Full Year Report for Kancera AB (publ) 2013 January 1 – December 31, 2013

The period January to December and the fourth quarter 2013 in brief

• R&D expenses for the period totaled SEK 7.6m (SEK 14.7m) of which the fourth quarter constitute SEK 2.1m (SEK 0.4m).

• Operating income for the period totaled SEK -10.4m (SEK -21.2m) of which the fourth quarter constitute SEK        -2.1m (SEK -1.7m).

• Income after financial items for the period totaled SEK -7.4m (SEK -23.5m) of which the fourth quarter constitute SEK -2.1m (SEK -4.0m).

• Earnings per share for the period were SEK -0.22 (SEK -1.42) of which the fourth quarter constitute SEK -0.05 (SEK -0.22).

• The preferential rights issue and the directed issue was fully subscribed in December 2013 amounting to SEK 22.1m before issue expenses had brought in SEK 15.3m at year-end, and at the conclusion brings an additional SEK 6.8m.

• 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 first quarter.

• Cash flow from operating activities for the period totaled SEK -6.6m (SEK -22.5m) of which the fourth quarter constitute SEK -0.4m (SEK -7.2m). As a consequence of the increased focus on one drug project and the decommissioning of iNovacia, a decrease in negative cash flow is noted.

• Equity as of December 31, 2013 totaled SEK 19.0m (SEK 10.2m) or SEK 0.59 (SEK 0.62) per share. The equity/assets ratio as of December 31, 2013 was 74 percent (90 percent).

• Cash and cash equivalents as of December 31, 2013 totaled SEK 14.1m (SEK 5.1m). After the period Kancera invested SEK 500 000 in additional equipment for the pharmaceutical laboratory. EU’s Seventh Framework Programme has awarded Kancera´s Epigenetic anti-parasitic project (A-PARADDISE) a non-repayable grant totaling 950,000 Euros. A first payment of 523,655 Euros was paid to Kancera in February after the end of the period and is therefore not part of reported cash on December 31, 2013 or for the period.

Significant events during the period

• Kancera reported through an update of the project portfolio that

• Publications during the conference “American Society for Hematology” (ASH, December 2012) 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). The acquisition of the patent rights is based on an agreement with Bioinvent that does not involve any financial burden for Kancera (except future patent expenses) before revenues are generated.

• 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 in March 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 were taken over against a payment to Sobi AB amounting to SEK 2m. The claim has since realized a profit of SEK 3 million as commented above.

• Kancera reported in February 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 iNovacia Board applied for bankruptcy and was declared bankrupt on February 21. Kancera has not provided financial guarantees relating to iNovacia.

• Kancera reported in March 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.

• 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.

• 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. The grant provides opportunities to generate new revenue-generating drug candidates as well as a sharing of costs for laboratories and administration between the EU project and Kancera´s other drug development projects.

• Kancera announced the initiation of a collaboration with Professor Rolf Lewensohn and his research group at Cancer Centre Karolinska (CCK) in order to develop therapies that will increase the sensitivity of tumors for chemo- and radiotherapy for several solid tumors. During the collaboration Kancera´s researchers will, on behalf of the research team at CCK, assist with analysis and evaluation of drug properties of active substances which affect the ability of tumors to resist chemo- and radiotherapy induced DNA damage.

• Kancera announces in the Q3 report that the required stability of ROR inhibitors in liver cells of mice has been reached allowing the start of animal studies to investigate how ROR inhibitors are distributed in the body and tolerated before the start of efficacy studies in animal models of various human cancers.

• Kancera announced the discovery of a new class of compounds that inhibits the epigenetic enzyme histone deacetylase 6 (HDAC6) and thereby controls the activity of the cancer cell genes. Kancera´s discovery of selective HDAC6 inhibitors may provide a solution to how physicians could take advantage of HDAC inhibitors in the treatment of cancer without causing the patient severe side effects. Kancera now intends to file patent applications for these inhibitors and to further evaluate the potential of them in the treatment of cancer, including multiple myeloma, in order to decide on further development of a candidate drug.

• Kancera AB announced the decision, authorized by the Extraordinary General Meeting on October 30, to conduct a rights issue of approximately SEK 16.1m with preferential rights for existing shareholders as well as SEK 6m without preferential rights. The issue included the subscription of units in Kancera AB containing one (1) share and one (1) warrant where two warrants entitle the holder to subscribe for one (1) new share at SEK 0.75 per share. The term of the warrants ranges from May 1 until May 31, 2014. The share issue was fully subscribed and gave the company SEK 22.1m before issue costs. After the issue, Kancera AB’s share capital amounts to 6 377 945.66 SEK, divided into 76,535,348 shares, each share with a nominal value of 0.083 (1/12) SEK. The issued shares were released for trading in parallel with the lisiting of the warrant in January 2014.

Significant events after the end of the reporting period

• Kancera reported that the company has initiated 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.

• In August 2013 Kancera announced that the company together with international research groups in the project A-PARADDISE had 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 in February 2014 received a first payment of € 523,655 from the EU for the performance of A-PARADDISE project and thereby the project has started.
  

Statement from the CEO

2013 shows a growing demand for the type of products Kancera develops which is reflected in an increasing number of acquisitions of innovative drug projects from biotech companies and universities. In parallel, the European and U.S. authorities have been streamlined to increase the number of new approved drugs to needing patients. During the past year the European and the American Medicines Agency (EMA and FDA) approved 38 and 27 new drugs respectively, which represent a continued steady annual increase from 2010. Of these new drugs, the vast majority are designed synthetic small molecules, which is the type of drugs that Kancera focus on, while only two were biologicals. The cancer indication still dominates by constituting 37% of these newly approved drugs.

For Kancera 2013 ended with a well-received share issue of SEK 22.1m before transaction costs. The share issue was subscribed to 330%, giving the company extra power to achieve the business objectives in 2014, including the delivery of a drug candidate in the ROR project. Also, Vinnova’s grant to the ROR project against cancer and EU’s new investment in Kancera´s drug development against parasitic diseases showed that Kancera´s product development compares favorably with many other biotech companies applying for grants.

The EU project has now resumed in February and in parallel our newly invented HDAC6 inhibitors are optimized. Our HDAC6 inhibitors have already demonstrated competitive performance in the internationally acclaimed field “epigenetically acting drugs”, i.e. drugs that are active against the disease by indirectly affecting the genome of the sick cells.

During fall 2013 we reported that ROR inhibitors have been identified that effectively kills cancer cells from patients who have relapsed and are insensitive to the newest anticancer drugs such as Ibrutinib and Idelalisib. We have also worked on getting the ROR inhibitors stable in liver cells and in blood from humans and animals. This is now resolved. Thus, we have initiated studies in animals and decided to first clarify the safety of the ROR inhibitors, given that we are working with patent pending compounds that the world has not seen before and therefore know little about.

As a part of this effort, we have tested ROR inhibitors against over 450 enzymes that belong to the same protein family as ROR (kinases) and an additional 80 independent physiological mechanisms, all in order to understand the effect profile and safety of the ROR inhibitors. The results from these studies support that Kancera´s ROR inhibitors are potent, drug-like with a good safety. Ongoing animal studies are designed to further strengthen the characteristics of the substances that allow a buildup of a high concentration of ROR inhibitor in the vicinity of the tumor. A careful implementation of this part of the project will save time later in the drug development why we have chosen to spend additional time in this part. This means that the selection of a drug candidate is expected to occur over the next 3-6 months in 2014.

With the knowledge that Kancera has built up in collaboration with Professor Håkan Mellstedt´s group at the Karolinska Institute, we now see an opportunity to develop a unique treatment strategy to counter relapse of cancer by combining small-molecule inhibitors of ROR with a ROR vaccine. The aim is to use small-molecule ROR-inhibitors to remove the bulk of the tumor mass that shows resistance towards currently available drugs and then to immunize against ROR to control and suppress any remaining tumor cells. This has proved particularly important since the cancer cells are able to hide in e.g. lymph nodes and then, at a later time, enter into circulation and grow in number. When that happens, a ROR vaccine should have stimulated memory cells in the patient’s own immune system to recognize the cancer cells and destroy them.

Facing an eventful 2014 we now welcome an additional 3,000 part-owner of Kancera (total 4800) that joined in connection with the successful share issue in December.
 
Thomas Olin
CEO, Kancera