Full Year Report 2011 for Kancera AB (publ)

Full year period 2011 and Q4 2011 in brief

• Net sales of external contract research for the full year period totaled SEK 7.1m, of which Q4 accounted for SEK 3.2m. As a result, net sales for the full year totaled SEK 6.5m, as communicated in the interim report for Q3 2011.
• R&D expenses for the period totaled SEK 23.0m, of which Q4 accounted for SEK 5,0m.
• Operating income for the period totaled SEK -18.4m, of which Q4 accounted for SEK -5.2m.
• Income after net financial items for the period totaled SEK -18.4m, of which Q4 accounted for SEK -5.0m.
• Operating income and income after net financial items were affected by the release of negative goodwill of SEK 7m in connection with the acquisition of iNovacia; the entire amount was recognized as revenue during the period.
• Earnings per share for Q4 were SEK -0.33 and for the full year SEK -1.35.
• Cash flow from operating activities for the period totaled SEK -22.2m, of which Q4 accounted for SEK -3.3m.
• Equity as of December 31, 2011 totaled SEK 25.9m or SEK 1.71 per share. The equity/assets ratio on the reporting date was 66 percent.
• Cash and cash equivalents totaled SEK 20.8m on December 31, 2011 and SEK 14.6m for the Parent Company.

The Board of Directors proposes that the net result for the Parent Company, Kancera AB, of SEK ‑23,665,245 is carried forward.

Significant events in full year 2011

• Kancera’s public new share issue was completed and raised SEK 25.2m during 2011 for the company before issue costs. Expenses relating to this share issue amounted to SEK 2.1m for 2010 and SEK 1.7m for 2011.
• Kancera exercised its call option to acquire iNovacia AB on February 17 for SEK 2.3m.
• Before Kancera acquired iNovacia, iNovacia sold its shareholding in Kancera for SEK 6m (SEK 7 per share). The sale consisted of existing shares and resulted in no dilution, but the acquisition injected liquidity into the company.
• NASDAQ OMX First North approved Kancera’s listing on First North. The first day of trading was February 25, 2011.
• Research results from Kancera’s leukemia drug project during the year showed that the company’s active compounds may also have the potential to be of relevance in the development of therapeutics against eight other blood malignancies. Mechanisms of action for Kancera’s active compounds were also mapped. Recent results have demonstrated a cancer target-specific effect. This will facilitate the further development and marketing of the leukemia project.
• Kancera has demonstrated that the company’s compounds targeting the energy metabolism of cancer increase the effectiveness of chemotherapy in a cell model of stomach cancer. New compounds targeting the energy metabolism of cancer were registered by Kancera in two international patent applications, in June and September 2011.
• Kancera has established a collaboration agreement with Professor Mary Hendrix of Northwestern University Feinberg School of Medicine, Chicago, USA, to develop products to combat aggressive cancers. Professor Hendrix, who is an advisor to the National Cancer Institute (NCI) and the National Institutes of Health (NIH), is contributing expertise and models to identify or attack metastasizing cancer at an early stage of the disease.
• The Annual General Meeting resolved to implement an incentive scheme for the employees of the group and certain contractors, involving the issue of 400,000 warrants. If all warrants are exercised the dilution of the share capital will amount to approximately 2.6 percent. Signed warrants in 2011 was 342,000 warrants, which if fully redeemed would equate to dilation of the share capital by 2.2 percent. The premiums paid for warrant subscriptions amounted to SEK 95,000, which was accounted for under equity capital.
• A new lease agreement was signed for specialized laboratories within the Karolinska Institutet Science Park for move-in in September 2011.
• Due to the success of Kancera’s ROR technology, Kancera also initiated the development of drug candidates to attack solid tumors, such as in pancreatic and prostate cancer.

  A rights issue of new shares as authorized by the Annual General Meeting raised SEK 7.6m in July before issue costs. Expenses relating to this share issue amounted to SEK 685 000. The issue price was SEK 4 and 1,900,000 shares were issued, making an increase in the number of shares of 14.3 percent. The capital raised is to be used first and foremost for further development of Kancera’s ROR technology.

• In August and September Kancera and its wholly-owned subsidiary iNovacia AB moved their operations into new laboratories at the Karolinska Institutet Science Park, Solna. Costs related to the moving of operations were SEK 1,6m. The full year result was charged with the same amount.
• In partnership with Professor Håkan Mellstedt and his research team at the Karolinska Institute, Kancera found active compounds that effectively kill cancer cells from the pancreas. Pancreatic cancer affects more than 100,000 patients annually in Europe and the US. Fewer than two percent of these patients live for five years or more after diagnosis.
• Kancera’s wholly-owned subsidiary iNovacia reported that, in partnership with researchers in Europe and South America, the company had developed inhibitors of a target protein in the parasite Schistosoma. This parasite infects about 200 million individuals annually in tropical or subtropical regions, resulting in over 280,000 deaths each year from the disease schistosomiasis (also known as bilharzia or snail fever).

Significant events in the fourth quarter

• The Extraordinary General Meeting of Kancera AB held on November 10, 2011 passed the following resolution, proposed by the Board of Directors: (a) to authorize the Board to decide to issue new shares on one or more occasions during the period up to the next Annual General Meeting with preferential rights against payment in cash and without preferential rights for existing shareholders against payment in cash and/or in kind or by set-off. The total number of shares which may be issued shall not exceed 20 percent of the number of shares in the company.
• The Kancera Cancer Award 2011 was awarded a team of PhD students including Hanna Zirath, member of the research group headed by Professor Marie Henriksson, Department of Microbiology, Tumor and Cell Biology (MTC), the Karolinska Institute, for the best presentation at the Karolinska Institute’s 10th annual network meeting for cancer researchers. 
• Kancera’s co-founder and scientific adviser Professor Håkan Mellstedt showed in patient studies that ROR‑1 – Kancera’s pharmaceutical development target for treatment of chronic lymphocytic leukemia (CLL) – occurs in greater numbers in tumor cells of patients with an increasingly aggressive (progressive) form of the disease.
• In collaboration with GE Healthcare of Sweden and researchers at the Department of Medical Biochemistry and Biophysics (MBB) at the Karolinska Institute, iNovacia AB demonstrated how fragment screening techniques can be effectively used in pharmaceutical production.
• Kancera strengthened its patent portfolio in cancer metabolism by filing a patent application covering new active compounds and a strategy for enhancing uptake of these in cancer cells.

Significant events after the end of the reporting period

• Kancera presented its structure-based design of active compounds targeting cancer metabolism at the World Cancer Metabolism Summit in Washington.
• Kancera presented results from its ROR project which demonstrate that the company’s active compounds are significantly more specific than four competing kinase inhibitors that are being developed to target chronic lymphocytic leukemia. The results were achieved in collaboration with Professor Håkan Mellstedt and his research team at the Karolinska Cancer Center.
• Kancera has filed a patent application for a chemical series of ROR-inhibiting small molecules with pharmaceutical properties.
• iNovacia AB reports that it has entered into a collaboration with Boston-based Agios Pharmaceuticals relating to the identification of chemical starting points using iNovacia’s high-speed screening and chemical library.