It’s been an explosive month for the Sareum (LSE:SAR) share price. Since the start of April, the biotech stock has surged 125% after hitting a key milestone.
What exactly is going on? Can this momentum continue? And should I be considering this business for my portfolio today? Let’s dive in.
The skyrocketing Sareum share price
As a reminder, Sareum is a young drug developer specialising in cancer and autoimmune diseases. Therefore, securing patents to protect its products from generic manufacturers is essential.
And the bulk of gains investors have seen can be attributed to two exciting announcements made in the last 72 hours. First off, the European Patent Office notified management that its application for the group’s proprietary cancer drug, SDC-1802, has been approved and will come into effect as of 4 May.
This is undoubtedly a massive win for the pre-clinical treatment and brings it one step closer to potential commercialisation. Even more so, given early data indicates promising levels of efficacy.
Meanwhile most recently, one of the company’s key partners, Sierra Oncology, was acquired by GlaxoSmithKline. The pharmaceutical giant is currently switching strategies to expand its medical portfolio, and seeing it target a late-stage biotech business is not too surprising. But what does this have to do with Sareum?
Sareum and Sierra collaborated in the latter’s development of SRA737, a novel cancer treatment. While the drug is still in development, Glaxo’s latest move could put serious money behind the project, accelerating its timeline. And with an existing agreement in place, as soon as the first patient dosing for any new clinical trial occurs, Sareum is set to receive $550k (£418.5k).
Needless to say, this is all rather positive news. So I’m not surprised to see the Sareum share price surge as a result. But should I be thinking about buying shares today?
Taking a step back
As encouraging as these latest developments are, there remains a long road of uncertainty ahead. Drug development is notoriously challenging. And even the most promising late-stage treatments can fail in the final rounds of clinical trials. This barrier to success is actually why larger pharmaceutical firms tend to prefer acquiring promising mid-to-late-stage biotechs rather than researching new drugs from scratch in-house.
In the case of Sareum, the odds are not in its favour. As I said earlier, SDC-1802, while returning positive early data, has yet to enter Phase 1 trials. And though it sounds like that may not be far off, the average success rate at this stage of development is only 7.9%!
Furthermore, given it doesn’t have any drugs on the market, its revenue stream is non-existent. Therefore, the Sareum share price seems to be primarily driven by expectations of success, which are by no means guaranteed.
Suppose the company continues to hit milestones and the positive data still rolls in. In that case, I’d expect this stock to continue surging. But if the slightest hiccup were to occur, I think it’s likely to see intense volatility in Sareum’s share price.
Personally, given the risks, I’m keeping this business on my watchlist for now.