Interim Report for Kancera AB (publ) Q1 2015 January 1 – March 31, 2015

The period January to December 2014 and the first quarter 2015 in brief

• R&D expenses for the period totaled SEK 4.2m (SEK 3.5m).

• Operating income for the period totaled SEK -4.9m (SEK -4.1m).

• Income after financial items for the period totaled SEK -4.9m (SEK -4.2m).

• Earnings per share for the period were SEK -0.05 (SEK -0.06).

• Cash flow from operating activities for the period totaled SEK -5.2m (SEK -3.2m).

• Equity as of March 31, 2015 totaled SEK 22.5m (SEK 22.3m) or SEK 0.23 (SEK 0.31) per share. The equity/assets ratio as of March 31, 2015 was 71 percent (72 percent).

• Cash and cash equivalents as of March 31, 2015 totaled SEK 17.8m (SEK 19.8m).

Significant events during the period

• Kancera reported that a second efficacy study of the drug candidate KAN0439834 has been completed in an animal model of an advanced stage of chronic lymphocytic leukemia characterized by a genetic change which makes the disease more difficult to treat. The results show that KAN0439834 reduces the number of ROR expressing leukemia cells in the lymphatic system (spleen) after 14 days of treatment. Further, Kancera reported that a second patent application EP15153394.0 has been filed covering small-molecule ROR inhibitors, including the drug candidate KAN0439834.

• Kancera reports that the patent WO 2011/079902 concerning monoclonal antibodies against ROR1 has been approved in China. Kancera has acquired partial rights to this patent from Bioinvent under an agreement that does not involve any financial burden for Kancera (except patent expenses) before revenues are generated. Kancera through the company’s co-founder Professor Håkan Mellstedt has been involved in the development of these antibodies. These antibodies have mainly been used to identify and validate new indications for a future ROR-inhibiting drug. Any further development of the ROR-targeted monoclonal antibodies for therapeutic purposes will only be done in a partnership that provides funding and access to expertise in development of antibody-based drugs.

  Significant events after the end of the reporting period

• Kancera reported an operational update of the cancer projects ROR, PFKFB3, and HDAC6.

• The ROR project reported that that Kancera’s candidate drug KAN0439834 is effective against both leukemic cells circulating in the blood and leukemic cells that have invaded the lymph nodes in humans.

• Recent studies of clinical samples from leukemia patients underscore that ROR inhibitors mainly target the white blood cells causing cancer while the healthy white blood cells, including T cells, are spared. These results are of significance for the possibility to combine ROR inhibitors with the new generation of immuno-stimulating cancer drugs that have been developed since the effect of those requires functional T-cells.

• A new generation of ROR inhibitors is being developed against solid tumors.

• The PFKFB3 project reported a new discovery showing that Kancera’s PFKFB3 inhibitor KAN0438757 kills cancer cells by preventing them to repair their DNA. The discovery indicates that KAN0438757 could be an efficient complement to radiation for the treatment of advanced cancer.

• The HDAC6 project reported that Kancera’s HDAC6 inhibitors counteract the migration of cancer-associated fibroblast cells and that an international patent application has been filed in May.

• The Board of Kancera AB has, with the authorization of the Annual General Meeting 2014 decided to implement a smaller share issue of SEK 12.3 million. The share issue is implemented with preferential rights for shareholders to subscribe one new share for 20 old at a subscription cost of SEK 2.50.

Statement from the CEO

In the first quarter of 2015 we reported progress in all Kancera’s cancer projects. The ROR project presented a new study showing that Kancera’s small-molecule ROR inhibitors are effective against treatment-resistant chronic lymphocytic leukemia in an animal disease model based on human cancer cells. Moreover, the same study shows that a newly developed formulation of crystalline KAN0439834 has improved properties both in terms of absorption in the body as safety compared to the previously used formulation. Furthermore, studies show that Kancera’s drug candidate is likely to possess characteristics that provide a desired effect against cancer in humans with an oral therapy 2-3 times per day. In cooperation with Professor Håkan Mellstedt’s research group at Karolinska Institutet we have also demonstrated that Kancera’s candidate drug is effective against leukemia cells that have invaded the lymph nodes in humans that are difficult to treat and that healthy white blood cells are spared. These results are of significance for the ability of patients to counteract infections and also open up the possibility to combine ROR inhibitors with the new generation of immuno-stimulating cancer drugs that are currently being developed. The effect of these drugs requires healthy white blood cells. Taken together, these results provide a basis for the planning of the safety studies required before any clinical trials.

Kancera has also developed a new group of small molecule ROR inhibitors that are chemically similar to the drug candidate KAN0439834 but are smaller in size and show a three-fold higher killing effect in vitro against cancer cells from solid tumors such as pancreatic cancer. Thereby Kancera now takes steps towards addressing one of the cancers that are most difficult to treat.

The collaboration with Professor Thomas Helleday’s research group at SciLifeLab has led to a surprising discovery showing that Kancera’s PFKFB3 inhibitor KAN0438757 prevents cancer cells to repair the DNA following treatment with e.g. radiation. When the cancer cell is unable to repair its DNA it will die. This opens up for a new type of treatment of radiation resistant cancer, which combines the currently available DNA-damaging treatments (chemotherapy or radiation) with a PFKFB3 inhibitor. This new treatment concept is supported by studies in cancer cells showing that PFKFB3 contributes to the ability of the cancer to resist treatment. Thus, a PFKFB3 inhibitor could have the function to amplify the effect of cancer treatments such as radiation treatment.

In December 2014 Kancera reported that the company’s HDAC6 inhibitors act selectively through an additional mechanism via a not yet disclosed target protein (Target 2), which may contribute to the inhibition of cancer cell survival. In order to evaluate this potential united action, Kancera has now designed and synthesized compounds that only inhibit HDAC6 and compounds that inhibit both HDAC6 and Target 2. When the patent application for the HDAC6 inhibitor that was filed last year enters the international phase in May 2015 it provides protection for these new compounds. In 2015, Kancera, in collaboration with Dr Li-Sophie Zhao Rathje at the Karolinska Institute, has performed laboratory studies demonstrating that Kancera’s HDAC6 inhibitors selectively counteract the migration of the cells that normally surround tumors (cancer-associated fibroblasts). This finding indicates that Kancera’s HDAC6 inhibitors could make it more difficult for these cells to migrate to the tumor and create a surrounding protection against medical treatment and the body’s immune system.

In the period May 6-27 a share issue is implemented with preferential rights for shareholders. For every 20 shares the shareholder has the right to subscribe one new share at a cost of SEK 2.50 which upon full subscription provides SEK 12.3 million before issue costs. See www.kancera.com for more information.

The results in 2014 and 2015 show that we so far have managed to achieve our main goals. We will do our utmost to develop drugs for intractable cancers and welcome you to participate in Kancera’s high risk but highly needed effort.

Thomas Olin

CEO Kancera