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Can the Sareum share price keep climbing?

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CORRECTION: The original version of this article incorrectly stated that Sareum was trading at 170p.

The Sareum (LSE:SAR) share price has been growing rapidly recently. Over the last 12 months, it’s increased from 0.37p all the way to 1.70p at the time of writing. That’s almost a 360% rise in a relatively short space of time. What caused this enormous growth? And should I be adding the stock to my portfolio? Let’s take a look.

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Sareum’s rising share price

Sareum is a biotech company specialising in discovering new treatments for cancer and autoimmune diseases. The business generates income by licensing its drug candidates to pharmaceutical companies. Under these agreements, the licensee funds the remainder of development. In exchange, it gains complete commercial control if the drug reaches the market. Meanwhile, Sareum receives payments for each milestone achieved and eventually receives royalties on future drug sales.

The firm currently has seven treatments in its pipeline. And in 2020, some significant progress was made that caused the Sareum share price to start rising. Both of its proprietary treatments for cancer and autoimmune diseases named SDC-1801 and SDC-1802 showed positive pre-clinical results. And so, the company has begun preparations for human trials starting as early as Q1 2021.

It also signed a new licensing deal with a China-based pharmaceutical company for its FLT+3 Aurora programme. And on top of all that, its Chk1 project – licensed to Sierra Oncology – successfully completed its phase I/II trials. This is particularly exciting as under the licensing agreement with Sierra, Sareum is eligible to receive 27.5% of all sales as royalties.

There are risks to be considered

The progress made in 2020 is undoubtedly fantastic news for Sareum and its share price. However, there are some significant risks ahead.

Drug development is a long and expensive process, and incredibly challenging. The regulatory requirements alone often lead to 90% of drug failing during phase I trials. Needless to say, the odds are stacked against SDC-1801 and SDC-1802. Even if they eventually gain regulatory approval, it could be several years before Sareum has any licensed products on the market.

It takes an average of 10 years to commercialise a new treatment. And while the company has several drugs entering the last stage of development, phase III is by far the longest, often lasting several years of clinical trials.

The Sareum share price might be too high

The bottom line

As promising as Sareum’s preliminary results are, the company is a long way off from generating any significant revenue. And so, its share price appears to be driven primarily by shareholder expectations. But providing that the firm can keep producing positive results, I believe its share price will continue to climb higher.

Having said that, I personally believe it’s too soon to invest. The risk of a drug failing in the early stages of development is incredibly high and could lead to significant short-term volatility. Therefore I won’t be adding Sareum to my portfolio today. But I will be keeping a close eye on how it performs over the next year.

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Zaven Boyrazian does not own shares in Sareum. 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.