Interim Report for Kancera AB (publ) Q1 2014

The first quarter 2014 in brief

• R&D expenses for the period totaled SEK 3.5m (SEK 1.5m).

• Operating income for the period totaled SEK -4.1m (SEK -2.3m).

• Income after financial items for the period totaled SEK -4.2m (SEK 0.7m).

• Earnings per share for the period were SEK -0.06 (SEK 0.04).

• The preferential rights issue and the directed share issue that was fully subscribed in December 2013 amounting to SEK 22.1m before issue expenses brought in SEK 7.5m during the period.

• Cash flow from operating activities for the period totaled SEK -3.2m (SEK -2.2m).

• Equity as of March 31, 2014 totaled SEK 22.2m (SEK 15.4m) or SEK 0.31 (SEK 1.01) per share. The equity/assets ratio as of March 31, 2014 was 72 percent (93 percent).

• Cash and cash equivalents as of March 31, 2014 totaled SEK 19.8m (SEK 5.3m). During the period March 1 to May 31, Kancera implements a directed share issue to employees and certain related parties as decided at the 2011 Annual General Meeting. The issue is partly recorded. Currently, the issue has yielded SEK 652,386 which is not included in the reported cash and cash equivalents as of March 31, 2014.

Significant events during the period

• Kancera reports that the company is initiating the development of a vaccine directed against ROR. This initiative is motivated by the residual disease in the form of a small number of cancer cells that remain in some patients despite treatment. These cancer cells are difficult to detect and are expected to contribute to relapse of cancer disease. In the most common form of leukemia (CLL) these remaining cancer cells often express ROR. A vaccine can teach the patient’s own immune system to recognize and destroy these ROR-expressing cancer cells. Thus it is expected that a vaccine will add to the suppression of the disease leading to a longer and healthier life for the patient compared to what is possible today. Kancera´s strategy is to use its future small-molecule ROR inhibitors as a first line treatment for the disease to remove the main part of the tumor and the symptoms, and thereafter follow with a prophylactic ROR vaccine to prevent relapse. Thus, there are possible synergies between Kancera´s small molecule products and the vaccine against ROR.

• Kancera announced that the company has received a first payment from the EU of 523,655 Euro for the execution of the A-PARADDISE project and that the project thus has started. In August 2013 Kancera announced that the company together with international research groups in the project A-PARADDISE has been awarded a grant from the European Union Seventh Framework Programme to develop drugs to combat severe parasitic diseases including malaria, schistosomiasis, leishmaniasis and Chagas disease. The total three-year project budget is 6 M€ where the Kancera part of about € 950,000 is the largest.

Significant events after the end of the reporting period

• Kancera has reported results from the collaboration on PFKFB3 inhibitors with Professor Thomas Helleday at the Science for Life Laboratory which was initiated in 2013. Within the framework of the collaboration a large-scale laboratory evaluation of synergistic effects between Kancera’s PFKFB3 inhibitors and a large number of approved drugs has been performed. The results show that synergistic effect against cancer cells can be achieved by combining PFKFB3 inhibitors and some defined classes of approved drugs. In light of the present results, new experiments are planned using preclinical disease models to verify whether PFKFB3 inhibitors can improve the treatment of advanced lung cancer and metastatic breast cancer.

• Kancera reports that the company has registered a patent application (EP14167988.6) for new compounds against cancer that selectively inhibit the enzyme HDAC6. The new patent application is based on the ability of HDAC6 inhibitors to influence mechanisms both inside and outside of the cell nucleus. It has been shown that the major biological role of HDAC6 is in the regulation of the cancer cell´s ability to migrate and form metastases.

Statement from the CEO

In the 2014 report from the World Health Organization (WHO) cancer is described as one of the most serious threats to public health in Europe.   Research progress during the last decades has provided clear results in the combat against cancer. One result of this progress is that the survival rate five years after start of treatment has increased to over 65%. This consequence is that more people are cured or are living with cancer as a controllable chronic disease. The number of individuals who are ill with cancer is expected to increase by 75 % over the next twenty years. The main reasons are that the number of new cancer cases is increasing for instance due to our life styles and the fact that more people are living a long time with the disease.

The spread of the cancer by metastasis and increasing resistance against available treatments cause more than 90% of all cancer related deaths. The underlying causes of these cancer characteristics are now targeted by Kancera´s drugs.

Four years after the start of Kancera, the company has a first drug candidate within reach in the ROR project in the form of a synthetic small molecule. With this drug candidate in place, negotiations will commence with internationally established pharmaceutical companies in order to identify a partner able to effectively take the product to the market.

Kancera´s ten scientists and two academic research teams, led by Professor Mellstedt at the Cancer Center Karolinska and professor Helleday at the Science for Life Laboratory, combine experience in product development with research at a high international level to attack cancer via three mechanisms: ROR, PFKFB3 and HDAC6 .

While the small-molecule ROR inhibitors are approaching selection of a drug candidate, we have just started the evaluation of vaccine leads in animals during May.. The PFKFB3 project has acquired additional strength through the collaboration with Prof. Thomas Helleday, where we have identified synergies with other drugs against intractable cancer. Also the HDAC project makes progress which recently has been documented in a patent application.

During May we follow up the unit issue of December by offering the redemption of warrants. This may provide the company with up to ca SEK 16 million. The payment provided to Kancera through the warrants gives us additional resources to develop Kancera´s product portfolio with the main focus on the delivery of a drug candidate in the ROR project.

The technical difficulties in producing these products remain high, while the benefit of a successful project is significant. We will do our utmost to develop new drugs against cancer and invite you to participate in Kancera´s important campaign.

Thomas Olin
CEO Kancera