jump?
Shares in Sareum actually surged again on Wednesday. The share price is up over 130% in the last four days of trading (and 168% in a year). The ongoing rise has partly been driven by the approval of its patent application by the European Patent Office.
On Monday, the European Patent Office granted the firm’s patent application for its SDC-1802 TYK2/JAK1 inhibitor programme. This announcement sent the share price soaring at the time. The patent protects the SDC-1802 molecule and any drugs developed based on the molecule. The discovered molecule is to be used in treating T-cell acute lymphoblastic leukaemia – a type of cancer specific to white blood cells known as T lymphocytes.
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But GlaxoSmithKline‘s purchase of Sierra Oncology or $1.9bn (£1.5bn) on Wednesday may have also influenced Sareum’s gains. Sierra Oncology is California-based, late-stage biopharmaceutical company focused on targeted therapies for the treatment of rare forms of cancer. The purchase of Sierra is seen as part of GSK’s transition to focus on its core pharmaceutical business – the Brentford-based firm has also announced the shedding of its consumer health unit.
Sierra has licensed a drug candidate, SRA737, which was discovered and developed by Sareum. It is one of only two assets in Sierra’s pipeline. SRA737 is a novel checkpoint kinase 1 (CHK1) inhibitor. How the takeover will impact the development of it is unknown at this stage.
Earlier in April, shares in the company also rose 18.2% in a single day. No reason was identified for the jump.
Should I buy?
So there is clearly plenty of interest in the stock. But would it make a good buy for me? Sareum made pre-tax losses in each of the last four years. So seemingly its market cap/valuation of £219m at the close of business yesterday is based on future earnings and the value of the products it has discovered and developed. For me, that already sounds a bit risky and I’d need to have a full understanding of the value of those products to justify an investment here.
As I write, the share price is trading at 325p. Last Thursday the stock was trading at under 150p. Those are some considerable gains from a company that hasn’t indicated an increase in profitability. There’s also no concrete evidence that another business might be looking to acquire the company.
As such, Sareum’s valuation is based on the value of its products more than is the case with many other companies. Of course, that brings further risks. For example, it’s entirely possible that another company will discover or develop a more effective way of treating its target disease.
Personally, I think there’s too much risk for me to invest in this one and I won’t be adding it to my portfolio any time soon. That’s not to say the stock won’t continue to soar, it is just not for me.
