Just why does consumer goods giant Unilever (ULVR) have a 10.5% stake in small cap clinical stage drug developer Arecor Therapeutics (AREC:AIM)?

The company listed on AIM in June 2021 at 226p per share after raising £20 million of new capital.

The shares have since gained 73% driven by positive results from a first phase trial of its ultra-concentrated rapid acting insulin product AT278.

Arecor was created in 2007 as a spin-out of Insense, which was itself part of Unilever which retains the aforementioned stake in Arecor.

The company has developed a proprietary technology platform called Arestat which can be applied to a broad range of products.

It is used to develop novel formulations for existing drugs to provide them with enhanced properties and improved therapeutic profiles. These include longer shelf lives and greater patient convenience.

The company has a deep intellectual property portfolio comprising 36 patent families covering 50 patents in Europe and the US and a further 70-plus pending.

Arecor has a proven track record of partnering with big pharma companies. This approach lowers development and regulatory risk.

Partnership deals involve research fees, milestone payments and single to low-double digit percentage royalties.

In addition, under chief executive Sarah Howell the firm has created an inhouse research and development capability. The idea is to find niches where the company can use its intellectual property to add value to new products.

These are expected to be self-funded through to proof of concept and licensed out for initial and milestone payments as well as single to double-digit sales royalties.

Arecor has four licensed programmes including two specialty hospital products with generic pharma group Hikma Pharmaceuticals (HIK).

It also has a technology partnership with an undisclosed global player in biosimilars (biological medicines which have lot in common with an existing treatment) and an early stage project with biotechnology company InHibrx.

DIABETES FRANCHISE

The bulk of the £20 million raised at the IPO (initial public offering) is targeted towards progressing the company’s diabetes franchise.

The rapid-acting insulin market is worth around $6.5 billion according to estimates provided by healthcare research group Trinity Delta.

Arecor has developed a second-generation ultra-rapid formulation AT247, which absorbs materially faster than existing therapies.

This allows patients to effectively manage blood sugar levels akin to a normal healthy pancreas. The company expects results from a phase two trial in the second half of 2022.

The firm has also developed an ultra-concentrated rapid insulin product, AT278 which targets patients with type 2 diabetes, which requires higher doses of daily insulin.

The advantage of its novel formulation is that fewer injections and volumes are needed allowing wider access to modern insulin pumps.

Arecor is an interesting company backed by supportive institutional shareholders. However, investors should always be aware of the higher risks inherent in investing in early stage companies.

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