Interim Report for Kancera AB (publ) Q4 2015, January 1 – December 31, 2015

The period January to December 2015 and the fourth quarter 2015 in brief

• R&D expenses for the period amounted to SEK 20.4m (SEK 13.7m) of which the fourth quarter constituted SEK 8.3m (SEK 4.1m). Following EU’s approval of Kancera’s mid-term report for the A PARADISE project, the project’s revenues and expenses have been taken up which means that the reported R & D expenses and revenues for the period increased by SEK 4.8m. Thus, excluding the EU-project the R & D expenses for the period amounted to SEK 15.6m (SEK 13.7m), of which the fourth quarter constituted SEK 3.5m (SEK 4.1m).
• Operating income for the period amounted to SEK -19.7m (SEK -16.1m) of which the fourth quarter constituted SEK -5.9m (SEK -5.1m).
• Income after financial items for the period amounted to SEK -19.6m (SEK -16.0m) of which the fourth quarter constituted SEK -5.9m (SEK -5.0m).
• Earnings per share for the period were SEK -0.19 (SEK -0.18) of which the fourth quarter constituted SEK -0.06 (SEK -0.05).
• Cash flow from operating activities for the period amounted to SEK -20.7m (SEK -19.1m) of which the fourth quarter constituted SEK -4.5m (SEK -7.5m).
• Equity as of December 31, 2015 amounted to SEK 21.9m (SEK 27.3m) or SEK 0.21 (SEK 0.28) per share. The equity/assets ratio as of December 31, 2015 was 80 percent (75 percent).
• Cash and cash equivalents as of December 31, 2015 amounted to SEK 15.6m (SEK 23.0m). Cash and cash equivalents exclude the contribution of SEK 2.8m paid by the EU in January 2016.

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

–       The ROR project reported 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 was filed in May.

• Kancera’s Annual General Meeting on May 28, 2015 decided to re-elect the current Board of Directors and auditor (Ernst & Young). The General Meeting also decided to authorize the Board, on one or more occasions until the next Annual General Meeting, to issue new shares. A new share issue may be made with or without preferential rights and against cash payment and / or in kind or set-off. The purpose of the authorization and the reason for the deviation from shareholders’ preferential rights is to enable the acquisition of capital for corporate acquisitions and the company’s operation. If the share 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.
• Kancera announced that a new share issue, with the authorization of the Annual General Meeting in 2014, was closed on May 27, 2015. The issue comprised a maximum of 4,927,386 shares. In total 25,926,793 shares were signed, of which 4,644,304 with preferential rights (with the support of subscription rights) and 21,282,489 without preferential rights. The share issue was thus oversubscribed to about 500 percent. This issue raised Kancera AB approximately SEK 12.3m before issue costs.
• Kancera announced that the first subscription period for the exercise of the employee warrants was closed in June 2015. In total 450,246 new shares were signed giving Kancera SEK 1.7m before issue costs. There remain 2,349,754 warrants, of which 560,000 are held by Kancera to cover social security costs that are part of the employee warrants program.
• Kancera announced that the company’s HDAC6 project has been awarded a grant totaling SEK 2m from the Swedish innovation agency VINNOVA. The grant is directed to projects that can develop into new strong innovations in a range of common diseases, including cancer. The grant is paid on four occasions during the two-year project. The project will be implemented in collaboration with the Cancer Center Karolinska (CCK), and is also planned to involve Swedish companies such as SARomics Biostructures, MetaSafe and Adlego Biomedical.
• Kancera announced that the company has entered into an agreement with Acturum Life Science AB in order to evaluate and further develop the unique Fractalkine receptor antagonist AZD8797. Based on published research that supports that the Fractalkine receptor antagonist may have a central role in different cancer forms, Kancera will evaluate how efficiently the Fractalkine receptor antagonist AZD8797 may stop tumor growth and relieve severe cancer pain. The agreement with Acturum Life Science gives Kancera right to evaluate AZD8797 in preclinical studies and then to acquire the project. This agreement entails no expenses for Kancera apart from investments in the patent portfolio and in the scientific evaluation. If Kancera chooses to acquire the Fractalkine project, following the preclinical evaluation phase, the total payment to Acturum will consist of 6 million Kancera shares divided into three tranches, which are due at pre-defined success-milestones.
• Kancera provided an operational update on the ROR and Fractalkine projects:

–       In the ROR project, Kancera reported that follow-up studies of the pharmaceutical properties of KAN0439834 show that they probably are better than previously assumed with respect to uptake and penetration of the substance to the cancer. The new studies indicate that dosing 2-3 times a day at 65-300 mg gives a concentration in the body that may be sufficient to exert an effect on solid tumors. Against this background, ROR inhibitors will be tested in animal models of solid tumors. It was further reported that ROR inhibitors have shown effect against leukemic cells from bone marrow which is a capacity wanted since the existing drugs are not sufficiently effective against cancer cells in the bone marrow.

–       In the Fractalkine project, Kancera reported that a network of leading cancer and pain scientists that has been established that will evaluate the drug candidate KAN0440567 (AZD8797) in an advanced animal model closely resembling the human form of pancreatic cancer. Kancera has synthesized and quality controlled the salt form of the drug candidate that will be used in this study and has conducted a successful peroral dosing study in mice.

• Kancera provided an operational update on the PFKFB3 and HDAC6 projects as well as the EU-funded and epigenetically targeted anti-parasitic project A-PARADDISE:

–       From the collaboration with Prof. Thomas Helleday, Kancera reported that Kancera’s PFKFB3 inhibitor significantly reduces the size of a tumor formed by aggressive human breast cancer cells (so-called triple negative breast cancer) transplanted in zebrafish. The results from the study support that Kancera’s PFKFB3 inhibitor is effective against these aggressive cancer cells if the substance reaches the tumor in sufficient concentration, which is easier to achieve in zebrafish than e.g. in mice.

–       Kancera has developed several chemical families of potent and selective HDAC6 inhibitors based on a common scaffold, and Kancera reported the decision to withdraw the original patent application from 2014 in order to postpone the publication of the structures at least 12 months. This is done in order to prevent Kancera’s existing patent application to become an obstacle to a new patent application covering the recently developed HDAC6 inhibitors.

–       Vinnova announced in June 2015 that Kancera has been awarded a grant to support the further development of HDAC6 inhibitors against cancer. The first part of the grant was paid in July. VINNOVA decided to bring forward the second payment (SEK 750, 000) to the HDAC6 project to December 2015.

–       In February 2014 Kancera received an initial payment from the EU amounting to € 523,655 (about SEK 4.6m) for the execution of the A-PARADDISE project. The project has now delivered a midterm report which has been approved by the EU. This means that a second installment of the grant was paid to Kancera at year-end according to plan. This payment amounted to € 300,000 (about SEK 2.8m).

Significant events after the end of the reporting period

• Kancera has from the 1st of January 2016 extended the lease of the company’s laboratories within the Karolinska Science Park for three years through an agreement with Humlegården Fastigheter.
• Kancera has provided an update of the small molecule patent portfolio.

–       A patent covering small molecule PFKFB3 inhibitors has been approved in the USA.

–       A patent application covering new chemical series in the HDAC6 project has been filed.

–       The patent application covering ROR inhibitors filed in February 2015 has been strengthened by adding examples of additional highly potent ROR inhibitors.

• Kancera reported that the company has developed a new series of ROR inhibitors that show improved pharmaceutical properties which will allow preclinical studies of their effect on e.g. solid tumors. These results have prompted Kancera to concentrate the investments in the ROR project to small molecule inhibitors and terminate the product development of a ROR-based vaccine. Furthermore, Kancera reported results from the Fractalkine project showing that KAN0440567 after oral administration to mice effectively blocks the function of the Fractalkine receptor.

Statement from the CEO

2016 began as usual with an intense biotech week in San Francisco where Kancera and most of the Pharmaceutical and Biotech industry gathered to discuss cooperation opportunities in individual meetings. During the week in San Francisco, Thomson Reuters also presented its retrospection of 2015 which was a strong year for the industry with more and larger acquisitions than ever and a strong interest in preclinical drug development projects. The generally high interest from major pharmaceutical and biotech companies to acquire pharmaceutical project continues, which is reflected partly in the increasing level of payment upon signature of the acquisition or licensing agreements and partly in increasing total price tags for pharmaceutical projects. Cancer, by virtue of the great medical need, continues to be the therapeutic area in which most agreements are reached (for more information, see the Market Outlook section).

In the third quarterly report in 2015, I described the challenge in the ROR-project to achieve a sufficiently high concentration of the drug candidate in the blood to enable studies of efficacy against more cancer diseases, in addition to chronic lymphocytic leukemia, such as solid tumors. During the fourth quarter we have succeeded to develop a new series of compounds in the ROR project that can be maintained in an active concentration in the blood for 10 hours in mice. This can be compared with the approximately 2.5 hours shown by Kancera’s first drug candidate KAN0439834 in the same type of measurement. This progress now provides us with new opportunities to test the effect of ROR inhibitors in several preclinical models of severe human cancers.

During the fourth quarter we have also been able to show that oral administration of the Fractalkine receptor antagonist KAN0440567 to mice effectively blocks the function of the Fractalkine receptor. This is a first step in the ongoing studies to examine the effect of this substance against cancer of the pancreas in a preclinical model of the disease.

Furthermore, in January we reported several reinforcements of Kancera’s portfolio of patents and patent applications, including a new application from the HDAC6 project, a granted patent from the PFKFB3 project and a completion of the international patent application from the ROR project including new substances showing up to 20 times higher effect against leukemia cells compared to Kancera’s first drug candidate.

Overall, we see progress in Kancera’s entire project portfolio which further strengthens the company’s competitiveness and business development efforts.

Thomas Olin

CEO 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’s operations are based in the Karolinska Institutet Science Park in Stockholm and the company employs around 13 people. The Kancera shares are traded on NASDAQ OMX First North and the number of shareholders was around 7300 as of December 16, 2016. Remium Nordic AB is Kancera’s Certified Adviser. Professor Carl-Henrik Heldin and Professor Håkan Mellstedt are board members and Kancera´s scientific advisors.

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, iNovacia started the development of the ROR project in collaboration with the Karolinska Institute. In May 2010, Kancera AB was formed by scientists from Cancer Center Karolinska, iNovacia AB and a group of private investors through capital contributions and two developed drug projects focusing on cancer: the ROR project and the PFKFB3 project, the latter had been initiated by Biovitrum AB. 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.