Active Biotech — Interim / Quarterly Report 2010

Oct 27, 2010

Interim Report January - September 2010

• Laquinimod ― Phase III trials proceeding as planned, results from Phase II extension study published in scientific journal
• TASQ ― preparations ongoing for start of Phase III in first half of 2011
• ANYARA ― ongoing phase III trial expected to be concluded in first half of 2012
• 57-57 ― exploratory SLE clinical trial completed
• ISI ― project continuing according to plan
• RhuDex™ ― preparations for continued clinical development in progress
• Net sales of SEK 8.5 M (7.7)
• Operating loss of SEK 149.7 M (loss: 164.6)
• Loss after tax SEK 156.8 M (loss: 165.1)
• Loss per share for the period amounted to SEK 2.40 (loss: 2.90)

For further information, please contact:

Tomas Leanderson President and CEO Tel: +46 (0)46-19 20 95

Göran Forsberg VP Investor Relations & Business Development Tel: +46 (0)46-19 11 54

Hans Kolam Active Biotech AB

This report is also available at www.activebiotech.com Fax: +46 (0)46-19 11 00

CFO (Corp. Reg. No. 556223-9227) Tel: +46 (0)46-19 20 44 PO Box 724, SE-220 07 Lund Tel: +46 (0)46-19 20 00

Laquinimod – a novel oral immunomodulatory compound for the treatment of autoimmune diseases

Laquinimod is a quinoline compound in Phase III development for the treatment of multiple sclerosis (MS). Active Biotech entered into an agreement with the Israeli pharmaceutical company Teva Pharmaceutical Industries Ltd (June 2004) covering the development and commercialization of laquinimod. New data was presented in September 2009 showing that laquinimod has both neuroprotective and anti-inflammatory properties. Results from several preclinical studies suggest that laquinimod reduces demyelination and induces axonal protection.

At present, laquinimod is undergoing two global clinical Phase III trials, which encompass a total of 2,200 MS patients in 175 clinics worldwide. Teva completed patient enrolment for the first of two Phase III studies (Allegro) in November 2008 and the second (Bravo) in June 2009. Information regarding the ongoing clinical trials is available at www.clinicaltrials.gov. In February 2009, laquinimod received a Fast Track designation from the US Food and Drug Administration, FDA, which can potentially facilitate development and expedite the review process.

– In September 2010, the results were presented of a 36-week active extension study evaluating two doses of laquinimod for the treatment of relapsing remitting multiple sclerosis (RRMS). The doubleblind, multinational study demonstrated the sustained positive benefit/risk profile of laquinimod, which was shown to reduce Gd-enhancing (GdE) T1 lesions, while maintaining a good safety profile. These findings were published online by the journal Multiple Sclerosis.

– Two global clinical Phase III studies, ALLEGRO and BRAVO, are currently under way and results are anticipated in the first and third quarters, respectively, of 2011. Clinical Phase II trials for the treatment of Crohn's disease and Lupus are continuing according to plan.

TASQ – an antiangiogenic compound for the treatment of prostate cancer

The development of TASQ is principally focused on the treatment of prostate cancer. TASQ is an antiangiogenic compound, meaning that it cuts off the supply of nutrients to the tumor but it does not belong to the most frequently occurring group of tyrosine kinase inhibitors. Studies concluded that TASQ exhibits anti-tumor activity via inhibition of tumor angiogenesis. The up-regulation of the antiangiogenic protein thrombospondin-1 (TSP1) is a part of this mechanism. It was announced in December 2009 that the primary endpoint of the Phase II clinical study, to show a higher fraction of patients with no disease progression during the six-month period of treatment using TASQ, had been reached. Complete results from the Phase II trial were presented at the 46th Annual Meeting of the American Society of Clinical Oncology (ASCO) in June 2010.

– Preparations are under way for the start of a clinical Phase III trial in prostate cancer. The company intends to submit an application to commence a global, pivotal study with progression-free survival (PFS) as the primary endpoint. The proposed study is expected to be launched during the first half of 2011.

ANYARA – a fusion protein for immunological treatment of renal cancer

ANYARA is a TTS (Tumor Targeting Superantigen) compound that makes the treatment of cancer tumor-specific. The development of ANYARA is mainly focused on renal cell cancer.

Positive data was reported in connection with the interim analysis in Phase II/III and from clinical Phase I trials in lung cancer, renal cell cancer and pancreatic cancer. The median survival of 26.2 months observed for patients with advanced renal cell cancer and treated with ANYARA is twice the expected length. In July 2009, the results from two Phase I studies of ANYARA were published in the Journal of Clinical Oncology, where ANYARA was studied both as a single agent (monotherapy) and in combination with an established tumor therapy – docetaxel (Taxotere®) – in patients with advanced cancer. The results showed that ANYARA was well tolerated both as monotherapy and in combination with docetaxel. Pivotal Phase III trials in patients with advanced renal cell cancer are currently under way. The Phase III trials are fully enrolled since June 2009 and include a total of approximately 500 patients at about 50 clinics in Europe. ANYARA has been granted orphan-drug status by the EMA for the indication renal cell cancer. Information concerning the ongoing clinical trial is available at www.activebiotech.com and www.clinicaltrials.gov.

– The ongoing Phase III study is evaluating the effect of ANYARA in combination with interferonalpha, compared with interferon-alpha alone, in patients with advanced renal cell cancer. The primary clinical efficacy parameter will be read after 384 registered events (deaths), and calculated with respect to overall survival. An updated analysis, conducted during the period, of the number of registered events indicates that it will be possible to present the results in the first half of 2012, which is 9-12 months later than the earlier forecast. This delay in reading the results is due to a lower number of events registered than previously assumed based on historical data.

57-57 – novel oral immunomodulatory compound for the treatment of systemic lupus erythematosus and systemic sclerosis/scleroderma

57-57 is a quinoline compound primarily intended for the treatment of systemic lupus erythematosus (SLE), a disease that causes inflammation and damage to connective tissue throughout the body, with serious secondary symptoms, such as kidney failure. Data from the completed clinical Phase Ib trial of 57-57 was presented at scientific conferences. 57-57 was well tolerated and the results indicate that treatment with 57-57 could influence pathways known to be important in SLE pathogenesis. A smallscale exploratory clinical study in SLE patients has been conducted in Sweden and Denmark. This study has recently been completed. In August 2010, the company also decided to initiate the development of 57-57 for the treatment of systemic sclerosis/scleroderma. This rare disease is classified as an orphan drug indication.

– The explorative clinical study in SLE patients has been completed and is currently in the reporting phase. A total of 13 patients with a mild, active form of the SLE disease received daily treatment with 1.5 or 3 mg of ABR-215757. The safety profile of the therapy was favorable. No serious adverse events (SAEs) were reported in the study. Positive effects were observed in patients with symptoms in joints or certain skin symptoms. The complete results from this study will be presented in conjunction with future scientific conferences and publications.

– Preparations are in progress for the launch of an explorative study in systemic sclerosis/scleroderma during the first half of 2011.

ISI (Inhibition of S100 Interactions) – preclinical project based on the mechanism of action of quinoline compounds

Active Biotech is conducting a new research project aimed at utilizing the company's own preclinical results that were generated with respect to a target molecule for the quinoline (Q) compounds and their biological mechanism of action. The results of a target molecule for the Q compounds were published in PLoS Biology (Volume 7, Issue 4, pp. 800-812) in April 2009. The study shows that Q compounds bind to a molecule called S100A9, which is expressed in white blood cells involved in the regulation of immune responses. Furthermore, it is shown that S100A9 interacts with two known proinflammatory receptors (Toll like receptor 4 (TLR4) and receptor of advanced glycation end products (RAGE)) and that this interaction is inhibited by Q compounds. The project aims at producing new, patentable chemical substances that interact with the target molecule of the Q compounds and to select a candidate drug in 2011/2012.

– The project is proceeding according to plan.

RhuDex™ – a novel oral compound for the treatment of rheumatoid arthritis

In the project covering Active Biotech's patented CD80 antagonists, the RhuDex candidate drug is under development for the treatment of rheumatoid arthritis (RA). In April 2002, Active Biotech entered a licensing agreement with Avidex Ltd, now a wholly owned subsidiary of the German biotechnology company MediGene AG, according to which MediGene has the exclusive rights to develop CD80 antagonists and market products in which these compounds are included. Two Phase I trials have already been successfully concluded in which the RhuDex candidate drug was studied with respect to its safety, tolerability and pharmacokinetic properties in healthy volunteers. In June 2008, MediGene announced that a clinical Phase IIa trial had achieved its objective. For further information and the latest news concerning RhuDex, visit www.medigene.com.

– Preclinical studies aimed at optimizing the clinical development program were completed during the year. Clinical trials are expected to be resumed in the first quarter of 2011.

Events after the end of the period

On October 15, further evidence of the neuroprotective properties of laquinimod in animal studies were presented at the 26th Congress of the European Committee for Treatment and Research in Multiple Sclerosis (ECTRIMS) in Gothenburg, Sweden. These results, generated from several preclinical studies evaluating the mechanism of action of oral laquinimod, demonstrated that:

• Laquinimod reverts the disruption of neurogenic processes that can occur with chronic inflammation in the central nervous system (CNS), and is associated with a significant reduction in the percentage of demyelination and axonal damage.
• Laquinimod differentially influenced the activity of select immune cells, reducing their proinflammatory characteristics while increasing the production of neurotrophic factors known to be involved in neuroprotection and repair mechanisms.
• Laquinimod treatment is associated with an increase in brain-derived neurotrophic factor (BDNF), a pivotal factor in the development and maintenance of the CNS, in the circulation.

Financial information

Comments on the Group's results for the January – September 2010 period

Net sales for the period amounted to SEK 8.5 M (7.7) and derived from service and rental revenues.

The operation's research and administration expenses totaled SEK 158.2 M (172.4). Research expenses amounted to SEK 142.4 M (158.9). The reduction in expenses compared with the yearearlier period was attributable to lower costs in the ongoing Phase III trial for the ANYARA renal cancer project and significantly lower costs for the ongoing exploratory study in the SLE project 57-57 than in the corresponding period in 2009. Costs for the period include the ongoing planning of Phase III trials with TASQ for the treatment of prostate cancer. In addition to the clinical projects, Active Biotech is conducting the preclinical research project, ISI, aimed at utilizing the company's own research results that were generated around a target molecule for the Q compounds and their biological mechanism of action. Costs for the period were positively impacted by the appreciation of the SEK against the EUR and USD. Administration expenses amounted to SEK 15.8 M (13.5), the deviation is attributable to increased costs for the employee stock option program compared with 2009.

The clinical development of RhuDex for the treatment of RA and the ongoing clinical Phase III studies with laquinimod are fully financed by the relevant partners.

The company recognized an operating loss of SEK 149.7 M (loss: 164.6). Net financial items totaled an expense of SEK 7.1 M (expense: 0.5). A loss of SEK 156.8 M (loss: 165.1) was recognized after tax.

Cash flow, liquidity and financial position

Cash and cash equivalents and short-term investments amounted to SEK 175.9 M at the end of the period, compared with SEK 156.0 M at the end of 2009.

Cash flow for the period amounted to SEK 19.9 M (13.4), of which cash flow from operating activities was a negative SEK 151.8 M (neg: 180.4). Cash flow from financing activities totaled SEK 171.6 M as a result of the implementation of the directed share issue to Sectoral Asset Management during the second quarter, which provided an injection of about SEK 149 M, and the exercise of employee stock options. In the corresponding period in 2009, positive cash flow from financing activities was reported in the amount of SEK 243.9 M, which was due to a rights issue that generated SEK 249.0 M.

Investments

Investments in tangible fixed assets amounted to SEK 0.0 M (neg: 0.1).

Comments on the Parent Company's earnings and financial position

The operations of the Parent Company, Active Biotech AB, comprise Group-wide administrative functions. The Parent Company's net sales for the period amounted to SEK 2.6 M (2.6).

Operating expenses during the period totaled SEK 12.6 M (12.6) and net financial items amounted to income of SEK 0.9 M (1.6). Loss after financial items amounted to SEK 9.0 M (loss: 8.4). No investments in fixed assets were made during the period.

Cash and cash equivalents, including short-term investments, totaled SEK 157.8 M at the end of the period, compared with SEK 144.2 M on January 1, 2010.

To simplify the Group's structure and enhance the efficiency of its administration, an application to merge the Parent Company Active Biotech AB and its wholly owned subsidiary Active Biotech Research AB was submitted to the Swedish Companies Registration Office.

Share capital

Consolidated shareholders' equity at the end of the period amounted to SEK 209.0 M, compared with SEK 188.6 M at year-end 2009.

The total number of shares outstanding amounted to 65,967,864 at the end of the period. In the event of redemption of share warrants outstanding, the number of shares in Active Biotech could increase to a maximum of about 66.4 million.

At the end of the period, the equity/assets ratio for the Group was 41.1%, compared with 37.8% at year-end 2009. The corresponding figures for the Parent Company, Active Biotech AB, were 97.9% and 93.9%, respectively.

Organization

The average number of employees was 88 (90), with the average number of employees in the research and development operation accounting for 72 (73). At the end of the period, the Group had 87 employees (90).

Employee stock options program

An Extraordinary General Meeting on December 8, 2003 resolved to implement a free employee stock options program comprising a total of 1,000,000 options for all employees of the company. The options program, combined with the hedging of future social-security costs and following the expiry of the series 1 options on May 31, 2009, comprised a total of 778,685 options. Of these, a total of 404,587 options, corresponding to 497,626 shares, were exercised during the January-September 2010 period, which increased the share capital by SEK 1.9 M and other capital contributions by SEK 27.0 M.

The number of options outstanding at the end of the period amounted to about 374,098 and the total number of shares can thus amount to about 66.4 million.

Outlook, including significant risks and uncertainties

A vital factor for Active Biotech's long-term financial strength and stability is the company's ability to develop pharmaceutical projects to the point at which partnership agreements can be entered into and the partner can assume responsibility for future development and commercialization of the project. During this development phase, the value of projects is expected to increase. The development of partnership agreements already signed and the addition of new agreements are assumed to have a significant impact on future revenues and cash balances. The Board of Directors is of the opinion that the present level of available liquidity and other available financial alternatives will provide sufficient financial resources to finance the company's operations in line with current plans.

A research company such as Active Biotech is characterized by a high operational and financial risk, since the projects in which the company is involved are at the clinical phase, where a number of factors have an impact on the likelihood of commercial success. In brief, the operation is associated with risks related to such factors as pharmaceutical development, competition, advances in technology, patents, regulatory requirements, capital requirements, currencies and interest rates. Since no significant changes took place with regard to risks and uncertainties during the period, refer to the detailed account of these factors presented in the Directors' Report in the 2009 Annual Report.

SEK M 2010 2009 2010 2009 2009 Net sales 2.3 2.5 8.5 7.7 10.8 Administrative expenses -4.0 -3.9 -15.8 -13.5 -18.3 Research and development costs -45.6 -44.8 -142.4 -158.9 -212.0 Operating loss -47.3 -46.1 -149.7 -164.6 -219.6 Net financial items -1.2 -0.4 -7.1 -0.5 -4.4 Loss before tax -48.5 -46.5 -156.8 -165.1 -224.0 Tax – – – – – Net loss for the period -48.5 -46.5 -156.8 -165.1 -224.0 Comprehensive loss attributable to: Parent company shareholders -48.5 -46.5 -156.8 -165.1 -224.0 Non controlling interests – – – – – Net loss for the period -48.5 -46.5 -156.8 -165.1 -224.0 Comprehensive loss per share before dilution (SEK) -0.74 -0.73 -2.40 -2.90 -3.81 Comprehensive loss per share after dilution (SEK) -0.74 -0.73 -2.40 -2.90 -3.81 Statement of consolidated comprehensive income Net loss for the period -48.5 -46.5 -156.8 -165.1 -224.0 Other comprehensive income Change in revaluation reserve -0.3 -0.3 -1.0 -1.0 -1.3 Taxes attributable to other comprehensive income 0.1 0.1 0.3 0.3 0.3 Total comprehensive loss for the period -48.7 -46.8 -157.5 -165.9 -224.9 Total other comprehensive loss for the period attributable to: Parent company shareholders -48.7 -46.8 -157.5 -165.9 -224.9 Non controlling interests – – – – – Total comprehensive loss for the period -48.7 -46.8 -157.5 -165.9 -224.9 Depreciation/amortization included in the amount of 2.4 2.4 7.3 7.2 9.6 Investments in tangible fixed assets – 0.1 – 0.1 0.1 Weighted number of outstanding common shares before dilution (000s) 65 964 64 052 65 288 56 967 58 753 Weighted number of outstanding common shares after dilution (000s) 65 964 64 052 65 288 56 967 58 753 Number of shares at close of the period (000s) 65 968 64 052 65 968 64 052 64 052 Outstanding warrants (000s) 374 779 374 779 779 - entitlement to number of shares after full exercise (000s) 460 958 460 958 958 Consolidated statement of financial position Sept. 30 Dec. 31 SEK M 2010 2009 2009 Tangible fixed assets 312.9 321.1 319.0 Financial fixed assets 0.0 0.0 0.0 Total fixed assets 312.9 321.1 319.0 Current receivables 19.5 18.7 23.5 Short term investments – 50.0 – Cash and cash equivalents 175.9 152.1 156.0 Totalt current assets 195.4 220.8 179.5 Total assets 508.3 541.9 498.5	Consolidated profit and loss	July - Sept.	Jan. - Sept.	Full Year

Shareholders equity	209.0	247.5	188.6
Long-term liabilities	243.6	250.2	248.0
Current liabilities	55.7	44.2	61.9
Total shareholders equity and liabilties	508.3	541.9	498.5
Consolidated statement of changes in shareholders equity
Opening balance	188.6	163.6	163.6
Transfer from revaluation reserve	0.7	0.7	1.0
New share issue	177.2	249.0	249.0
Net loss for the period	-157.5	-165.9	-224.9
Balance at close of period	209.0	247.5	188.6
Condensed consolidated cash-flow statement	Jan. - Sept.		Full year
SEK M	2010	2009	2009
Loss after financial items	-156.8	-165.1	-224.0
Adjustment for non-cash items, etc.	7.3	7.2	9.6
Cash flow from operating activities
before changes in working capital	-149.5	-158.0	-214.4
Changes in working capital	-2.3	-22.5	-10.4
Cash flow from operating activities	-151.8	-180.4	-224.8
Investments in tangible fixed assets	–	-0.1	-0.1
Investments in financial fixed assets	–	-50.0	–
Cash flow from investing activities	–	-50.1	-0.1
New share issue	177.2	249.0	249.0
Loans raised/amortization of loan liabilities	-5.6	-5.1	-6.9
Cash flow from financing activities	171.6	243.9	242.1
Cash flow for the period	19.9	13.4	17.3
Opening cash and cash equivalents	156.0	138.7	138.7
Closing cash and cash equivalents	175.9	152.1	156.0
	Sept. 30		Dec 31
Key figures	2010	2009	2009
Shareholders equity, SEK M	209.0	247.5	188.6
Equity per share, SEK	3.17	3.86	2.95
Equity/assets ratio in the Parent Company	97.9%	96.4%	93.9%
Equity/assets ratio in the Group	41.1%	45.7%	37.8%
Average number of annual employess	88	90	90

Active Biotech - parent company

Income statement, condensed	July - Sept.		Jan. Sept.		Full Year
SEK M	2010	2009	2010	2009	2009
Net sales	0.9	0.9	2.6	2.6	3.5
Administration expenses	-5.3	-2.5	-12.6	-12.6	-22.2
Operating profit/loss	-4.4	-1.7	-10.0	-10.0	-18.7
Profit/loss from financial items:
Interest income and similar income-statement items	0.4	1.2	0.9	1.6	2.3
Interest expense and similar income-statement items	–	–	0.0	0.0	0.0
Profit/loss after financial items	-4.0	-0.5	-9.0	-8.4	-16.3
Tax	–	–	–	–	–
Net profit/loss for the period	-4.0	-0.5	-9.0	-8.4	-16.3

Balance sheet, condensed		30 sep
SEK M	2010	2009	2009
Tangible fixed assets	0.4	0.4	0.4
Financial fixed assets	202.5	202.5	202.5
Total fixed assets	202.8	202.8	202.8
Current receivables	160.0	11.0	17.0
Short-term investments	–	50.0	50.0
Cash and bank balances	157.8	145.8	94.2
Total current assets	317.8	206.8	161.1
Total assets	520.6	409.7	363.9
Shareholders equity	509.9	394.7	341.8
Current liabilities	10.7	14.9	22.1
Total equity and liabilities	520.6	409.7	363.9

Any errors in additions are attributable to rounding of figures.

Accounting policies

The interim report for the Group was prepared in accordance with IAS 34 Interim Financial Reporting. In addition, relevant regulations from the Swedish Annual Accounts Act and the Securities Market Act were applied. The same accounting policies and bases for calculations were applied in this interim report as in the most recent Annual Report.

The Parent Company interim report was prepared in accordance with the Swedish Annual Accounts Act and the Securities Market Act. The same accounting policies and bases for calculations were applied in this interim report as in the most recent Annual Report.

Legal disclaimer

This financial report includes statements that are forward-looking and actual results may differ materially from those anticipated. In addition to the factors discussed, other factors that can affect results are developments in research programs, including clinical trials, the impact of competing research programs, the effect of economic conditions, the effectiveness of the company's intellectual patent protection, obstacles due to technological development, exchange-rate and interest-rate fluctuations, and political risks.

Financial calendar

Year-end report 2010: February 10, 2011 Interim report, January-March 2011: April 28, 2011 Interim report, January-June 2011: August 11, 2011 Interim Report, January-September 2011: November 3, 2011 Year-end report 2011: February 16, 2012

The reports will be available from these dates at www.activebiotech.com.

Lund, October 27, 2010 Active Biotech AB (publ)

Tomas Leanderson President and CEO

Review report

Introduction

We have reviewed the interim report of Active Biotech AB (Corporate Registration Number 556223- 9227) as of September 30, 2010 and the nine-month period ending on this date. The Board of Directors and the President are responsible for the preparation and presentation of this interim financial information in accordance with IAS 34 and the Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.

Focus and scope of the review

We conducted our review in accordance with the Standard on Review Engagements SÖG 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review has a different direction and is substantially more limited in scope than an audit conducted in accordance with Standards of Auditing in Sweden, RS, and other generally accepted auditing practices. The procedures performed in a review do not enable us to obtain a level of assurance that would make us aware of all significant matters that might be identified in an audit. Therefore, the opinion expressed based on a review does not give the same level of assurance as a conclusion expressed based on an audit.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that, in all material respects, the accompanying interim report for the Group has not been prepared in accordance with IAS 34 and the Annual Accounts Act and the interim report for the Parent Company has not been prepared in accordance with the Annual Accounts Act.

Malmö, October 27, 2010 KPMG AB David Olow Authorized Public Accountant

About Active Biotech

Active Biotech AB (NASDAQ OMX NORDIC: ACTI) is a biotechnology company with focus on autoimmune/inflammatory diseases and cancer. Projects in or entering pivotal phase are laquinimod, an orally administered small molecule with unique immunomodulatory properties for the treatment of multiple sclerosis, TASQ for prostate cancer and ANYARA for use in cancer targeted therapy, primarily of renal cell cancer. In addition, laquinimod is in Phase II development for Crohn's and Lupus. Further projects in clinical development comprise the two orally administered compounds, 57- 57 for SLE and Systemic Sclerosis as well as RhuDexTM for RA. Please visit www.activebiotech.com for more information.

Active Biotech is obligated to publish the information contained in this interim report in accordance with the Swedish Securities Market Act. This information was provided to the media for publication on October 27, 2010 at 8:30 a.m.

Active Biotech AB PO Box 724, SE-220 07 Lund Sweden Tel +46 (0)46-19 20 00 Fax +46 (0)46-19 11 00