The Sareum Holdings share price is down 47%! Is now the time to buy?

The Sareum Holdings (LSE:SAR) share price continued downward last week as GlaxoSmithKline completed the acquisition of Sierra Oncology.

Sareum is a young, UK-based drug developer specialising in cancer and autoimmune diseases. The biotech‘s share price has fallen considerably over the year, but spiked in April as investors speculated about GSK’s buyout of Sierra, and what it meant for Sareum.

So, what’s been going on the Sareum share price, and is it a buy for my portfolio?

Share price volatility

Sareum’s share price jumped 130% in April.

This was related to GSK’s purchase of Sierra Oncology for $1.9bn (£1.5bn).

Sierra — a late-stage biopharmaceutical company focused on targeted therapies for the treatment of rare forms of cancer — and collaborated with Sareum in the development of SRA737, a novel cancer treatment. SRA737 is one of only two assets in Sierra’s pipeline.

Investors believed that GSK’s takeover could put money behind the SRA737 project and accelerate its development. 

According to an existing agreement, Sareum is set to receive $550k (£418.5k) when the first patient dosing for any new clinical trial occurs.

Sareum also says that it is eligible to receive a 27.5% share of any future milestone payments.

However, GSK’s primary interest in Sierra Oncology was for momelotinib, a drug meant to treat myelofibrosis.

Prospects

The GSK move appears to be positive for Sareum, but it’s important to not get carried away.

Firstly, there are no guarantees that GSK will allocate resources to develop SRA737. Secondly, drug development is a very long road, and it’s a risky business.

The UK biotech operates a collaborative and outsourced business model with all lab-based research carried out in the laboratories of collaborators or third-party providers. This enables the company to reduce projects costs. But Sareum’s portfolio is primarily early stage.

Earlier this year, the European Patent Office granted Sareum’s patent application for its SDC-1802 TYK2/JAK1 inhibitor programme. The patent protects the SDC-1802 discovered molecule and any drugs developed based on the molecule. 

The molecule is to be used in treating T-cell acute lymphoblastic leukaemia.

This is also good news but it’s still early days. The drug was due to start Phase 1 clinical trials in the first half 2022. The average success rate at this stage of development is only 7.9%! 

Would I buy Sareum stock?

Would I add this stock to my portfolio? Probably not. Sareum’s pipeline looks risk-heavy to me and in all honesty, I don’t know enough about early-stage drug development. Having said that, I’d suggest that Sareum looks better value for money than several US-listed biotech stocks I’ve been watching recently.

As an investor, I’ve also been concerned about the sizeable spread between the buying and selling price. I can currently buy Sareum shares for 190p, but the selling price in 180p. This means the stock would need to gain nearly 6% before I could make my money back.