4SC AG — Interim / Quarterly Report 2012

Nov 19, 2012

Consolidated 9-Month Financial Report :: 30 September 2012 (IFRS)

On the path to market maturity

By people. with people. for people.

:: 4SC IN BRIEF

:: 01 PRODUCT PIPELINE (AS OF 05 NOVEMBER 2012)

PRODUCT	INDI CATION	MODE OF ACTION	RESEA RCH	PRECLINICAL	PHASE I	PHASE II	PHASE III	MARKET APP ROVAL / MARKET LAUNCH	PARTNE R
AUTOIMMUNE DISEASES
Vidofludimus 4SC-101	Inflammatory Bowel Disease	Oral autoimmune modulator of DHODH and IL-17A and K-17F	ENTRANCE
Vidofludimus 4SC-101	Rheumatoid Arthritis (RA)	Oral autoimmune modulator of DHODH and IL-17A and K-17F	COMPONENT
ONCOLOGY
Resminostat 4SC-201	Hepatocellular Carcinoma (HCC)	Oral pan histone deacetylase (HDA C) inhibitor	SHELTER
Resminostat 4SC-201	Hodgkin's Lymphoma (HL)	Oral pan HDA C inhibitor	SAPHIRE
Resminostat 4SC-201	Colorectal Cancer (CRC)	Oral pan HDA C inhibitor	SHORE
Resminostat 4SC-201	Solid Tumours	Oral pan HDA C inhibitor				*
4SC-202	Haematologic Tumours	Oral selective HDA C inhibitor with a strong anti-mitotic effect	TOPAS
4SC-203	Oncology	Multi-kinase inhibitor selective of FLT3 and VEGF
4SC-205	Solid Tumours	Oral Eg5 kinesin spindle protein inhibitor	AEGIS
4SC-207	Solid Tumours	Oral cell-cycle blocker
RESEARCH PROGRAMMES
Cancer stem cells	Oncology
Ion channel blockers	Autoimmune Diseases
Cytokine modulation	Autoimmune Diseases/ Oncology
		Completed clinical studies		Ongoing clinical studies		planned	Further clinical studies	Study by *	Yakult Honsha in Japan

:: 02 4SC-GROUP STRUCTURE

4SC-GROUP

4SC DISCOVERY GMBH	4SC AG
Management: Dr Daniel Vitt Dr Stefan Strobl	Management Board: Dr Ulrich Dauer (CEO ) Dr Bernd Hentsch (CDO ) Enno Spillner (CFO) Dr Daniel Vitt (CSO )
Strategy: :: Strengthening 4SC's business model through revenues from research services and cooperations :: Marketing of early stage research and discovery programmes :: Replenishing 4SC's clinical development pipeline	Strategy: :: Clinical development of attractive drugs for the treatment of cancer and autoimmune diseases on the path to market maturity :: Growth through partnerships – marketing the products :: Broad-based medicinal research expertise – strengthening 4SC's business model and enhancing its sustainability
DISCOVERY & COLLABORATIVE BUSINESS SEGMENT	DEVELOPMENT SEGMENT
PRECLINICAL RESEARCH	CLINICAL DEVELOPMENT

:: 03 Significant milestones Q3 2012

ON THE PATH TO MARKET MATURITY, WE HAVE ACHIEVED KEY MILESTONES IN THE THIRD QUARTER OF 2012 AND ENHANCED THE INTRINSIC VALUE OF THE COMPANY. WE HAVE MADE SUSTAINABLE PROGRESS ESPECIALLY IN OUR CLINICAL COMPOUND PROGRAMME WITH RESMINOSTAT AND IN OUR EARLY-STAGE RESEARCH ACTIVITIES. IMPORTANT DECISIONS WERE ALSO MADE AND IMPLEMENTED AT GROUP LEVEL.

:: Resminostat: Excellent data published in liver cancer trial

4SC's primary cancer drug achieves overall survival of 8.0 months in combination with sorafenib in the Phase II SHELTER trial in advanced liver cancer (HCC). To 4SC's knowledge, this is the longest overall survival that has been achieved to date in clinical trials in second-line therapy of liver cancer in comparable patient populations.

:: 4SC Discovery GmbH: New research collaboration kicked off

The subsidiary, which commenced operations at the beginning of the year to implement and commercialise the Company's early-stage research, launches a research collaboration with biotechnology firm Ribological GmbH.

:: Annual General Meeting: Supervisory Board further reinforced

At the Company's Annual General Meeting the shareholders elected two experienced pharma managers to the Supervisory Board to reinforce the control committee: Dr. Irina Antonijevic from pharmaceutical group Sanofi, and Klaus Kühn, former CFO of Bayer AG.

:: Resminostat: Patent protection in China sustainably strengthened

Shortly after the end of the reporting period 4SC received a notification of allowance from the Chinese patent authorities for its most important cancer drug. The granting of a key patent is therefore imminent. China is of strategic importance for the further development and later marketing of resminostat, due to the prevalence of liver cancer in that country.

: : 04 KEY Financial figures

	Q3 2012	Q3 2011	Change in %	9M 2012 resp. 30.09.2012	9M 2011 resp. 30.09.2011	Change in %
Key financial figu res (in €000's)*
Revenue	294	223	32	1,028	443	132
Operating profit/loss	- 4,495	- 4,847	7	- 12,320	- 14,385	14
Profit/loss for the period	- 4,460	- 4,748	6	- 12,136	- 14,681	17
Earnings per share (basic and diluted) (in €)	- 0.09	- 0.11	18	- 0.27	- 0.35	23
Cash flows from operating and investing activities	- 9,256	- 1,220	- 859	- 9,034	- 9,816	8
Cash flows from financing activities**	4,345	0	n/a	11,766	11,080	6
Net change in cash and cash equivalents	- 5,731	1,220	- 570	2,732	1,264	116
Cash and cash equivalents				9,552	6,220	54
Cash balance/funds				15,797	20,220	- 22
Equity				22,846	27,857	- 18
Equity ratio				73.5%	75.7%	- 2.2% P
Total assets				31,062	36,797	- 16
Employees
Number of employees and Management Board members (at end of period)				90	94	- 4

* The figures for 2011 refer to the separate financial statements of 4SC AG whilst the figures for 2012 refer to the consolidated financial statements including 4SC Discovery GmbH. For more information, see page 7.

** At the time the report on the second quarter of 2012 was prepared, a total of €7,421 thousand was available to the Company under the capital increase. This amount was included in the key financial figures at the time. An additional €410 thousand in costs of the capital increase, which have not yet been incurred, will follow in the fourth quarter.

02 Letter to the Shareholders

04 INTERIM GROUP MANAGEMENT REPORT

• 04 Business Performance
• 07 Financial Performance, Cash Flows and Financial Position
• 10 Report on Risks and Opportunities
• 10 Events after the Reporting Period
• 10 Anticipated Developments

12 Interim consolidated Financial Statements

• 12 Consolidated Statement of Comprehensive Income
• 13 Consolidated Statement of Financial Position – Assets
• 14 Consolidated Statement of Financial Position – Equity and Liabilities
• 15 Consolidated Statement of Cash Flows
• 16 Consolidated Statement of Changes in Equity
• 17 Selected consolidated Notes

4SC researches and develops innovative, orally administered small-molecule drugs for autoimmune diseases and cancer– indications with a high unmet medical need and excellent marketing potential. The well-balanced clinical pipeline and constant focus on new, intrinsically valuable research programmes enables the targeted development of the business. Thus the Company was able to achieve sustainable progress in the developent of its key compounds and is perfectly positioned for its next value-enhancing development steps. Together with its employees, partners and shareholders, 4SC works continuously towards its goals of relieving suffering and improving the quality of life for people with illnesses.

By people. with people. for people.

:: Letter to the Shareholders

Dear Shareholders, dear Friends and Partners of 4SC,

4SC had a very successful third quarter.

We made decisive progress in developing our main value driver, the cancer drug resminostat, on its path towards market maturity. In September, we published excellent results from our clinical Phase II SHELTER trial on the efficacy of resminostat in the treatment of liver cancer. In so doing, we certainly achieved a further key milestone on the path to obtaining the licensing deal we are pursuing for resminostat.

In second-line therapy of patients with advanced liver cancer (HCC), the combination therapy of resminostat with the cancer drug sorafenib achieved a median overall survival of eight months. To the best of our knowledge, this is the highest figure so far achieved in clinical trials of new therapeutic approaches in comparable liver cancer patient groups. Comparable studies have shown that, once treatment with sorafenib fails, liver cancer patients then have a median life expectancy of only five to six months. Use of our compound therefore significantly extends patient survival. The results also underline resminostat's novel, epigenetic mechanism of action, namely the sensitisation of tumour cells. This means that liver cancer cells that no longer respond to sorafenib – the sole treatment approved for this indication to date – can have their receptivity to treatment restored by the simultaneous administration of resminostat.

The new trial data triggered considerable extra attention from specialists in the field and led to further progress being made in our talks with potential pharmaceutical partners concerning development and marketing rights to resminostat. Our objective is to secure a committed international partner with a leading role in oncology, with whom we can jointly exploit resminostat's full medical and commercial potential – not merely in the first- and second-line therapy of liver cancer, but also in a series of other cancer indications with an overall market potential that is truly enormous.

Strengthened by the results of the SHELTER trial, we are pushing forward with preparations for the planned Phase III registration trial with resminostat in the liver cancer indication. Following successful consultation with the regulatory agencies, these plans also involve setting up a large-scale manufacturing process for the compound, followed then by manufacturing the resminostat trial medication in coordination with international authorities and our previously acquired Japanese partner, Yakult Honsha. We are confident that we will be able to start the registration trial by mid-2013 as planned, together with a global partner.

We are also continuing to make good progress in early-stage research. One key milestone achieved in the third quarter of 2012 was the announcement of a further research collaboration by 4SC Discovery GmbH. Our subsidiary, which started operations at the beginning of the year to focus on the commercialisation of our research, will now be working with the Mainz-based biotech company Ribological GmbH on the discovery of new anti-cancer drugs.

The successful development of 4SC Discovery GmbH gives us confidence that we will be able to enter into further partnerships in this area in the near future.

4SC Discovery GmbH enjoys a very positive reputation in the research community. This was also in evidence at the symposium hosted at the end of September by the company on the topic of "Drug Discovery in the Age of Epigenetics", which was attended by 40 distinguished scientists from research institutions and industry. Epigenetics is a new megatrend in cancer medicine, and 4SC is without a doubt both a pioneer and a market leader in this highly attractive commercial sector.

We are now working all-out on the further implementation of our corporate strategy, which is oriented on sustainable value creation. We are also eagerly awaiting the first interim results from the Phase I/II SHORE trial with resminostat in colorectal cancer before the end of the year. And we are also making every effort to advance the ongoing clinical Phase I trials with our innovative cancer agents 4SC-202 and 4SC-205. In the field of autoimmune diseases, we are continuing to work on preparations for a Phase IIb trial with our compound vidofludimus in the Crohn's disease indication. While talks with potential partners are proceeding more slowly than originally expected, based on our compound's solid clinical data we remain convinced of its potential in this commercially interesting indication. This potential has been further underlined by the most recent publication of clinical data for vidofludimus in patients with inflammatory bowel disease in the prestigious periodical "Journal of Crohn's and Colitis".

As a result of the excellent trial data from our main value driver resminostat, the promising development of 4SC Discovery GmbH and a solid financial foundation – due to the capital increase we completed in 2012 – we believe we are well prepared for future developments.

Each and every day, we work with great dedication and excellent motivation on developing our highly attractive drug and research portfolio towards market maturity.

To you – our shareholders, employees, business partners and friends – we would like to extend our warmest thanks for your trust, loyalty and engagement.

Yours sincerely,

Dr Ulrich Dauer, CEO

:: INTERIM GROUP MANAGEMENT REPORT

1. Business Performance

1.1 Current developments in the biotech sector

Economic environment :: The global economy remains in a downswing in autumn 2012. The economy has generally lost some of its momentum, which has depressed the mood at companies and households in the most important global markets in the reporting quarter. The debt and confidence crisis in the euro zone remains a major burden. The effects of undesirable structural trends before the crisis continue to stifle economic activity. The central banks in the major industrialised countries reacted in the late summer to the renewed increase in pessimism on the financial markets and the cloudy economic outlook by announcing new securities purchases, which, in the case of the European Central Bank (ECB) and the US Federal Reserve, were unlimited in scope. The mood on the financial markets brightened as a result, something that is also evident from the 12.7% increase in the DAX in the third quarter of 2012. However, the question remains whether the monetary policy measures will succeed in sustainably reviving the economy.

The euro crisis also hampered the economy in Germany and dampened companies' optimism. Business expectations have been further lowered since the second quarter of 2012 and were recently at their lowest point since the recession of 2008/2009. However, it can be assumed that the German economy will experience a revival over the course of the coming year, as the situation in the euro zone should gradually ease and the rest of the global economy should pick up some momentum. In such a, hopefully, improved environment, the favourable financing terms should have more of an effect.

Current sector developments :: Given the tense general economic situation, the development of the biotechnology sector in the third quarter of 2012 was encouraging – although it was positively impacted by the central banks' expansive monetary policies. This was also reflected in the development of the sector indices of the capital markets. The German DAX sub-sector biotechnology, for example, grew by 13.0% in the reporting period. The NASDAQ Biotech Index posted gains of 9.6% in the third quarter.

The sector was strengthened in the reporting period by 36 product approvals, although pharmaceutical and biotech companies suffered 43 documented clinical and regulatory setbacks in advanced studies in the same period.

With regard to the publication of clinical data and pivotal news in the field of oncology and the area of autoimmune diseases, there were many positive reports in the third quarter of 2012, but also disappointments. Below are some important examples for 4SC's industry environment:

• :: In the liver cancer indication, a Phase III trial, which tested the cancer drug sorafenib (Nexavar®) marketed by Bayer in combination with the compound Tarceva® from Astellas Pharma, did not achieve the desired objective, since the combination failed to bring the patients any benefits compared with standard therapy with sorafenib.
• :: In September, Bayer obtained regulatory approval from the US Food and Drug Administration (FDA) for the cancer drug regorafenib for treating patients with metastatic colorectal cancer.
• :: Danish company Topotarget announced an encouraging result in September for the epigenetic cancer compounds segment, when the HDAC inhibitor belinostat reached the primary endpoint in a Phase III trial in peripheral T-cell lymphoma (PTCL), a form of lymph node cancer. 4SC also operates in the segment for epigenetic compounds with its resminostat and 4SC-202 compounds.
• :: The positive mood for this new class of epigenetic compounds was also evident from the acquisition of the HDAC inhibitor pracinostat by US company MEI Pharma from private US biotech company S*BIO. This compound is in clinical development in haematological tumours.
• :: Negative news from the perspective of German biotechnology was the announcement in the oncology field of the results of a Phase III trial by Agennix in August. The compound talactoferrin failed to meet the trial objective in the treatment of lung cancer.
• :: Encouraging news came from the positive data in the field of autoimmune diseases, which German biotech company MorphoSys published in September from a clinical Phase Ib/IIa trial to investigate the antibody MOR103 in patients with rheumatoid arthritis.

The current financing environment remains a challenge for companies in the biotechnology sector. As a result, only four biotechnology companies worldwide went public in the third quarter of 2012: Clinigen Group (LSE/UK), PharmaEngine (GreTai/Taiwan), Hyperion Therapeutics (NASDAQ/USA) and Durata Therapeutics (NASDAQ/USA). A total of USD 183 million accrued to these companies in the process. A total of USD 1.3 billion in follow-up financing was raised from 21 listed companies in the third quarter.

An encouraging result in the German market was the financing of unlisted Tübingen-based biotech company Curevac, which specialises in the development of therapies and vaccines for the treatment of cancer: The company raised €80 million in September 2012.

1.2 4SC on the stock markets

The price of the 4SC share increased by an encouraging 35% overall (Xetra) in the reporting quarter. It started the third quarter at a Xetra price of €1.51 on 2 July 2012. The performance of the 4SC share was initially restrained – undoubtedly influenced by the capital increase initiated in the previous quarter. Up until mid-September the price mainly fluctuated around the issue price for the capital increase of €1.50. After the publication of the excellent overall survival data from the Phase II trial with resminostat in liver cancer on 13 September 2012, the share price took a considerable leap and climbed in the interim to the quarterly high of €2.25 on 17 September 2012. After profit-takings, the share closed the third quarter on 28 September 2012 at a price of €2.04. 4SC AG's market capitalisation at the end of the quarter was €102.76 million based on 50.372 million shares issued. In the first nine months of 2012, the 4SC share performed very well, increasing by a total of 59% (Xetra).

:: 05 SHARE PRICE PERFORMANCE, INDEXED ON 4SC AG

The capital increase initiated by 4SC AG in the second quarter of 2012 was officially completed in the third quarter. Gross proceeds of around €12.6 million were raised and a total of 8,403,510 new shares were placed at a price of €1.50 per share. The capital increase was recorded in the commercial register on 3 July 2012. Following the publication on 21 September 2012 of the listing prospectus approved by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) the new shares were admitted to trading on the Frankfurt Stock Exchange.

The trading volume of the 4SC share continued to develop well in the reporting quarter, influenced, among other things, by the larger free float of 30% due to the capital increase and the increased number of shares associated with it. A total of 11,196,067 shares were traded across all German exchanges in the first nine months of 2012. This represents an average daily trading volume of 58,618 shares, up significantly from the 43,221 shares traded on average per day during the 2011 financial year.

The average daily trading volume on XETRA also increased considerably from 26,307 in 2011 to 32,240 in the first nine months of 2012.

:: 06 key share figures

	Q3 2012	Q3 2011	9M 2012	9M 2011
Number of shares issued (average, in 000's)	50,372	41,968	44,769	41,284
Free float (%)	30.0	25.9	30.0	25.9
3- resp. 6-month high (Xetra) (€)*	2.25	2.03	3.03	4.89
3- resp. 6-month low (Xetra) (€)*	1.34	1.49	1.32	1.49
Price at beginning of quarter/year (Xetra) (€)	1.51	2.01	1.28	4.10
Closing price at end of quarter (Xetra) (€)	2.04	1.70	2.04	1.70
Market capitalisation at end of quarter (€000's)	102,759	71,346	102,759	71,346
Average daily trading volume (Xetra, shares)	32,087	19,317	32,240	30,613

* closing price in each case

1.3 Business Review

1.3.1 Highlights in the third quarter of 2012

The 4SC Group (hereinafter also termed "4SC" or "the Company" or "the Group") continued its successful development in the third quarter of 2012. Both segments of the Company achieved key milestones during the reporting period. The Development segment, which comprises the clinical and preclinical development work for drug candidates from the product pipeline as conducted by the Group's parent company 4SC AG, achieved further progress for its lead products. The Discovery & Collaborative Business segment, which comprises the activities involved in the discovery, early-stage research and subsequent commercialisation of drug compounds by 4SC Discovery GmbH, also continued its successful development. Important administrative decisions were made and implemented at Group level as well.

In July, Group subsidiary 4SC Discovery GmbH, which began its operations at the start of the year, announced a research collaboration with Ribological GmbH, Mainz, to discover and optimise new compounds in cancer therapy.

In August, 4SC AG's Annual General Meeting elected two new, experienced pharmaceutical managers to the Company's Supervisory Board: Dr. Irina Antonijevic, Director Clinical Research at pharmaceutical company Sanofi in the USA, and Klaus Kühn, former CFO of Bayer AG, will reinforce this control committee going forward. In addition, the Supervisory Board elected Mr Kühn as its new Deputy Chairman.

4SC presented excellent data on the efficacy of the cancer drug resminostat in patients with advanced liver cancer at the ILCA Conference in Berlin in September. The combination therapy of resminostat with the cancer drug sorafenib achieved a median overall survival of 8.0 months in the Phase II SHELTER trial. To 4SC's knowledge, this is the highest figure achieved to date in clinical trials in second-line therapy of advanced liver cancer in comparable patient populations.

The capital increase implemented in June 2012 was officially completed in the reporting quarter. In July, the capital increase was entered in the commercial register. In September, the subsequent listing prospectus approved by the German Federal Financial Supervisory Authority for the new shares was published, which enabled the shares to be admitted to trading on the stock exchange. The new shares were listed on 25 September 2012.

1.3.2 Current developments in clinical and preclinical development (Development segment)

Autoimmune Diseases :: In the reporting quarter, the Company continued with its activities to prepare for a Phase IIb trial of vidofludimus, the Company's lead compound in the area of autoimmune diseases, in the Crohn's disease indication. This trial, which will preferably be conducted in cooperation with a pharmaceutical partner, will consist of two parts. In the first part of the trial, a range of dosage regimes will be used to induce remission, so as to lessen the disease symptoms and halt the progress of the disease (remission induction part). In the second part, during the chronic treatment programme, the plan is to maintain the remission achieved – i.e. stable disease – and investigate the optimum dosage required (remission control part). The study design planned has been discussed in scientific advice meetings with the regulatory authorities in Europe and the USA, and has received their approval. As things stand, activities currently focus on talks with potential partners, as well as further operational and regulatory preparations for the study.

In preclinical studies, vidofludimus has already proven its efficacy in a wide range of indications, including lupus, psoriasis, multiple sclerosis and inflammatory bowel disease (IBD), as well as in the field of transplantation medicine. In multiple clinical trials in IBD (Crohn's disease and ulcerative colitis) and in rheumatoid arthritis, the compound has already demonstrated very good tolerability. In the next phase of clinical development work, 4SC will initially concentrate on the main indication area of inflammatory bowel disease.

The potential shown by vidofludimus for this set of indications has been further strengthened by a recent publication in the prestigious specialist periodical "Journal of Crohn's and Colitis". The results from the Phase IIa ENTRANCE trial concluded last year were published in the journal, shortly after the end of the reporting period. In the clinical trial, vidofludimus demonstrated very good efficacy and tolerability in patients with Crohn's disease and ulcerative colitis, and achieved the primary trial endpoint.

Oncology :: The third quarter was primarily devoted to resminostat, 4SC's lead oncology compound.

In September 2012, the Company announced excellent efficacy data on overall survival from the clinical Phase II SHEL-TER trial with resminostat in liver cancer. The data were published in an oral presentation at the annual International Liver Cancer Association (ILCA) conference (14–16 September 2012 in Berlin) by the lead investigator of the study, Professor Michael Bitzer. The trial examines resminostat as a second-line therapy for patients with advanced liver cancer (hepatocellular carcinoma, HCC). The safety and efficacy of resminostat were investigated, both in combination therapy with sorafenib (Nexavar®) – the only cancer drug currently approved for the treatment of advanced HCC – and in monotherapy. The patients enrolled in the study had exhibited tumour progression under first-line therapy with sorafenib prior to entering the study. Currently, there is no approved treatment option available in second-line HCC therapy for this difficult-to-treat patient group.

For the combination therapy of resminostat with sorafenib, the final median overall survival (OS) figure was 8.0 months. To the best of the Company's knowledge, this is the highest figure so far achieved in clinical trials with new therapeutic approaches in comparable liver cancer patient populations that demonstrated a radiologically confirmed progression under first-line therapy with sorafenib. In comparison, the life expectancy of liver cancer patients who exhibited tumour progression during treatment with sorafenib is only 5.2 months – a figure derived from the registration trial relevant for sorafenib (the SHARP study).

As a result, the positive results for progression-free survival already published at the beginning of the year and mid-year therefore also translate into a clear benefit for overall survival. In accordance with the data published in June 2012 at the annual ASCO conference, the resminostat/sorafenib combination therapy achieved a progression-free survival rate (PFSR) of 70.0% after 12 weeks and a median progression-free survival (PFS) of 4.7 months. In the resminostat monotherapy, a median overall survival (OS) of 4.1 months was achieved in this difficult-to-treat patient population. For this group, the progression-free survival rate (PFSR) after 12 weeks was 35.3% and the median PFS was 2.2 months. As already reported in January 2012, the study achieved its primary efficacy endpoint, a progression-free survival rate (PFSR) of 20% after 12 weeks, ahead of schedule in both the combination therapy and monotherapy. In both study arms, resminostat showed itself to be safe and well-tolerated.

The persuasiveness of these results and the urgent medical need for the development of new treatments for the liver cancer indication – on average, patients exhibit tumour progression after only about 5.5 months during treatment with sorafenib, nor do they have recourse to any other treatment option – further strengthens the resolve of 4SC AG's Management Board to make preparations for a Phase III registration trial with resminostat in this indication. This trial is scheduled to commence by mid-2013, preferably in collaboration with a partner. The aim of this trial will be to achieve regulatory approval for resminostat in combination with sorafenib in second-line therapy of advanced liver cancer. The design of the planned Phase III trial was discussed successfully with authorities in Europe and the USA during Scientific Advice Meetings in the reporting quarter.

In addition to clinical development in HCC and Hodgkin's lymphoma, resminostat in combination with the FOLFIRI chemotherapy is currently also being tested in patients with K-ras-mutated colorectal carcinoma (CRC), a form of colon cancer, in a clinical Phase I/II SHORE study. Alongside resminostat, two further compounds – 4SC-205 and 4SC-202 – are now undergoing clinical Phase I trials with cancer patients.

1.3.3 Current developments in research activities (Discovery & Collaborative Business segment)

4SC Discovery GmbH, a wholly owned subsidiary of 4SC AG specialising in the Company's implementation and commercialisation of early-stage biopharmaceutical research, which commenced its operations at the beginning of 2012, continued its successful development in the third quarter of the year. In July, 4SC Discovery GmbH and its strategic marketing partner Crelux GmbH announced the start of a research collaboration with the German biotechnology firm Ribological GmbH, Mainz.

This is the first major joint customer project under the strategic i2c (idea-to-candidate) partnership between 4SC Discovery GmbH and Crelux GmbH. As a service provider and cooperation partner for biotechnology and pharma companies, the two companies can cover the entire drug discovery value chain – from the idea for a product to the preclinical drug development candidate – but also supplement it as needed.

The aim of this collaboration is to identify and optimise new and more effective anti-cancer compounds. 4SC Discovery GmbH and Crelux GmbH will identify and optimise new small-molecule compounds. Ribological GmbH intends to carry out preclinical testing of the compounds and, if successful, develop these further in clinical trials in combination with its RNA-based drugs.

In September, 4SC Discovery GmbH hosted a medical research symposium addressing the topic of "Drug Discovery in the Age of Epigenetics" in Planegg-Martinsried near Munich. The conference was attended by distinguished scientists from research institutions and industry, who discussed new developments and insights concerning the role played by epigenetics in causing cancer disease and how this research can be used to derive strategies for combating such illnesses.

1.3.4 STAFF

As at 30 September 2012, the 4SC Group had a total of 86 employees plus four Management Board members (31 December 2011: 96). On average, 91 employees worked for the 4SC Group in the first nine months of the year (9M 2011: 94), of whom 62 were employed in research and development and 29 in sales and administration (9M 2011: 65 and 29, respectively). Of the total staff of 91, the Development segment accounted for 63 and the Discovery & Collaborative Business segment for 28.

2. Financial Performance, Cash Flows and Financial Position

The 4SC Group, comprising 4SC AG and its wholly-owned subsidiary 4SC Discovery GmbH, reports consolidated figures for the first nine months of the 2012 financial year. The comparative figures for the first nine months of 2011 refer to the separate financial statements of 4SC AG. However, the figures of 2012 and 2011 can be compared because the research activities were simply reclassified from 4SC AG to 4SC Discovery GmbH as at 1 January 2012.

Since the first quarter of 2012, the 4SC Group has been reporting on the following two operating segments: The Development segment comprises the development programmes for vidofludimus, resminostat, 4SC-202, 4SC-203, 4SC-205 and 4SC-207. The Discovery & Collaborative Business segment comprises the activities involved in drug discovery and early-stage research plus subsequent commercialisation, and, in particular, service business and research collaborations related to drug discovery and optimisation.

2.1 Financial Performance

Revenue :: Consolidated revenue in the third quarter of 2012 was composed of the pro rata reversal of the deferred income item for resminostat (partnership with Yakult Honsha, Japan) from the previous year, and of research collaborations. Consolidated revenue amounted to €294 thousand in the third quarter of 2012 and €1,028 thousand in the first nine months of 2012. This compares to consolidated revenue of €223 thousand in the third quarter of 2011 and an aggregate of €443 thousand. The Development segment contributed €224 thousand (Q3 2012) and €673 thousand (9M 2012) to overall revenue. The Discovery & Collaborative Business generated €70 thousand (Q3 2012) and €355 thousand (9M 2012).

Further information regarding segment results is shown in the consolidated notes on p. 17.

Operating expenses :: Operating expenses, comprising the cost of sales, distribution costs, research and development costs and administrative costs, fell by 5% to €4,805 thousand in the third quarter of 2012 compared to the prior-year quarter (Q3 2011: €5,069 thousand). Operating expenses in the first nine months of 2012 stood at €13,378 thousand, down 10% compared to the same period the previous year (9M 2011: €14,833 thousand). They are allocated to the two operating segments as follows: Development €-3,904 thousand (Q3 2012) and €-10,340 thousand (9M 2012); Discovery & Collaborative Business €-901 thousand (Q3 2012) and €-3,038 thousand (9M 2012).

Cost of sales climbed from €0 in the third quarter of 2011 to €109 thousand in the reporting quarter and totalled €208 thousand in the first nine months of 2012 after €11 thousand in the same period the previous year. This reflects both the resumption of collaborative business and the agency fees incurred in connection with the deferred income recognised as a result of the up-front payment received from Yakult Honsha that will be reversed on a pro rata basis.

In the third quarter of 2012, research and development costs increased slightly by €67 thousand to €3,859 thousand compared to the prior-year quarter (Q3 2011: €3,792 thousand). At 80% they continue to account for the lion's share of operating expenses. This is also reflected in the nine-month comparison, which shows research and development costs dropping considerably from €11,331 thousand to €9,930 thousand, while remaining the largest cost item at 74%. The overall reduction is due to the lower number of ongoing clinical trials. Research and development costs also include the increased preparatory expenditure for the planned Phase II and Phase III trials with the Company's most advanced drug development candidates. Administrative costs fell in the third quarter to €815 thousand (previous year: €1,134 thousand) and to €2,854 thousand in the last nine months (previous year: €3,100 thousand). Distribution costs, which consist of business development and PR/marketing expenses, decreased to €22 thousand in the third quarter of 2012 (previous year: €143 thousand) and to €386 thousand in the first nine months (previous year: €391 thousand). Lower consultancy costs were mainly responsible for the decline of both administrative and distribution costs.

Operating profit/loss :: The loss from operating activities improved from €4,847 thousand to €4,495 thousand yearon-year in the reporting quarter. The operating loss posted for the first nine months of 2012 thus decreased by 14% to €12,320 thousand (previous year: €14,385 thousand).

Net finance income/loss :: Net finance income fell from €102 thousand in the third quarter of 2011 to €35 thousand in the reporting quarter. Compared with the first nine months of 2011, net finance income decreased from €297 thousand to €194 thousand. Finance income was €36 thousand in the reporting quarter (previous year: €116 thousand) and €104 thousand in the first nine months of 2012 (previous year: €243 thousand). This was due mainly to falling interest rates on the capital markets and the decrease in available funds. At the same time, the share in the profit/loss of associates was lower in the prior-year quarter than in the third quarter of 2012, in which €1 thousand was reported (previous year: €-7 thousand). A total of €99 thousand was reported for the first nine months of 2012 as a whole, compared with €79 thousand in the prior-year period. Exchange rate differences lifted finance costs to €2 thousand in the third quarter (previous year: €7 thousand) and to €9 thousand in the first nine months (previous year: €25 thousand).

Taxes :: The Company reported no income tax expense for the third quarter (previous year: €3 thousand) and income tax expense of €10 thousand for the first nine months of the year (previous year: €593 thousand).

Profit/loss for the period :: The Company reported a loss of €4,460 thousand for the period from July to September 2012, compared with a loss of €4,748 thousand in the prioryear quarter. The loss for the first nine months of 2012 thus amounted to €12,136 thousand, 17% less than in the first nine months of 2011, when the Company posted a loss of €14,681 thousand.

Earnings per share :: Against the background of the capital increase completed in July 2012, which was associated with an increase in the number of shares, plus the lower loss for the period, basic and diluted earnings per share improved year-on-year in both the third quarter of 2012 and over the first nine months of 2012. Basic and diluted earnings per share were €-0.09 between July and September 2012 (previous year: €-0.11) and €-0.24 between January and September 2012 (previous year: €-0.35).

2.2 Financial position

Non-current assets :: Non-current assets fell to €14,309 thousand as at 30 September 2012 from €15,086 thousand at the end of the 2011 financial year, mainly as a result of the pro-rata depreciation and amortisation of intangible and tangible assets. Intangible assets remained the largest item of non-current assets at €12,925 thousand (31 December 2011: €13,574 thousand), followed by property, plant and equipment at €855 thousand (31 December 2011: €1,065 thousand) and financial assets at €363 thousand (31 December 2011: €264 thousand).

Current assets :: Current assets reflect the capital increase that 4SC AG implemented in July 2012. This stabilised funds (comprising cash and cash equivalents and other financial assets) at €15,797 thousand, compared to €15,820 thousand in the previous year. Total current assets were €16,753 thousand and thus virtually at the same level as the figure for 31 December 2011 of €16,752 thousand.

Equity :: The slight decline in equity from €23,533 thousand as at 31 December 2011 to €22,846 thousand as at 30 September 2012 was influenced by a variety of factors. The capital increase that was implemented had a positive effect. The Company's share capital increased by €8,403,510 from €41,968,304 to €50,371,814. Accordingly, the number of shares increased by 8,403,510 from 41,968,304 to 50,371,814. This also lifted the share premium by €2,952 thousand to €78,403 thousand. The net loss for the period of €12,136 thousand had a countervailing effect, lifting the accumulated deficit accordingly, from €95,518 thousand to €107,654 thousand. The equity ratio declined slightly by 0.4 percentage points, from 73.9% as at 31 December 2011 to 73.5% as at 30 September 2012.

Current and non-current liabilities :: Non-current liabilities decreased from €4,782 thousand at the end of 2011 to €3,932 thousand as at 30 September 2012. These mainly comprised the deferred income in connection with the Yakult Honsha partnership. Current liabilities, in contrast, increased from €3,523 thousand at the end of 2011 to €4,284 thousand at the end of the reporting period. These mainly consisted of other liabilities of €3,794 thousand (previous year: €2,744 thousand) including deferred income, which predominantly comprised unbilled external services; costs incurred in connection with the capital increase completed in July 2012; the current portion of the deferred income of €894 thousand, also in connection with Yakult Honsha; as well as trade accounts payable of €402 thousand (previous year €705 thousand).

Total assets/Total equity and liabilities :: Total assets/ total equity and liabilities amounted to €31,062 thousand as at 30 September 2012, down 2% on the previous financial year (31 December 2011: €31,838 thousand).

2.3 Cash flows

Cash flows from operating activities :: Cash totalling €11,289 thousand was used for operating activities in the first nine months of 2012. The difference compared with the net loss for the period of €12,126 thousand is attributable to adjustments for non-cash items in the statement of comprehensive income (principally straight-line depreciation and amortisation plus stock options) and also to changes in items in the statement of financial position that had a positive effect on cash flows, especially the increase in other liabilities due to liabilities incurred in connection with third-party services that have not yet been billed. The reduction of both trade accounts payable and deferred income had a countervailing effect. In the prior-year period, cash flows from operating activities came to €-7,835 thousand with a loss for the period of €14,088 thousand. In 2011, the up-front payment received from Yakult Honsha had a positive effect.

Cash flows from investing activities :: The cash inflows from investing activities in the first nine months of 2012 amounted to €2,665 thousand, compared with a cash outflow of €1,981 thousand as at 30 September 2011. The Company invested €51 thousand (previous year: €465 thousand) in intangible assets and €49 thousand (previous year: €162 thousand) in property, plant and equipment during that period of 2012. The acquisition of financial investments in the amount of €8,245 thousand (previous year: €14,500 thousand) with a simultaneous cash inflow from the sale of financial investments of €11,000 thousand (previous year: €13,146 thousand) resulted in net cash inflows of €2,755 thousand (previous year: outflows of €1,354 thousand).

Cash flows from financing activities :: The net cash flows of €11,766 thousand from financing activities in the 2012 reporting period are due to the capital increase that was successfully completed on 3 July 2012. An additional €410 thousand in costs of the capital increase, which have not yet been incurred, will follow in the fourth quarter. In the previous year, a capital increase of €11,034 thousand was implemented in February and employee shares worth €46 thousand were issued in May.

Cash balance/funds :: Cash and cash equivalents amounted to €9,552 thousand at the end of the reporting period (previous year: €6,820 thousand). Additional funds in the amount of €6,245 thousand (previous year: €9,000 thousand) were invested in short-term fixed and variable-interest securities and fixed-term deposits. As at 30 September 2012, the Company had cash and available-for-sale securities totalling €15,797 thousand, compared with €15,820 thousand at the end of 2011. This resulted in an average monthly funding requirement of €1,310 thousand in the nine months of 2012 (previous year: €940 thousand).

3. REPORT ON RISKS AND OPPORTUNITIES

Please see the Group's annual report as at 31 December 2011 and the consolidated half-year financial report as at 30 June 2012 for a detailed description of the risks and opportunities arising from our business activities as well as of our IT-based risk management and controlling system. Since then no major changes have occurred with respect to our situation in terms of risks and opportunities and no major changes are expected to occur in the next three months either. The occurrence of any one of the risks described in the annual report – alone or in conjunction with each other – could have a negative impact on the financial performance, cash flows and financial position of 4SC.

4. EVENTS AFTER THE REPORTING PERIOD

Shortly after the end of the reporting period, on 1 October 2012, the Company announced that the Chinese State Intellectual Property Office had issued a notification of allowance for the impending granting of the composition-of-matter patent for resminostat in China. The granting of this key patent is crucially important to the compound's further development and commercialisation strategy. This derives from the fact that, with a current figure of over 400,000 new cases per year, and with 550,000 new cases to be expected annually to 2020, China has the world's highest number of liver cancer patients. With an overall volume of around USD 50 billion, China is already the world's third-largest market for pharmaceuticals.

Effective 8 October 2012, the Company sold its 1.76% stake in Nexigen GmbH, Cologne. The parties have agreed not to disclose the price of the sale.

On 23 October 2012, the Company announced that its research subsidiary 4SC Discovery GmbH had received a research grant of €600 thousand under the Munich m4 biotech cluster programme. This sum will be used to fund a joint research venture between 4SC Discovery GmbH and the Medical Clinic of the University of Munich focusing on the preclinical development of TLR7 and TLR8 agonists from 4SC Discovery GmbH for use in cancer immunotherapy.

5. ANTICIPATED DEVELOPMENTS

Forecast for the sector :: The currently positive global expectations for the sector could be confirmed by numerous potential development milestones that are planned up until the end of the year. This outlook is based on the expectation of 98 documented approval-related decisions, as well as results of advanced trials in the fourth quarter of 2012. The persistently difficult financing conditions for the biotech sector, particularly for Germany, are also confirmed by the recently published data from the industry organisation Bio. These show that German venture capital companies continue to be particularly risk-averse following the financial and economic crisis. This makes it structurally difficult for companies in the industry in Germany to access fresh capital.

Forecast for the Company :: 4SC is awaiting data from several clinical studies during the further course of 2012. Preparations for advanced clinical trials are also ongoing, in order to achieve – preferably in collaboration with a partner – decisive progress for the two lead products of resminostat and vidofludimus along the path to market maturity. On the basis of the results of multiple Phase II trials in a variety of autoimmune diseases, the 4SC AG Management Board made the decision to pursue clinical development of the vidofludimus compound in the area of inflammatory bowel disease (IBD). The Company is currently preparing a Phase IIb trial in the Crohn's disease indication. This study is to be initiated – preferably together with a partner – after the successful conclusion of negotiations with potential partners and further preparatory work required for the trial. Following the excellent results published in September 2012 on the overall survival in liver cancer (HCC), the data package for resminostat for the Phase II SHELTER trial is mostly complete. The evaluation of the biomarker analysis is still outstanding: this is expected to be published in the coming year at a scientific conference.

Based on the excellent Phase II trial results, 4SC is now focusing efforts on securing a pivotal Phase III study – preferably together with a partner – in the indication of advanced liver cancer (HCC). The Management Board of 4SC AG estimates that a study of this kind could commence in the first half of 2013, if negotiations with the authorities and potential partners are brought to a successful conclusion.

For the ongoing Phase I/II SHORE trial, which is investigating resminostat in colorectal cancer, 4SC expects to receive initial interim results – especially for safety and tolerability – before the end of this year. With 4SC-202 and 4SC-205, two further anti-cancer drug candidates are currently being investigated in clinical Phase I trials. 4SC plans to publish data from the AEGIS study with 4SC-205 in patients with solid tumours or lymphomas during the remainder of 2012. 4SC-205 is an oral inhibitor of the human kinesin spindle protein Eg5, which is of crucial importance for mitosis (cell division) and is said to play a key role in the growth of tumours. The phase I dose-finding study "TOPAS" with 4SC-202 in patients with advanced haematological tumours is also already well advanced. Due to the very good tolerance of the compound, further additional doses are being tested currently, which is delaying completion of the study. At the present time, therefore, the Company does not expect to complete this study until 2013 – after determination of the bestpossible treatment dosage. 4SC-202 is an orally administered selective class I deacetylase (DAC) inhibitor with an epigenetically regulated anti-tumour mechanism of action. One of 4SC-202's mechanisms is to inhibit the Wnt signalling pathway, a cell signal transmission pathway involved in tumour creation and growth, and target cancer stem cells.

4SC aims to secure licensing deals with companies from the pharma and biotech sectors, especially to ensure the targeted development of its lead compounds vidofludimus and resminostat towards market maturity. This is intended to secure a flow of funds – e.g. by means of up-front payments, milestone payments and royalties – and enable 4SC to participate in the substances' successful future development. Given the positive study results with both compounds – with resminostat in liver cancer and lymph node cancer, and with vidofludimus in IBD – the Company is looking forward with optimism to the successful continuation of discussions with potential partners.

By optimally leveraging its strong research, 4SC Discovery GmbH is currently focusing its efforts on securing further service provision agreements and research collaborations with companies in the pharmaceuticals and biotech sectors. 4SC Discovery GmbH also intends to utilise early-stage partnering deals with pharmaceutical firms to drive the acceleration and commercial development of its research programmes.

4SC had funds of €15,797 thousand at the end of the third quarter of 2012. These existing funds in connection with the current forecast of further expense and revenue planning will ensure the Company's financing until the end of 2013. This forecast is based on the assumption that the monthly operating cash burn rate in 2012 will be approximately €1.4 million and significantly lower in 2013, and that the Company's research and development programmes will run according to plan. Overall, 4SC is still forecasting a net loss in the short and medium term, but under the Company's current plans for 2012 and 2013, research and development costs will be slightly lower than in 2011, due, among other things, to the lower number of ongoing clinical trials. At the same time, the Company anticipates that, after the successful commencement of 4SC Discovery GmbH's operations, it will generate further revenue from early research collaborations and services in 2012 as a whole by commercialising its research programmes. Should it prove impossible to generate sufficient additional cash flows with the planned operating measures, for example in the form of cooperation deals or partnerships, additional capital requirements would have to be met by raising further equity and/or borrowings to ensure the Company's continued existence in the medium and long term. The statements on the Company's organisation and fundamental strategy, as well as opportunities and risks as described on pages 40 and 62 to 69 of the 2011 annual report are still applicable.

Planegg-Martinsried, 5 November 2012

Chief Executive Officer Chief Development Officer Chief Financial Officer Chief Scientific Officer

Dr Ulrich Dauer Dr Bernd Hentsch Dipl.-Kfm. Enno Spillner Dr Daniel Vitt

:: INTERIM CONSOLIDATED FINANCIAL STATEMENTS

:: Consolidated Statement of comprehensive income

for the period from 1 JanuarY to 30 September 2012

in €000's	Q3 2012	Q3 2011	9M 2012	9M 2011
Revenue	294	223	1,028	443
Cost of sales	- 109	0	- 208	- 11
Gross profit	185	223	820	432
Distribution costs	- 22	- 143	- 386	- 391
Research and development costs	- 3,859	- 3,792	- 9,930	- 11,331
Administrative costs	- 815	- 1,134	- 2,854	- 3,100
Other income	16	- 1	30	5
Operating profit/loss	- 4,495	- 4,847	- 12,320	- 14,385
Net finance income/loss
Share in the profit of equity-accounted investees	1	- 7	99	79
Finance income	36	116	104	243
Finance costs	- 2	- 7	- 9	- 25
Net finance income/loss	35	102	194	297
Earnings bef ore taxes	- 4,460	- 4,745	- 12,126	- 14,088
Income tax	0	- 3	- 10	- 593
Profit/loss for the period =
consolid ated comprehe nsive income/loss	- 4,460	- 4,748	- 12,136	- 14,681
Earnings per share (basic and diluted; in €)	- 0.09	- 0.11	- 0.27	- 0.35

:: Consolidated Statement of financial position – ASSETS

for the period ended 30 September 2012

in €000's	30.09.2012	31.12.2011
ASSETS
Non-current asse ts
Intangible assets	12,925	13,574
Property, plant and equipment	855	1,065
Investments accounted for using the equity method	220	121
Other investments	143	143
Other assets	166	183
Total non-current asse ts	14,309	15,086
Current asse ts
Inventories	22	25
Trade accounts receivable	65	115
Receivables from associates	0	2
Other financial assets	6,245	9,000
Cash and cash equivalents	9,552	6,820
Current tax assets	119	69
Other assets	750	721
Total current asse ts	16,753	16,752
Total Asse ts	31,062	31,838

:: Consolidated Statement of financial position – EQUITY AND LIABILITIES

for the period ended 30 September 2012

in €000's	30.09.2012	31.12.2011
EQUITY AND LIABILITIES
Equi ty
Subscribed capital	50,372	41,968
Share premium	78,403	75,451
Reserves	1,725	1,632
Accumulated deficit	- 107,654	- 95,518
Total equi ty	22,846	23,533
Non-current liabili ties
Other liabilities	133	313
Deferred income	3,799	4,469
Total non-current liabili ties	3,932	4,782
Current liabili ties
Trade accounts payable	402	705
Accounts payable to associates	43	29
Provisions	45	45
Other liabilities	2,900	1,850
Deferred income	894	894
Total current liabili ties	4,284	3,523
Total Equi ty and liabili ties	31,062	31,838

:: Consolidated Statement of cash flows

for the period from 1 January to 30 September 2012

in €000's	9M 2012	9M 2011
Cash flows from operating activi ties
Earnings before taxes	- 12,126	- 14,088
Adjustment for statement of comprehensive income items
Depreciation and amortisation	942	1,051
Net finance income/loss	- 194	- 297
Stock options	93	248
Other non-cash items	- 38	83
Changes in statement of financial position items
Inventories	3	- 4
Trade accounts receivable	50	281
Receivables from associates	2	0
Current tax assets	- 50	123
Other assets	- 12	- 202
Trade accounts payable	- 303	- 162
Accounts payable to associates	13	- 29
Deferred income	- 670	5,587
Other liabilities	460	23
Interest received	150	152
Interest paid	- 9	- 1
Income taxes paid	- 10	- 600
Cash flows from operating activi ties	- 11,699	- 7,835
Cash flows from inves ting activi ties
Purchase of intangible assets	- 51	- 465
Purchase of property, plant and equipment	- 49	- 162
Proceeds from sales of property, plant and equipment	10	0
Purchase of financial investments	- 8,245	- 14,500
Sale of financial investments	11,000	13,146
Cash flows from inves ting activi ties	2,665	- 1,981
Cash flows from financing activi ties
Payments to subscribed capital	8,404	3,465
Payments to share premium	3,362	7,615
Cash flows from financing activi ties	11,766	11,080
Net change in cash and cash equiv alents Cash and cash equiv alents	2,732	1,264
+ Cash and cash equivalents at the beginning of the period	6,820	4,956
= Cash and cash equiv alents at the end of the period	9,552	6,220

* An additional €410 thousand in costs of the capital increase, which have not yet been incurred, will follow in the fourth quarter.

:: Consolidated Statement of changes in equity

for the period from 1 January to 30 September 2012

			Reserves
in €000's	Subscribed capital	Share premium	Reserve for stock options	Retained earnings	Accumulated deficit	Total
Balance on 01.01.2011	38,503	67,836	1,251	67	- 76,447	31,210
Options issued (ESOP 2006 /2008)			5			5
Options issued (ESOP 2009 /2009)			238			238
Options issued (ESOP 2009 /2010)			4			4
Options issued (ESOP 2009 /2011)
Capital increase 24.02.2011	3,452	7,582				11,034
Employee shares 12.05.2011	13	33				46
Comprehensive income/loss 01.01.–30.09.2011					- 14,681	- 14,681
Profit/loss for the period 01.01.–30.09.2011					- 14,681	- 14,681
Balance on 30.09.2011	41,968	75,451	1,498	67	- 91,128	27,856
Balance on 01.01.2012	41,968	75,451	1,565	67	- 95,518	23,533
Options issued (ESOP 2006 /2008)			3			3
Options issued (ESOP 2009 /2009)			83			83
Options issued (ESOP 2009 /2010)			4			4
Options issued (ESOP 2009 /2011)			3			3
Capital increase 03.07.2012	8,404	2,952				11,356
Consolidated total comprehensive income/loss 01.01.–30.09.2012					- 12,136	- 12,136
Consolidated profit/loss for the period 01.01.–30.09.2012					- 12,136	- 12,136
Balance on 30.09.2012	50,372	78,403	1,658	67	107,654	22,846

:: Selected consolidated Notes

to the consolidated interim report as at 30 September 2012

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.1 Basis of Preparation

These interim consolidated financial statements were created in accordance with the accounting principles of the International Financial Reporting Standard (IFRS) – as adopted by the EU – in consideration of IAS 34 (interim financial reporting) in accordance with the requirements of the International Accounting Standards Board (IASB). The recommendations of the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC) have been taken into account. New standards issued by the IASB and adopted by the European Commission are applied without exception starting in the financial year in which their application becomes mandatory.

These interim consolidated financial statements as at 30 September 2012 comprise 4SC AG, based in Planegg-Martinsried, and 4SC Discovery GmbH, Planegg-Martinsried, together referred to as the "Group", and also take account of the following companies:

Company/Domicile	Measured as	Measured acc. to
quattro research GmbH, Planegg-Martinsried	Associate	IAS 28
Nexigen GmbH, Cologne	Equity investment	IAS 39
Quiescence Technologies LLC., Melbourne, Florida, USA	Equity investment	IAS 39

The consolidated interim report was approved for publication by the Management Board on 5 November 2012. The discussion of the consolidated interim report by the Supervisory Board's Audit Committee and the Management Board in line with the German Corporate Governance Code (as amended on 15 May 2012) was held via teleconference on 26 October 2012.

1.2 General Disclosures

With the exception of the reporting on operating segments, the accounting policies applied and estimates made correspond to those used for the consolidated financial statements for the year ending 31 December 2011.

Since 1 January 2012, 4SC has been reporting on different operating segments in its financial report. An operating segment is a component of an entity (the Group) that engages in business activities, generates both revenue and income and incurs expenses. Its operating performance is regularly reviewed by the entity's managing directors or Executive Management Board. Financial information is available for each individual operating segment by definition.

The Group's management structure and structure of its intragroup reporting form the basis for segmentation. Segment result and segment assets contain components that may be directly attributable to a single segment or allocated to all segments on a reasonable basis.

2. Segment reporting

The 4SC Group consists of the following two operating segments

• :: Development
• :: Discovery & Collaborative Business

Each individual operating segment, along with its core business and core projects, is set out below.

Development :: The Development segment comprises the clinical and preclinical development work for drug candidates from the Group's product pipeline and is primarily conducted by the Group's parent company 4SC AG. It currently comprises the development programmes for vidofludimus, resminostat, 4SC-202, 4SC-203, 4SC-205 and 4SC-207.

Discovery & Collaborative Business :: The Discovery & Collaborative segment comprises the activities collectively handled by 4SC Discovery GmbH, namely drug discovery and early-stage research plus subsequent commercialisation, in particular through service business and research collaborations related to drug discovery and optimisation.

There was no intersegment revenue. The segment results were as follows:

	Development		Discovery & Collaborative Business
in €000's	Q3 2012	9M 2012	Q3 2012	9M 2012
Segment resul ts
Revenue (total)	224	673	70	355
External revenue	224	673	70	355
Intersegment revenue	0	0	0	0
Segment result before taxes	-3,741	- 9,557	- 719	- 2,569

3. Earnings per share

The basic earnings per share are calculated in accordance with IAS 33.9 ff. by dividing the profit/loss for the period attributable to the shareholders (numerator) by the average weighted number of shares outstanding in the reporting period (denominator).

	Q3 2012	Q3 2011	9M 2012	9M 2011
Based on profit/loss for the period (in €000's)	- 4,460	- 4,748	- 12,136	- 14,681
Based on average number of shares (in 000's)	50,372	41,968	44,769	41,284
Earnings per share (basic and dilu ted, in €)	- 0.09	- 0.11	- 0.27	- 0.35

Given 4SC's loss, the options issued are not dilutive. As a result, the diluted and basic earnings per share are identical.

4. Notes to the Cash Balance

In addition to cash and cash equivalents, 4SC had the liquid funds at its disposal that were invested for better return. Taken together, these items comprise the cash balance/funds.

in €000's	30.09.2012	31.12.2011	30.09.2011
Cash and cash equivalents at the end of the period	9,552	6,820	6,220
Other financial assets	6,245	9,000	14,000
Cash balance/funds	15,797	15,820	20,220

5. Shareholdings and directors' dealings

In the third quarter of 2012 no reportable transactions pursuant to Section 15a of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG) were made with shares or options by members of the Management Board or Supervisory Board.

19 :: 4SC :: Consolidated 9-Month Financial Report :: Selected consolidated Notes :: Shareholdings and Directors' Dealings :: Related party transactions :: Financing measures :: Events after the reporting period

The following overviews show the shares and stock options held by members of the Management Board and Supervisory Board as at the 30 September 2012 reporting date as well as changes in these holdings compared to the start of the year.

Number of shares			Shares 01.01.2012	Purchase	Sale	Shares 30.09.2012
Management Board
Dr Ulrich Dauer			437,439	0	0	437,439
Dr Daniel Vitt			416,803	0	0	416,803
Dr Bernd Hentsch			0	0	0	0
Dipl.-Kfm. Enno Spillner			70,000	0	0	70,000
Shares held by the	Management Board		924,242	0	0	924,242
Supervis ory Board
Dr Manfred Rüdiger			20,000	0	0	20,000
Dr Clemens Doppler			14,875	3,718	0	18,593
Dr Thomas Werner			5,000	0	0	5,000
Shares held by the Supervis ory Board		39,875	3,718	0	43,593
Number of stock options	Options 01.01.2012	Additions	Expired	Exercised	Options 30.09.2012	Maximum number of shares
Management Board
Dr Ulrich Dauer	147,400	0	0	0	147,400	145,000
Dr Daniel Vitt	147,400	0	0	0	147,400	145,000
Dr Bernd Hentsch	152,720	0	0	0	152,720	152,720
Dipl.-Kfm. Enno Spillner	249,600	0	0	0	249,600	236,400
Options held by the Management Board	697,120	0	0	0	697,120	679,120

6. Related party transactions

There were no significant changes regarding related party transactions in the third quarter compared to the disclosures made in the annual report as at 31 December 2011 and the consolidated interim report as at 30 June 2012.

7. Financing measures

4SC AG successfully completed a capital increase on 3 July 2012. After the new shares were recorded in the commercial register on 3 July 2012, the Company received gross proceeds totalling €12,605 thousand from issuing 8,403,510 shares at a price of €1.50 per share. The effects of this capital increase on 4SC AG's cash flows and financial position are explained in the interim management report of the Group under items 2.2 and 2.3.

8. Events after the reporting period

For more information regarding further events after the reporting period, please see section 4 of the interim management report. They have no direct, significant effect on the financial performance, cash flows and financial position of 4SC AG.

:: General/Publishing INFORMATION

Editor

:: 4SC AG :: Am Klopferspitz 19a, 82152 Planegg-Martinsried, Germany

date of Publication

:: 8 November 2012

Management Board

• :: Dr Ulrich Dauer, Chief Executive Officer
• :: Dr Bernd Hentsch, Chief Development Officer
• :: Dipl.-Kfm. Enno Spillner, Chief Financial Officer
• :: Dr Daniel Vitt, Chief Scientific Officer

Investor ReLations & Corporate Communications

:: Jochen Orlowski public@4SC.com T +49 (0)89 70 07 63 0

The 4SC-share

• :: WKN 575381
• :: ISIN DE0005753818
• :: Share price symbol VSC

Conception/Design

:: PETRANIX Corporate & Financial Communications AG :: Adliswil-Zürich, Switzerland

:: Financial Calendar

29 March 2012

:: Annual Report 2011

10 May 2012

:: Q1 Report 2012

6 August 2012

:: Annual General Shareholders' Meeting 2012

9 August 2012

:: Half-year Report 2012

8 November 2012

:: Q3 Report 2012

13 November 2012

:: Analyst Conference – German Equity Forum Frankfurt, Germany

On the path to market maturity

By people. with people. for people.

:: 4SC AG : : Am Klopferspitz 19a, 82152 Planegg-Martinsried, Germany T +49 (0) 89 70 07 63 0, F +49 (0) 89 70 07 63 29

:: www.4sc.com