When a market minnow attracts more buying interest than heavily-traded FTSE 100 shares such as Lloyds Bank, Rolls Royce and International Consolidated Holdings, it’s worth paying attention. Today, I’m looking at one such stock, Sareum Holdings (LSE: SAR).

Last week, Sareum was the second most popular buy on share-dealing platform Hargreaves Lansdown. Should I be buying its stock too?

Wait – what is Sareum?

Sareum is a Cambridge-based drug developer focused on tackling cancers and autoimmune diseases. Its most advanced programme (Chk1) is currently in Phase 2 of clinical trials. However, it’s Sareum’s other development programmes (TYK2/JAK1) that appear to have got investors in a frenzy.

Last week, the company announced that it had raised £1,470,000 (before expenses) by issuing shares at a price of 4.9p. Interestingly, this money has come from just one “high net worth individual” who had already invested in Sareum. 

This money will be used to advance the aforementioned TYK2/JAK1 programmes. Right now, the company has the goal of completing its preclinical studies for its SDC-1801 inhibitor drug in Q3 of its financial year. From here, clinical trials — including the potential application of its inhibitors to Covid -19 — will commence. 

So, time to buy the shares?

Not so fast. There can be no doubt that Sareum has been a wonderful investment in recent times. Anyone buying a month ago would now be sitting on a gain of roughly 175%. The result is even better for those who’ve been holding for the last year (1,150%). And yes, some positive data in the coming months could certainly see the shares soar even higher in 2021.

However, there’s are also reasons for thinking Sareum may have peaked.

Drug development is notoriously risky from an investing perspective. For every drug that succeeds, thousands do not. Delays are also very common. Indeed, Sareum has already stated that the completion of preclinical studies is “subject to successful progress”. Should the wait be longer than expected, some holders will inevitably jump ship. Moreover, clinical trials aren’t cheap and management has already stated that they are “subject to funding“. 

I’m also inclined to take a cue from what’s been seen in other Covid-related stocks over the past year. One example of this would be hyper-popular diagnostics firm Novacyt.

Having multi-bagged over the second half of 2020, Novacyt’s momentum has since reversed in a spectacular fashion. Priced at 1,190p a pop in January, the stock closed at just under 391p last Friday. Sure, I’m arguably comparing apples with oranges here. Even so, the on-off ‘coronavirus buzz’ could lead Sareum’s share to behave in a similar manner. 

Beware the dip

While I congratulate anyone already holding Sareum, the recent spike seen in its share price would make me nervous if I were a potential investor. It’s particularly worth highlighting that the company was also the third most popular sell by Hargreaves Lansdown clients last week. After such a strong run, some profit-taking is inevitable. However, this suggests that the Sareum’s near-term performance is firmly in the hands of traders, rather than long-term investors. 

At times like this, I remind myself that no share price rises in a straight line. So, if I were tempted to buy Sareum today, I’d only consider investing money I could afford to lose. There’s no shortage of promising small-cap stocks out there.

The post UK investors are buying Sareum Holdings. Should I? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown and Lloyds Banking Group. 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.

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.

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 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.

The post Can the Sareum share price keep climbing? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

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.

Still not convinced

A year ago, the company told us 2014/15 had been a transformational year for the online advertising industry and the company. Today, chief executive S. Brian Mukherjee told us 2015/16 has been … er, “a transformational year for the Industry and the Company”.

The 2014/15 transformational year saw Blinkx’s revenue fall 13% and adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) dive from $39.6m to just $3.5m. From today’s update we can see that the 2015/16 transformational year will see revenue fall around 22% with an EBITDA loss of $10-11m. Meanwhile, guidance of around $76m cash and equivalents on the year-end balance sheet represents a drop of $20m from 12 months ago.

Blinkx’s declining fortunes have coincided with online advertisers realising they were being somewhat ripped off for the money they were paying. Blinkx and its rivals have had to provide a better service at a lower price, as well as dealing with an industry shift from desktop to mobile and programmatic advertising.

Blinkx’s H1 revenue was down $17.6m on the previous six-month period, and I calculate that it has continued to hurtle lower in H2 by around $15.4m. Meanwhile, EBITDA remains in negative territory, with H2 looking like a loss of around $3.7m compared with $6.8m in H1.

Blinkx talks much of reduced operating expenses, re-branding and being “now well aligned with broader structural market trends”, but has still to convince me that it can become a sustainably profitable and cash-generative business.

Brighter prospects

Global distributor for engineers Electrocomponents (LSE: ECM) heads the FTSE 250 risers board, as I’m writing, with its shares up 8% at 261p, following a positive trading update.

Electrocomponents has seen revenue growth of 3% for its financial year ended 31 March, and said it anticipates that headline profit before tax “will be around the top end of market expectations”. The company added that it has so far delivered at least £6m of its targeted £25m annualised cost savings.

Electrocomponents prospects are looking brighter, but balanced against a weaker outlook for global economic growth, the shares, trading at perhaps 20 times earnings, appear to be fully valued.

Optimism

Shares of cancer drug discovery and development firm Sareum (LSE: SAR) have shot up by 67% to 1.18p after a mid-morning announcement by the company that a clinical trial application for one of its drugs has been approved by the UK’s regulatory agency. Subject to final NHS approval, two Phase I clinical trials are expected to begin in Q2 2016.

Last month, the company raised £1.1m in a placing at 0.7p a share, increasing the shares in issue to 2,645,223,988. At the current price of 1.18p, Sareum has a market capitalisation of £31.2m. This valuation suggests there is a good deal of optimism about Sareum’s prospects, given the early stage of things, with today’s drug being the first from the company’s development pipeline to enter clinical trials.

You really need specialist knowledge to assess small biotech companies, and even then it’s more art than science (ironically!) I don’t have the requisite knowledge, and if I were desperate for exposure to this area of the market, I think I’d be looking for a specialist fund to invest in rather than chancing my arm with individual stocks.

The post Should You Buy Blinkx Plc, Electrocomponents plc And Sareum Holdings Plc On Today’s News? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.