Interim Report for Kancera AB (publ) Q2 2013

The period January to June and the second quarter 2013 in brief

• R&D expenses for the quarter totaled SEK 3.6m (SEK 11.9m) of which the second quarter constitute SEK 2.1m (SEK 5.9m).
• Operating income for the period totaled SEK -5.6m (SEK -15.8m) of which the second quarter constitute SEK -3.3m (SEK -8.0m).
• Income after financial items for the period totaled SEK -2.6m (SEK -15.7m) of which the second quarter constitute SEK -3.3m (SEK -8.0m).
• Earnings per share for the period were SEK -0.08 (SEK -1.03) of which the second quarter constitute SEK -0.10 (SEK -0.53).
• 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 period totaled SEK -5.1m (SEK -15.2m) of which the second quarter constitute SEK -2.8m (SEK -7.3m).
• Equity as of June 30, 2013 totaled SEK 12.1m (SEK 13.0m) or SEK 0.37 (SEK 0.86) per share. The equity/assets ratio on the reporting date was 78 percent (79 percent).
• Cash and cash equivalents as of June 30, 2013 totaled SEK 4.0m (SEK 7.4m). Vinnova, Sweden´s Innovation Agency awarded Kancera´s ROR project a non-refundable grant of SEK 0.5m. This grant was disbursed to Kancera after the end of the period and is therefore not part of the accounted cash and cash equivalents.

Significant events during the period

• 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. During the third quarter this application was revoked and replaced with a new patent application EP13180941.0. Further, Kancera acquired 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.
• 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.
• Kancera announced the initiation of a collaboration with Professor Thomas Helleday and his research group at Karolinska Institutet and the Science for Life Laboratory (SciLifeLab) in order to advance unique research on energy metabolism in cancer and Kancera´s PFKFB3 project. Within the collaboration Kancera retains exclusive ownership of its PFKFB inhibitors. An agreement has been reached between Kancera and the researchers providing Kancera exclusive rights to acquire inventions that may arise within the framework of the collaboration. Professor Thomas Helleday is a highly regarded expert in the area of intractable cancer. He leads an interdisciplinary research team that conducts translational research aimed at understanding the fundamental questions about the occurrence of cancer and the development of new drugs for cancer treatment.
• On May 28, 2012 the Annual General Meeting approved the Board’s proposal to authorize the Board, on one or several occasions until the next Annual General Meeting, to issue new shares against payment in cash and or in kind or by set-off. The total number of shares which may be issued under this authority shall not exceed 25 percent of the total number of shares. The authorization has not yet been used.

Significant events after the end of the reporting period

• Kancera announced that the company has been awarded a grant of SEK 500,000 and with the possibility of an additional SEK 1,000,000 for further development of the ROR project. The grant was awarded by the Swedish Innovation Agency VINNOVA which had identified Kancera as a young, innovative company with growth potential. Kancera´s ROR project attacks cancer via a novel mechanism and is considered highly innovative.
• Kancera reported progress in the development of a ROR-inhibiting cancer drug.

–       The compound KAN0439365 has been shown to be effective against cancer cells from patients that are treatment-resistant today and has shown good metabolic stability in human liver cells and blood. KAN0439365 is the first in a new generation of ROR inhibitors to meet the requirements that the company places on a candidate drug in these respects

–       Kancera continues development of a compound to be used in efficacy and safety studies in animals.

–       Kancera has registered a new patent application EP13180941.0 for small molecule ROR inhibitors and registered national applications for human monoclonal antibodies against ROR in the U.S., Europe, India and China.

• Kancera announced that the European Union Seventh Framework Programme has awarded Kancera € 950,000 for the development of drugs to treat severe parasitic diseases. From February 2014, Kancera together with international research groups in the project A-PARADDISE, will develop drugs against malaria, schistosomiasis, leishmaniasis and Chagas disease. The total budget for the three-year project is 6 M€ of which Kancera´s part of ca € 950,000, is the largest.

Statement from the CEO

The second quarter shows that Kancera´s new organization has provided a sustained reduction in operating costs while at the same time the necessary expertise has been secured. In order to provide additional pressure behind the company’s development of drug candidates, Kancera initiated two collaborations with highly qualified research groups at the University of California and the Science for Life Laboratory at the Karolinska Institute (SciLifeLab). The collaboration with Professor Thomas Kipps and his research team at the University of California gives us additional knowledge on how ROR inhibitors can be used in the treatment of breast cancer. The collaboration with Professor Thomas Helleday at SciLifeLab provides knowledge on how Kancera PFKFB inhibitors are best combined with other anticancer drugs. These two collaborations that are based on mutual exchange of expertise do not increase the operating costs for Kancera.

During the spring and summer, Kancera has received financial contributions from the three parties. In addition to a SEK 1.5m interest-free loan from Humlegården Fastigheter AB which enabled the acquisition of the pharmaceutical laboratory, Vinnova awarded Kancera´s ROR project a grant aimed at innovative companies (SEK 0.5m for stage 1 has been granted, with a possible extension to a total of SEK 1.5m). Furthermore, EU has allocated € 950,000 to Kancera (spread over three years starting in February 2014) for the development of drug candidates targeting primarily malaria and schistosomiasis. Especially exciting is that some compounds directed against parasitic diseases also have a potential in anticancer treatment. Overall, I consider that the funding from Vinnova and the EU proves that Kancera´s research is of the highest quality.

In parallel, within the ROR project, we have acted to prolong the period during which new ROR inhibitors may be patented. We have achieved this by registering a new in-depth patent application in August 2013, while at the same time withdrawing the first patent application from January 2012.

For the further development of Kancera´s ROR project in 2013 and 2014, the assessment of the Board is that an additional financial injection is necessary. The Board is accordingly considering financing options.

The main purpose of the capital injection is to deliver a candidate drug for sale in the ROR project. During the spring, we have presented results supporting that the efficacy profile of our ROR inhibitors in cancer cells from patients is internationally competitive.

It is gratifying that we have been able to show that our ROR inhibitor KAN0439365 is sufficiently stable in human blood and liver to meet Kancera´s requirements on a candidate drug in these respects. It is of course a great progress but it is not enough. Since a future clinical study is partly based on the documentation of efficacy and safety in the bodies of animals (rodents), we would also like to have a ROR inhibitor that is active and stable in these animals. That is now our next goal. The work towards this goal is performed by Kancera´s own scientists, in collaboration with a group of experts in drug metabolism from Astra-Zeneca, now independent (Metasafe AB), giving Kancera the same quality of analyses that AstraZeneca today globally leans towards in their projects. During the second quarter we have thus taken important steps towards a drug candidate in the ROR project.

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 Karolinska Institute’s cancer research center (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.