Interim Report for Kancera AB (publ)

January – September and Q3 2011 in brief

• Net sales for the period totaled SEK 3.8m, of which Q3 accounted for SEK 1.6m.
• Net sales, which refers to iNovacia’s (wholly-owned subsidiary of Kancera) external contract research, will amount to approximately SEK 6.5m in 2011 and thus not reach the previously announced expected volume of SEK 10-15m.
• R&D expenses for the period totaled SEK 13.4m, of which Q3 accounted for SEK 3.1m.
• Operating income for the period totaled SEK -13.2m, of which Q3 accounted for SEK -5.3m.
• Income after net financial items for the period totaled SEK -13.4m, of which Q3 accounted for SEK -5.2m.
• 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 were SEK -1.02, of which Q3 accounted for SEK -0.35.
• Cash flow from operating activities for the period totaled SEK -19.8m, of which Q3 accounted for SEK -7.2m.
• Equity as of September 30, 2011 totaled SEK 30.9m or SEK 2.35 per share. The equity/assets ratio on the reporting date was 67 percent.
• Cash and cash equivalents on September 30, 2011 totaled SEK 26.5m and SEK 21.6m for the Parent Company.

Significant events during the period

• Kancera’s public new share issue was completed and raised SEK 25.2m for the company before issue costs. Expenses relating to the share issue amounted to SEK 2.1m for 2010 and SEK 1.0m for 2011.
• Kancera exercised its 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.
• Results from Kancera’s leukemia drug project 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 in cancer of the stomach. New compounds targeted at the energy metabolism of cancer were registered by Kancera in an international patent application in June 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 including the issuance of 400,000 warrants. If all warrants are exercised the dilution of the share capital will amount to approximately 2.6 percent.
• 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. 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.

Significant events after the end of the reporting period

• In partnership with researchers at the Karolinska Institute, Kancera has 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.
• In 2011 Kancera registered a further international patent application (PCT/EP2011/066250) for a new class of compound targeting the energy metabolism of cancer cells within the PFKFB3 project.
• Kancera’s wholly-owned subsidiary iNovacia reports that, in partnership with researchers in Europe and South America, the company has developed highly potent 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).