Interim Report for Kancera AB (publ) Q1 2013

First quarter 2013 in brief

• R&D expenses for the quarter totaled SEK 1.5m (SEK 6.0m).
• Operating income for the quarter totaled SEK -2.3m (SEK -7.7m).
• Income after financial items for the quarter totaled SEK 0.7m (SEK -7.7m).
• Earnings per share were SEK 0.04 (SEK -0.51).
• The income after financial items and earnings per share was affected by a profit of SEK 3m that occurred when realizing a claim acquired to a value less than the nominal amount. The claim has been recognized as income during the period.
• Cash flow from operating activities for the quarter totaled SEK -2,2m (SEK -7.9m).
• Equity as of March 31, 2013 totaled SEK 15.4m (SEK 12.9m) or SEK 0.81 (SEK 0.85) per share. The equity/assets ratio on the reporting date was 93 percent (83 percent).
• Cash and cash equivalents totaled SEK 5.3m (SEK 6.7m) on March 31, 2013. In connection with the acquisition of iNovacia´s assets, the requirements for an interest free and installment free loan from Humlegården Fastigheter AB to Kancera were fulfilled. This loan was disbursed to Kancera after the end of the period and is therefore not part of the accounted cash and cash equivalents.

Significant events in the first quarter

• Kancera reported through an update of the project portfolio that

–       Publications during the conference “American Society for Hematology” (ASH) in Atlanta, USA, from Kancera, its co-founder Professor Håkan Mellstedt at the Karolinska Institutet, and researchers at University of California, San Diego, showed the importance of ROR in the development of new pharmaceuticals against the most common forms of chronic and acute leukemia (CLL and AML, respectively).

–       Further patent protection investments in the ROR project were made by the registration of an international patent application (PCT/EP2013/051772) during January 2013 and by the acquisition of exclusive rights to a patent application on human monoclonal antibodies (WO 2012/076727).

–       Complementing analyses of Kancera´s earlier results showed that the level of inhibition of the PFKFB3 protein within the cancer cell correlates well with the growth inhibition observed in both cancer cells as in a whole tumor. This further strengthens PFKFB3 as a target for cancer treatment.

• Kancera reported that agreements have been reached with the purpose to enable Kancera´s new smaller organization access to a state-of-the-art laboratory. The agreements include an agreement with

–       Humlegården Fastigheter AB on the lease of smaller and more cost effective laboratories that are better adapted to the size and budget of the ROR project.

–       Sobi AB to take over Sobi AB:s SEK 5m claim on iNovacia. This claim is secured by for instance iNovacia´s laboratory equipment and instruments via a floating charge on assets. The claim and the floating charge on assets was taken over against a payment to Sobi AB amounting to SEK 2m.

• Kancera reported that a decision was taken to terminate the reconstruction of iNovacia due to uncertainty regarding the possibilities to create external revenues that would allow the continued operation of iNovacia. Against this background, the company applied for bankruptcy and was declared bankrupt on February 21. Kancera has not provided financial guarantees relating to iNovacia.
• Kancera reported that the company has finalized a new and more effective organization. A complete arsenal of instruments and an internationally competitive library of drug prototypes have been acquired from the iNovacia bankrupt´s estate. In parallel key persons have been recruited for the further development of a ROR-targeted drug against cancer. This combined resource is now operational in specially equipped laboratories at Karolinska Institutet Science Park.

Significant events after the end of the reporting period

• Kancera announced that a collaboration has been initiated with Professor Thomas Kipps and his research team at the University of California, San Diego. During the collaboration Kancera will provide its diagnostic antibodies that constitute a tool for Professor Kipps´group in order to demonstrate how activation of ROR1 correlates with the properties of aggressive cancer forms.
• New knowledge on how Kancera´s ROR inhibitors are metabolized in the liver provides important information on how to develop the synthesis of effective ROR inhibitors in order to deliver a drug candidate in 2013 according to plan.
• Kancera together with an international research team reported progress in the development of a drug against a serious parasitic disease. Kancera owns together with its partners in the project, the rights to jointly developed drugs against schistosomiasis.

Statement from the CEO

In the first quarter, we now see the result of the organizational change of Kancera that was decided in the fourth quarter of 2012. The operational costs are now less than half and have been made more flexible, while the equity ratio has increased as laboratory equipment and instruments for drug discovery have been acquired under favorable conditions.

With a core of key personnel and customized laboratories at Karolinska Institutet Science Park, our focus is now on delivering a drug candidate in the ROR project during the fourth quarter of 2013 as planned. Kancera is regularly contacted by international pharmaceutical companies and life science investors showing interest in our projects. However, in order to be successful in an out-licensing deal and to achieve our desired negotiation position we know that a few additional product development steps are required. The activity profile of our ROR inhibitors show that cancer cells that resist current drug treatments, are killed efficiently and with great accuracy. This is a source of pride for us. It remains to deal with the stability of the future drug in the body before the critical efficacy and safety trials can start. Here we have made progress. Following detailed analyses of what happen to our ROR inhibitors in liver cells, we have a clear plan of the chemical changes to be made. For some steps in the remaining development of the drug candidate in the ROR project it is possible to assume good chances of success while the outcome of other steps are still difficult to assess. This uncertainty is natural since we are developing cancer drugs that the world has never seen before.

If we allow ourselves to look beyond a future successful delivery of the ROR project, I see good possibilities for Kancera to follow up with the development and sale of more drug candidates. One of these may come from the PFKFB project where Kancera´s strategy is to block the metabolism of the tumor. The PFKFB project is currently dormant but has shown promising effects against pancreatic cancer in an animal model of the disease. The project can be activated on short notice to deliver a drug candidate within about a year. In addition, Kancera has, within the framework of a comprehensive EU-funded project together with e.g. the Pasteur Institute in France, developed highly potent substances that can be further developed against both cancer and severe parasitic diseases. Overall we see that Kancera has the potential to develop and sell drug candidates both in the short and medium term.

Thomas Olin

CEO of Kancera

About Kancera AB (publ)

Kancera develops the basis for new therapeutics, starting with new treatment concepts and ending with the sale of a drug candidate to international pharmaceutical companies. Kancera is currently developing drugs for the treatment of leukemia and solid tumors, based partly on blocking survival signals in the cancer cell and partly on metabolic strangulation.. Kancera’s operations are based in the Karolinska Institutet Science Park in Stockholm and the company employs around 7 people. Kancera shares are traded on NASDAQ OMX First North and are held by around 1700 shareholders. Remium Nordic AB is Kancera’s Certified Adviser.

Kancera’s history

In 2006, Pharmacia’s and Biovitrum’s unit for the development of drug candidates was spun-out to create iNovacia AB. In 2008, a collaboration was started with the Cancer Research Center Karolinska (CCK); and later, a collaboration was initiated with Sprint Bioscience AB. In May 2010, Kancera AB was formed by iNovacia AB, Sprint Bioscience AB, expertise from the Karolinska Institute and a group of private investors through capital contributions and two developed drug projects focusing on cancer. NASDAQ OMX approved Kancera’s listing on First North with the first day of trading being February 25, 2011. In March 2013 Kancera acquired a complete drug development laboratory from its former subsidiary iNovacia AB and the drug development is since then performed within Kancera AB at the Karolinska Institutet Science Park, Stockholm.