What’s going on with the Sareum Holdings share price?

The Sareum Holdings share price has jumped over the past few months, but the company faces huge challenges in the years ahead.

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The Sareum Holdings (LSE: SAR) share price has exploded over the past 12 months. The stock is up 1,600% since mid-June last year. In the past week, the rally has only accelerated. Since the middle of last week, shares in the company have added 110%.

Sareum Holdings share price

It would appear investors have been buying into this business as part of the coronavirus-related trade. Over the past 18 months, companies that have been engaged in developing treatments or tests for coronavirus have attracted significant investor attention

Sareum is primarily a specialist drug development company delivering targeted small molecule therapeutics to improve cancer and autoimmune disease treatment. One of its treatments is SDC-1802, a novel selective TYK2/JAK1 inhibitor. Studies have shown this treatment significantly reduces tumour growth in specific cancers.

However, it also has the potential to help severe Covid-19 patients. To help investigate the treatment’s impact on severe coronavirus cases, the company has received grant funding from the UK government. It’s currently studying the therapeutic potential of the treatment and is expected to report on the initial six-month study in the middle of 2021.

If the results of this study are favourable, the company may be able to access more government funding, which could help progress the drug through clinical trials. 

It seems to me that SDC-1802’s coronavirus treating potential is the main reason why the Sareum Holdings share price has performed so strongly over the past 12 months. Especially as the company’s other cancer treatments are still in their early stages of development. 

While it does appear as if the business has potential, I think there’s a lot that could go wrong between now and the commercialisation of any of its products. All of Sareum’s treatments are still in their early stages of development. None have reached the clinical trial stage yet, which is concerning. 

At the same time, the company is cash poor. It has been issuing new shares recently to raise additional funding. As the firm moves forward with its drug development plans, it could require further cash infusions. 

Two outcomes 

Overall, I can see two outcomes for the business. If the company’s cancer treatments are effective, they could generate hundreds of millions, or billions, of pounds in sales. But that’s the best-case scenario, and it could be years before any of the treatments are on the market. 

In the worst-case scenario, the company could run out of money. This would be a terrible development for the Sareum Holdings share price. 

Considering these two scenarios, I’m not a buyer of the stock today. I think this investment is incredibly speculative, and there’s far more that could go wrong than right for the enterprise.

The vast majority of new drugs never make it through the development pipeline. Most fail before they get to market. Sareum may be able to buck the trend, but it’s far from certain at this point. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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