Sareum Holdings – TYKing the boxes

Sareum’s investment case centres on the development of the Chk1 inhibitor, SRA737, in solid tumours, by its licensee and on the internal development and potential licensing of internally-generated TYK2 candidates for autoimmune disease and cancer.

Marten & Co values Sareum’s 27.5% economic interest in the licensing deal covering SRA737 at £20.3m. This figure should rise by £2-3m/year over the next two years, as development progresses, before doubling to £52m in 2021. Given Sareum’s Enterprise value (EV) is £22m, it suggests investors either undervalue this asset or ascribe little value to the TYK2 programmes.

Sareum is effectively a passive investor in SRA737. Therefore, investor focus going forward should be on the promising TYK2/JAK1 assets, which have applications in autoimmune conditions and cancer. These represent potentially highly attractive licensing opportunities and, in our view, should become increasingly valuable as their development progresses.

In view of their early development stage, Marten & Co places an indicative value of £7-15m on the TYK2 assets, while highlighting their considerable potential for value creation. Their value could double with a small incremental investment (£1-2m) and rise a further fivefold to £150m in the early 2020s on reaching clinical proof of concept.

With normal assumptions for R&D spending, overheads and tax, Marten & Co suggests a current value for Sareum of £25-33m (0.87-1.14p/share), which offers up to 35% upside to the share price.