Interim Report for Kancera AB (publ) Q3 2016, January 1 – September 30, 2016

The period January to September 2016 in brief

•  R&D expenses for the period amounted to SEK 13.3m (SEK 12.1m) of which the third quarter constituted SEK 4.6m (SEK 3.2m).
•  Operating income for the period amounted to SEK -15.8m (SEK -13.8m) of which the third quarter constituted SEK -5.2m (SEK -3.4m).
•  Income after financial items for the period amounted to SEK -15.9m (SEK -13.7m) of which the third quarter constituted SEK -5.4m (SEK -3.4m).
•  Earnings per share for the period were SEK -0.14 (SEK -0.14) of which the third quarter constituted SEK -0.04 (SEK -0.03).
•  Cash flow from operating activities for the period amounted to SEK -17.4m (SEK -16.1m) of which the third quarter constituted SEK -8.2m (SEK -5.1m).
•  Equity as of September 30, 2016 amounted to SEK 65.9m (SEK 27.8m) or SEK 0.50 (SEK 0.27) per share. The equity/assets ratio as of September 30, 2016 was 85 percent (74 percent).

Cash and cash equivalents as of September 30, 2016 amounted to SEK 63.5m (SEK 20.2m).

Significant events during the period

• Kancera has from the 1st of January 2016 extended the lease of the company’s laboratories within the Karolinska Science Park for three years through an agreement with Humlegården Fastigheter.
• Kancera has provided an update of the small molecule patent portfolio.

–       A patent covering small molecule PFKFB3 inhibitors has been approved in the USA.

–       A patent application covering new chemical series in the HDAC6 project has been filed.

–       An international patent application covering ROR inhibitors has been strengthened by adding examples of additional highly potent ROR inhibitors.

• Kancera reported that the company has developed a new series of ROR inhibitors that show improved pharmaceutical properties which will allow preclinical studies of their effect on e.g. solid tumors. These results have prompted Kancera to concentrate the investments in the ROR project to small molecule inhibitors and terminate the product development of a ROR-based vaccine. Furthermore, Kancera reported results from the Fractalkine project showing that KAN0440567 after oral administration to mice effectively blocks the function of the Fractalkine receptor.
• Kancera announced that the company according to plan has received another payment of about SEK 2.8 million in January, 2016 from the EU for the A-PARADDISE project, which aims to develop drugs against parasitic diseases.
• Kancera reported that ROR inhibitors have been tested against human triple negative breast cancer transferred to zebra fish. The experiments showed that Kancera’s small molecule ROR inhibitors are able to both reduce tumor size and metastases (spread) of this aggressive tumor form. Further, Kancera reported that the company´s PFKFB3 inhibitors are active in the same model of triple negative breast cancer and that a patent application has been filed covering the discovery that PFKFB3 inhibitors enhance the effect of radiation treatment.
• Kancera reported that the Company due to positive efficacy data in disease models of cancer and pain has decided to exercise the exclusive option to acquire the Fractalkine project. The acquisition will be carried out in connection with the completion of the ongoing transfer of results and know-how from Acturum and AstraZeneca to Kancera. Payment for the project to Acturum Life Science AB will be made into three steps by a total of 6 million shares, of which the first payment is due at the submission of the application for authorization of a clinical trial after an approval by Kancera´s shareholders. In parallel, the company intends to validate a broader use of the drug candidate (KAN0440567) in order to demonstrate its full commercial potential.
• With the authorization of the extraordinary general meeting on 22 April 2016, Kancera AB carried out an issue of units with preferential rights for the shareholders, as well as an issue of units in the form of over-allotment space through a separate directed share issue without preferential rights. The rights issue, which was fully subscribed in May 2016, concerned 20,785,072 units and an over-allotment space of 4,000,000 units consisting of one share and one warrant at a price of SEK 2.50 per unit. On top of this compensation to underwriters and financial advisors was added. After registration of the issuance of the over-allotment option and compensation to underwriters and financial advisors, the number of shares in Kancera AB amounts to 131,486,720 and the number of warrants to 27 561 356. The new issue has brought Kancera AB approximately SEK 61.9 million before issue costs. The issue assets will be used for Kancera’s drug development, clinical studies and the further development of the Company’s capacity to commercialize products. The majority of Kancera’s resources are now concentrated on taking at least one of Kancera’s drug candidates in the ROR and Fractalkine projects to clinical trial for chronic lymphocytic leukemia and pancreatic cancer, respectively. In parallel, the Company intends to validate a broader use of the drug candidates from these projects in order to demonstrate their full commercial potential.
• Kancera provided the following operational update of the Fractalkine and ROR projects:

–       the Fractalkine antagonist KAN0440567 is able to eliminate pain resulting from inflammation of the pancreas. This type of pain is similar to the pain resulting from cancer in the pancreas and therefore these results support the continued development of KAN0440567 towards clinical trials against cancer.

–       the ROR inhibitor KAN0439834 has been shown to effectively kill resistant cancer cells from the bone marrow of multiple myeloma (MM) patients. MM originates in the bone marrow and is an essentially incurable chronic disease today. Further studies are now focused on translating these findings to effects in animal models of MM which will provide a basis for decisions on future clinical trials evaluating Kancera’s ROR inhibitors.

• Kancera AB announced that VINNOVA has paid an additional SEK 358,451 to the HDAC6 project as part of the grant totaling SEK 2 million which has been designated by VINNOVA for the further development of Kancera’s HDAC6 inhibitors against cancer. This payment was made following the approval of Kancera’s third progress report for the project.
• Kancera AB announced that its subsidiary Kancera Förvaltning AB has been formed. The operations of the subsidiary include mainly financial management including Kancera’s stock option plan.
• Kancera AB announced that the company is preparing for clinical trials by appointing Niclas Brynne to lead Kancera’s clinical development projects. He will be part of the management team and report directly to the CEO.
• Kancera AB announced that the company within the framework of the EU research program Horizon 2020 has been awarded a research grant of approximately EUR 500,000 over three years for the financing of two Ph.D. students. They will explore how resistance of cancer cells arises, how it can be broken and how such findings can form the basis for new drug project against cancer. One of these Ph.D. students will focus on PFKFB3 as a target for the treatment of cancer.
• Kancera AB hereby announces that the anti-parasitic EU-funded project A-PARADDISE has started efficacy studies in a disease model for schistosomiasis in mouse. Thus, the consortium has taken a decisive step towards achieving the final goal of the A-PARADDISE project, which ends on January 31, 2017.

Significant events after the end of the reporting period 

• Kancera AB reported on the preparations for a clinical study in the Fractalkine project. In the HDAC6 project it was reported on possibilities for  structure-based drug design and effect on an immune check point protein in cancer cells:

–           The Fractalkine project has initiated the procurement of a clinical contract company that will conduct the first clinical study, as well as with contract manufacturing companies for the delivery of the formulation of KAN0440567 to be used in this study.

–           The HDAC6 project has shown that Kancera’s substances are capable of down-regulating a protein that acts like a brake on the immune system in cancer cells which may contribute to that cancer cells escape the  patient’s immune system. Furthermore, the project has determined crystal structures that show how Kancera’s substances bind to “Target 2”, which gives information on how HDAC6 / Target 2 inhibitory drugs can be optimized.

• Kancera announced that Nasdaq has approved Kancera’s application regarding listing on First North Premier. The first trading day for Kancera shares on this list is October 31, 2016. The Company’s shares continue to be traded with the same short name and ISIN code.
• Kancera reported advances in the ROR project regarding

–           A possible broadened use of ROR inhibitors against the lymphoma disease “Richter’s syndrome” as seen from analyses of tumor samples. The disease affects approximately 15% of patients with chronic lymphocytic leukemia (CLL) and there is currently no effective treatment available.

–           The production method for KAN0439834 has been further developed and is now implemented in a straightforward and efficient way. The company believes that this paves the way for the further preclinical and clinical development of the compound.

Statement from the CEO 

With the start of the procurement of clinical contract companies for the clinical study of the Fractalkine receptor antagonist KAN0440567, we now proceed from plan to action in line with Kancera’s prospectus from May 2016. Before applying for authorization of a clinical trial, we focus on the formulation (i.e. the product, e.g. capsule) of KAN0440567 that is to be given to humans. When this product is tested and ready we intend to submit the application for authorization of a clinical trial to the relevant authority (the Medical Products Agency in Sweden or equivalent authority in another EU country) and for the corresponding ethical permission.

Also in the ROR project the focus has been on the development of the product, since e.g. its purity when produced at large scale provides the foundation for both the toxicology studies and ultimately for a commercially viable production. The technological advances in the synthesis and purification of the ROR inhibitor KAN0439834 are therefore important for the entire development of the project. The recently reported findings that ROR1 is present as a target for drugs in an intractable condition called Richter’s syndrome also strengthens the project’s ability to position itself on the market as a strong complement to the new drugs for leukemia and lymphoma.

In the autumn, we have also seen significant progress in the HDAC6 project, partly in the form of a successful crystallization of “Target 2” which gives us access to a molecular design drawing that facilitates the final steps in the optimization of our unique dual action (HDAC6 / Target 2) substances before the selection of a candidate drug. That we also have been able to show that Kancera’s HDAC6 inhibitors have the capacity to reduce the immunosuppressive protein PD-L1 in cancer cells confirm the published findings which support HDAC6 as a new promising immuno-oncology target for drug development.

In September, we were informed that the EU, through its research initiative Horizon2020, has chosen to give a total of about four million Euro (of which Kancera receives more than 10%, about 500,000 Euro) in grants to a leading international team of researchers that will recruit Ph.D. students in order to evaluate new approaches to combat cancer, especially with regard to how drugs can act to stop the DNA repair in cancer cells. Kancera is awarded two Ph.D. students and a grant to cover research costs, allowing us to work with cutting-edge talent in oncology to identify new project opportunities.

Thomas Olin

CEO Kancera AB