Interim Report for Kancera AB (publ) Q3 2015. January 1 – September 30, 2015.

The period January to September 2015 and the third quarter 2015 in brief

• R&D expenses for the period amounted to SEK 12.1m (SEK 9.6m) of which the third quarter constituted SEK 3.2m (SEK 2.7m).

• Operating income for the period amounted to SEK -13.8m (SEK -11.0m) of which the third quarter constituted SEK -3.4m (SEK -3.1m).

• Income after financial items for the period amounted to SEK -13.7m (SEK -10.9m) of which the third quarter constituted SEK -3.4m (SEK -3.0m).

• Earnings per share for the period were SEK -0.14 (SEK -0.13) of which the third quarter constituted SEK -0.03 (SEK -0.03).

• Cash flow from operating activities for the period amounted to SEK -16.0m (SEK -11.6m) of which the third quarter constituted SEK -5.1m (SEK -4.4m).

• Equity as of September 30, 2015 amounted to SEK 27.8m (SEK 31.6m) or SEK 0.27 (SEK 0.32) per share. The equity/assets ratio as of September 30, 2015 was 74 percent (77 percent).

• Cash and cash equivalents as of September 30, 2015 amounted to SEK 20.2m (SEK 27.5m).

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 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. 

  Significant events after the end of the reporting period

  Kancera provided an operational update for the PFKFB3 and HDAC6 projects as well as the EU-funded epigenetically targeted parasitic project A PARADDISE.

• After the end of the period, Kancera reported from the collaboration with Prof. Thomas Helleday that Kancera’s PFKFB3 inhibitor significantly reduces the size of a tumor formed by aggressive human breast cancer cells (called triple negative breast cancer cells) transplanted into 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 at a sufficient concentration, which is easier to achieve in zebrafish compared to e.g. in mice.

• Kancera has developed several chemical families of potent and selective HDAC6 inhibitors based on a common scaffold, and it is now reported that Kancera has decided to withdraw the original patent from 2014 in order to postpone the publication of the structures at least 12 months. This is done in order to prevent that Kancera’s existing patent application becomes an obstacle to a new supplementary patent application that will include the newly developed HDAC6 inhibitors.

• In June 2015, Vinnova announced that a grant was awarded to Kancera to support the further development of HDAC6 inhibitors against cancer. The first installment of the grant was then paid in July. Vinnova has now decided to bring forward the second installment (SEK 750, 000) to the HDAC6 project.

• In February 2014 Kancera received an initial payment from the EU amounting to € 523,655 for the execution of the A-PARADDISE project. The project has now issued an interim report which has been approved by the EU. This means that a further installment of the grant will be paid to Kancera at year-end according to plan. This installment amounts to € 285,000.

Statement from the CEO

On November 11, Kancera appeared on the front page of the international trade journal “Bioworld” (http://www.bioworld.com/content/wednesday-nov-11-2015). The news item concerned Kancera’s new Fractalkine project that aims to help the immune system to attack the cancer. The study is performed using a drug candidate that was originally developed by AstraZeneca against the autoimmune disease multiple sclerosis (MS). The effect of this drug candidate against an MS-like disease in animals has convinced us that it is effective. The question we are now asking in the ongoing studies is if the same mechanism of action that is effective against MS also can help against intractable cancers. The risk in this cancer project is high as usual, but the scientific literature suggests that there is a realistic chance of success. The study is performed in collaboration with the FAM-owned Acturum Life Science AB which through an agreement has given Kancera an exclusive right to evaluate and later acquire this drug candidate.

In the ROR project, we have learnt more about how the first drug candidate KAN0439834 is expected to work in humans. The results of these calculations, partly based on animal studies and partly on comparative studies of chemically similar drugs, suggest that we can achieve a concentration in the blood that is effective against leukemia and possibly also against solid tumors. As is often the case in drug development, a problem encountered is that even if the drug candidate appears to have good properties in humans, efficacy has to be shown in a rodent disease model before clinical studies and in rodents drugs are often broken down too quickly. We are now testing two ways past this challenge; one where we stop the breakdown of the compound in the rodent by means of a drug-like substance, and one where we study the effect on tumors in zebra fish where it is possible to set the concentration of the drug to the level that is expected to be achieved in humans. In the autumn’s big biotech meeting “Bio Europe”, which this year took place in Munich in November, it was clear that several large pharmaceutical companies now are using the zebra fish model as a step between cell studies and studies in rodents and humans.

We have also conducted the first cancer study with a PFKFB3 inhibitor in zebrafish in collaboration with Prof. Thomas Helleday. The study was performed using human tumor cells from a treatment-resistant breast cancer (so called triple negative breast cancer) and showed that Kancera’s PFKFB3 inhibitor significantly slows the development of tumor cells. These results are currently particularly relevant since this effect is coupled to this year’s Nobel Prize in chemistry, where one recipient was Tomas Lindahl for his discoveries about how cells are able to repair their DNA. It is thanks to the discoveries behind this Nobel Prize that Kancera in collaboration with Prof. Thomas Helleday’s group at the Karolinska Institute has been able to show that our PFKFB3 inhibitors can beat the cancer by preventing the repair of its genome.

During the Bio Europe meeting in Munich, Kancera presented the project portfolio during a session dedicated to cancer companies and had individual meetings with pharmaceutical companies from Europe, USA and Japan. At these meetings, we received a positive response regarding the progress in the company’s portfolio of cancer projects.

Thomas Olin

CEO Kancera