Interim Report for Kancera AB (publ) Q2 2014

The second quarter 2014 in brief

• R&D expenses for the period totaled SEK 6.9m (SEK 3.6m) of which the second quarter constitute SEK 3.4m (SEK 2.1m).

• Operating income for the period totaled SEK -8.0m (SEK -5.6m) of which the second quarter constitute SEK -3.8m (SEK -3.3m).

• Income after financial items for the period totaled SEK -7.9m (SEK -2.6m) of which the second quarter constitute SEK -3.8m (SEK -3.3m).

• Earnings per share for the period were SEK -0.10 (SEK -0.08) of which the second quarter constitute SEK -0.05 (SEK -0.10).

• Exercise of warrants TO1 2013 and the directed share issue to employees brought in SEK 17.2m during the period before issue expenses.

• Cash flow from operating activities for the period totaled SEK -7.2m (SEK -5.1m) of which the second quarter constitute SEK -4.0m (SEK -2.8m).

• Equity as of June 30, 2014 totaled SEK 33.8m (SEK 12.1m) or SEK 0.44 (SEK 0.37) per share. The equity/assets ratio as of June 30, 2014 was 77 percent (78 percent).

• Cash and cash equivalents as of June 30, 2014 totaled SEK 31.1m (SEK 4.0m).

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.

• 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.

• Kancera´s Annual General Meeting on May 26, 2014 decided to implement an incentive program for the employees and corresponding executives and board members (for further information, see Note 3). Further, the Annual General Meeting authorized the Board to issue new shares, on one or several occasions until the next Annual General Meeting. New shares may be issued with or without preferential rights and payment in cash and/or in kind or set-off. If a new issue is made against cash payment and without preferential rights for the shareholders, the number of shares issued may not exceed ten percent of the total number of shares outstanding at the time the authorization is exercised.

  Significant events after the end of the reporting period

• Kancera announced that the ROR project was awarded a grant for the last phase of a project co-funded by Vinnova. For the project Kancera has in total received SEK 1.5m from the grant which is directed to young innovative companies with growth potential.

• Kancera hereby announces that animal studies are proceeding according to plan towards the selection of a candidate drug in Q3. The results so far support that an effective concentration of the ROR inhibitor can be achieved in cancer cells for long enough to reach the desired anti-cancer effect. Animal studies are currently being conducted in order to assess efficacy and safety, why risks in the development of the drug candidate in the ROR project remains.

• Kancera hereby announces that the development of the HDAC6 inhibitors are progressing faster than previously estimated in the second quarter when HDAC6 inhibitors were developed that are more potent against cancer cells than Acetylon´s ACY-1215 and also better tolerated by healthy human blood cells. Kancera also announces that the development of an active immunotherapy against ROR in the form of a cancer vaccine has now reached a milestone since Kancera´s first series of vaccines results in an immune response in animals with antibodies that bind to ROR.

Statement from the CEO

During the second quarter, the ROR project has been presented at scientific annual meetings of the American Society of Clinical Oncology, the American Association for Cancer Research and the European Haematology Association, which has generated new contacts with companies that may become Kancera future partners.

In the ROR project studies that show how the concentration of Kancera´s small molecule inhibitors in the body is linked to effect. At present, the studies progress according to plan towards the selection of a candidate drug. The results so far support that we can reach the desired anti-cancer effect. However, efficacy and safety studies to show this are currently being conducted, why risks in the development of the drug candidate in the ROR project remains.

The development of an active immunotherapy against ROR has reached a milestone since we can show that Kancera´s first series of cancer vaccines results in an immune response in animals with antibodies that recognize ROR. The continued work in the autumn is now directed towards examining whether the animal’s immune response also leads to the production of antibodies that have the ability to stop cancer cells, and if so, how this effect can be optimized.

The HDAC6 project has developed at a faster pace than expected, which is reflected in the recent Kancera HDAC6 inhibitors that are more potent and more selective against Multiple Myeloma cells than the competitor Acetylon´s most advanced substance ACY-1215. However, the HDAC6 field moves rapidly forward, which means that better substances are constantly developed. With Kancera´s recent successes, we see good opportunities to be competitive.

In the PFKFB3 project promising biological discoveries justify a continued collaboration with Professor Helleday´s group at the Science for Life Laboratory. In the next step of this cooperation we will test if inhibition of PFKFB3 constitutes an effective attack on a number of the cancers that are most difficult to treat.

While the second-quarter external presentations mainly took place at scientific meetings, the marketing in the third quarter will focus more towards drug development and commercial partners. Next we meet pharmaceutical companies at the Nordic Life Science Days in Stockholm September 7-9 in Stockholm and thereafter we participate in “Cancer Immunotherapy Partnering Mission 2014” which is a concentration of businesses and researchers from Scandinavia that during a week in September will meet large pharmaceutical companies and institutions (including NIH) in Boston, New York, Baltimore and Washington DC.

Thomas Olin

CEO Kancera