Active Biotech — Interim / Quarterly Report 2011

Aug 11, 2011

Active Biotech AB Interim Report January – June 2011

• Laquinimod ― results of Phase III BRAVO trial reinforce unique profile of laquinimod for multiple sclerosis treatment
• TASQ ― recruitment of patients for the Phase III trial ongoing
• TASQ ― partnership agreement initiated with Ipsen
• ANYARA ― Phase III trial continues according to plan
• 57-57 ― preparation for the start of the SSC exploratory clinical trial in progress
• ISI ― project is proceeding as planned
• RhuDex™ ― preparations for continued clinical development in progress
• Net sales SEK 228.8 M (6.1)
• Operating profit SEK 70.6 M (loss: 102,4)
• Profit after tax SEK 77.7 M (loss: 108.3)
• Earnings per share for the period amounted to SEK 1.14 (loss: 1.67)

For further information, please contact:

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

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 has 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 antiinflammatory properties. In December 2010, positive results from the Phase III ALLEGRO study were presented. Laquinimod met the primary endpoint of reducing annualized relapse rate and significantly slowed progression of disability.

– The global clinical Phase III program has been completed, with the results from the second Phase III study, BRAVO. The registration application is scheduled to be filed early 2012. Read more under "Events after the end of the period."

– On April 12, the results of the two-year Phase III ALLEGRO study of laquinimod were presented, as Late Breaking Research, at the American Academy of Neurology (AAN) conference. In the ALLEGRO study, laquinimod showed a statistically significant 23 percent reduction in annualized relapse rate (p=0.0024) (the primary endpoint), along with a significant 36 percent, (p=0.0122) reduction in the risk of confirmed disability progression, as measured by Expanded Disability Status Scale (EDSS), compared with placebo. Treatment with laquinimod was also associated with a significant reduction in brain tissue loss, as measured by a 33-percent reduction in progression of brain atrophy (p<0.0001). Laquinimod was safe and well-tolerated without immunosuppressive effects. The overall frequencies of adverse events, including incidence of infections, were comparable to those observed in the placebo group. The most commonly reported adverse events were headaches, nasopharyngitis and back pain. Although the incidence of liver enzyme elevation was higher in laquinimod-treated patients, these elevations were asymptomatic and reversible. No deaths were reported in laquinimod-treated patients.

– The clinical Phase II trials for the treatment of Crohn's disease and Lupus are continuing according to plan.

TASQ – an antiangiogic 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. Studies concluded that TASQ exhibits anti-tumor activity via inhibition of tumor angiogenesis. The upregulation 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 study, to show a higher fraction of patients with no disease progression during the six-month period of treatment using TASQ, had been attained.

In April, Active Biotech and Ipsen (Euronext: IPN; ADR: IPSEY) entered a broad partnership for the co-development and commercialization of the Active Biotech's compound, TASQ. Under the terms of the agreement, Active Biotech granted Ipsen exclusive rights to commercialize TASQ worldwide, except for North and South America and Japan where Active Biotech retains all commercial and marketing rights. Both companies will co-develop TASQ for the treatment of castrate-resistant prostate cancer, with the possibility of developing TASQ in other cancer indications.

Active Biotech received payment of EUR 25 M from Ipsen in connection with the signing of the agreement. Additional milestone payments will also fall due during the ongoing Phase III study, in connection with the registration of TASQ and upon achievement of certain sales targets. The maximum amount payable to Active Biotech is in excess of EUR 200 M. In addition, Ipsen will pay Active Biotech tiered double-digit royalties on all sales of TASQ in Ipsen's territories.

Active Biotech is responsible for the ongoing Phase III study and for the recruitment of prostatecancer patients, with full strength worldwide. The study is a global, randomized, double-blind, placebo-controlled Phase III trial in patients with metastatic CRPC. The aim of the study is to confirm TASQ's effect on the disease, with radiological progression-free survival (PFS) as the primary endpoint and overall survival as the secondary endpoint. The study will include about 1,200 patients in more than 250 clinics. Ipsen will conduct and finance a supporting European study in prostate cancer patients. Preparations for the start of this study are in progress.

ANYARA – 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 is survival and will be read after 384 registered events (deaths). It is expected that it will be possible to present the results in 2012.

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

57-57 is a quinoline compound primarily intended for the treatment of systemic sclerosis/ scleroderma. This rare disease is classified as an "orphan drug indication". In February 2011, the 57-57 project was granted orphan medicinal product status, for the indication Systemic Sclerosis (SSc). The EMA's "Orphan Medicinal Product Designation" is implemented to promote the development of drugs that may provide significant benefit to patients suffering from rare diseases identified as life-threatening or chronically debilitating. Under EMA guidelines, Orphan Medicinal Product Designation provides ten years of potential market exclusivity if the product candidate is approved for marketing in the European Union.

– Preparations are in progress for the launch of an explorative study in Systemic Sclerosis during 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.

– MediGene announced in June that it had signed an agreement with Quotient Clinical to undertake a RapidFACT™ formulation development and clinical testing program on RhuDex and thereby optimize the continued clinical development program.

Events after the end of the period

–On August 1, the initial results from the Phase III BRAVO study, which was designed to evaluate the efficacy, safety and tolerability of oral laquinimod compared to placebo and to provide a benefit-risk assessment comparing oral laquinimod and a reference arm of injectable Interferon β-1a (Avonex®). BRAVO is the second of two pivotal Phase III studies in the clinical development program for laquinimod, an investigational, oral, once-daily therapy for the treatment of relapsing-remitting multiple sclerosis (RRMS). The BRAVO study demonstrated a trend of reducing the annualized relapse rate in laquinimod treated patients compared to placebo, the primary end point of the study, but did not reach statistical significance (p=0.075). The reduction of disability progression measured by EDSS also showed a trend in favor of laquinimod without reaching statistical significance. The reduction of brain atrophy observed in the laquinimod treated patients was significantly reduced compared to the placebo group.

The randomization process for BRAVO was adequately performed and according to the study protocol; however, placebo and treatment study groups showed dissimilarity in two baseline magnetic resonance imaging (MRI) characteristics. According to a standard and pre-specified sensitivity analysis included within the original statistical analysis plan, when this imbalance was corrected laquinimod demonstrated a significant reduction in the annualized relapse rate (21.3 percent, p=0.026), as well as a significant reduction in the risk of disability progression measured by EDSS (33.5 percent, p=0.044). In this analysis laquinimod also demonstrated a significant reduction of brain atrophy (27.5 percent, p<0.0001).

The BRAVO findings support the direct effect of laquinimod in the central nervous system (CNS) and are in line with the results of the first laquinimod Phase III trial, ALLEGRO. Additionally, as in ALLEGRO, the BRAVO study showed that laquinimod has a very favorable safety and tolerability profile.

–On August 2, Active Biotech's partner MediGene announced preparations to resume clinical development of RhuDex®. The objective is to initiate a phase I clinical trial in 2011, in which a new formulation customized for treatment of chronic conditions will be tested and optimized.

Financial information

Comments on the Group's results for the January – June 2011 period

Net sales for the period amounted to SEK 228.8 M (6.1) and included an upfront payment of SEK 223.2 M from Ipsen Pharma for the exclusive rights to commercialize TASQ worldwide, except for North and South America and Japan. Service and rental revenues amounted to SEK 5.6 M (6.1).

The operation's research and administration expenses amounted to SEK 158.2 M (108.6), of which research expenses amounted to SEK 148.5 M (96.8) M. The increase in expenses was entirely attributable to the cost for the ongoing Phase III trials of TASQ for the treatment of prostate cancer. At full recruitment, the clinical Phase III trial will comprise approximately 1,200 patients in more 250 clinics in 40 countries. The costs for the ongoing Phase III trial for the ANYARA renal cancer project, the explorative study for the 57-57 project and the preclinical research project ISI were lower than the cost level recorded a year earlier.

The already licensed-out projects, laquinimod and RhuDex, are fully financed by the relevant partners.

Administration expenses amounted to SEK 9.7 M (11.8).

Operating profit improved SEK 173.0 M compared with the year-earlier period, up from a loss of SEK 102.4 M to a profit of SEK 70.6 M.

Net financial items for the period totaled SEK 5.9 M (expense: 5.9) and net profit was SEK 77.7 M (loss: 108.3).

Cash flow, liquidity and financial position

Cash and cash equivalents at the end of the period amounted to SEK 601.3 M, compared with SEK 131.1 M at the end of 2010.

Cash flow for the period amounted to SEK 470.2 M (79.3), of which cash flow from operating activities was SEK 83.2 M (neg: 93.9). Cash flow from financing activities amounted to SEK 387.2 M (173.2), as a result of the implementation of the private placement to international institutional investors and qualified investors in Sweden and the exercise of employee stock options, which provided an injection of SEK 389.6 M in total after issue expenses.

Investments

Investments in tangible fixed assets amounted to SEK 0.3 M (0.0).

Comments on the Parent Company's earnings and financial position

The Parent Company's net sales for the period amounted to SEK 233.9 M (1.8).

Operating expenses during the period amounted to SEK 174.2 M (7.3) and net financial income to SEK 9.3 M (0.5). Profit after financial items was SEK 69.1 M (loss: 5.0).

Cash, including short-term investments, totaled SEK 594.4 M at the end of the period, compared with SEK 125.4 M on January 1, 2011.

Share capital

Consolidated shareholders' equity at the end of the period amounted to SEK 652.5 M, compared with SEK 181.8 M at year-end 2010.

At June 30, 2011, the total number of shares outstanding amounted to 68,923,582. No other outstanding employee stock options remain to be exercised.

At the end of the period, the equity/assets ratio for the Group was 67.1 percent, compared with 36.1 percent at year-end 2010. The corresponding figures for the Parent Company, Active Biotech AB, were 91.9 percent and 81.3 percent, respectively.

Organization

To be able to develop the ongoing and future partnership agreements, Göran Forsberg has been appointed Chief Business Officer (CBO) of Active Biotech. In conjunction with this change in area of responsibility, responsibility for Investor Relations was transferred to Tomas Leanderson, President, and Hans Kolam, CFO.

The average number of employees was 81 (89), with the average number of employees in the research and development operation accounting for 66 (74). At the end of the period, the Group had 81 employees (87).

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 existing cash and cash equivalents and income from already signed partnership agreements will safeguard financing under 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 2010 Annual Report.

Consolidated profit and loss		April - June		Jan. - June
SEK M	2011	2010	2011	2010	2010
Net sales	226.1	3.4	228.8	6.1	11.4
Administrative expenses	-3.1	-7.1	-9.7	-11.8	-23.1
Research and development costs	-81.4	-47.6	-148.5	-96.8	-217.3
Operating profit/loss	141.5	-51.4	70.6	-102.4	-229.0
Net financial items	4.3	-3.3	5.9	-5.9	-4.7
Profit/loss before tax	145.8	-54.8	76.5	-108.3	-233.6
Tax	1.2	–	1.2	–	12.6
Net profit/loss for the period	147.0	-54.8	77.7	-108.3	-221.1
Comprehensive loss attributable to:
Parent company shareholders	147.0	-54.8	77.7	-108.3	-221.1
Non controlling interests	–	–	–	–	–
Net profit/loss for the period	147.0	-54.8	77.7	-108.3	-221.1
Comprehensive profit/loss per share before dilution (SEK)	2.14	-0.83	1.14	-1.67	-3.38
Comprehensive profit/loss per share after dilution (SEK)	2.14	-0.83	1.14	-1.67	-3.38
Statement of consolidated comprehensive income
Net profit/loss for the period	147.0	-54.8	77.7	-108.3	-221.1
Other comprehensive income
Change in revaluation reserve	4.1	-0.3	3.6	-0.7	46.4
Taxes attributable to other comprehensive income	-1.1	0.1	-0.9	0.2	-12.2
Total comprehensive profit/loss for the period	150.1	-55.0	80.4	-108.8	-186.8
Total other comprehensive profit/loss for the period attributable to:	150.1	-55.0	80.4	-108.8	-186.8
Non controlling interests	–	–	–	–	–
Total comprehensive profit/loss for the period	150.1	-55.0	80.4	-108.8	-186.8
Depreciation/amortization included in the amount of	3.0	2.4	6.0	4.9	9.8
Investments in tangible fixed assets	0.1	–	0.3	–	0.1
Weighted number of outstanding common shares before dilution (000s)	68 831	65 764	68 265	64 944	65 465
Weighted number of outstanding common shares after dilution (000s)	68 831	65 764	68 265	64 944	65 465
Number of shares at close of the period (000s)	68 924	65 952	68 924	65 952	66 000
Outstanding warrants (000s)	–	387	–	387	348
- entitlement to number of shares after full exercise (000s)	–	476	–	476	428
Consolidated statement of financial position			June 30		Dec 31
SEK M			2011	2010	2010
Tangible fixed assets			358.2	314.7	358.5
Financial fixed assets			0.0	0.0	0.0
Total fixed assets			358.2	314.7	358.5
Current receivables			12.3	9.8	13.4
Cash and cash equivalents			601.3	235.3	131.1
Total current assets			613.6	245.1	144.6
Total assets			971.8	559.8	503.1
Shareholders equity			652.5	257.2	181.8
Long-term liabilities			240.1	244.8	241.7
Current liabilities			79.2	57.8	79.7
Total shareholders equity and liabilities			971.8	559.8	503.1
Consolidated statement of changes in shareholders equity
Opening balance			181.8	188.6	188.6
Transfer from revaluation reserve			0.7	0.5	1.0
New share issue Net loss for the period			389.6 80.4	176.9 -108.8	179.0 -186.8
Balance at close of period			652.5	257.2	181.8

Condensed consolidated cash-flow statement	Jan. - June	Full Year
SEK M	2011	2010	2010
Loss after financial items	76.5	-108.3	-233.6
Adjustment for non-cash items, etc.	6.0	4.9	9.8
Cash flow from operating activities
before changes in working capital	82.5	-103.4	-223.9
Changes in working capital	0.7	9.5	27.5
Cash flow from operating activities	83.2	-93.9	-196.3
Investments in tangible fixed assets	-0.3	–	-0.1
Cash flow from investing activities	-0.3	–	-0.1
New share issue	389.6	176.9	179.0
Loans raised/amortization of loan liabilities	-2.4	-3.7	-7.5
Cash flow from financing activities	387.2	173.2	171.5
Cash flow for the period	470.2	79.3	-24.9
Opening cash and cash equivalents	131.1	156.0	156.0
Closing cash and cash equivalents	601.3	235.3	131.1
		June 30
Key figures	2011	2010	2010
Shareholders equity, SEK M	652.5	257.2	181.8
Equity per share, SEK	9.47	3.90	2.75
Equity/assets ratio in the Parent Company	91.9%	97.7%	81.3%
Equity/assets ratio in the Group	67.1%	45.9%	36.1%
Average number of annual employees	81	89	87

Active Biotech - parent company

SEK M		April - June	Jan. - June		Full Year
	2011	2010	2011	2010	2010
Net sales	228.3	0.9	233.9	1.8	23.2
Administration expenses	-3.7	-2.4	-9.5	-7.3	-24.2
Research and development costs	-88.9	–	-164.7	–	-233.5
Operating profit/loss	135.8	-1.5	59.8	-5.5	-234.4
Profit/loss from financial items:
Interest income and similar income-statement items	9.1	0.2	10.6	0.5	1.7
Interest expense and similar income-statement items	-0.8	–	-1.3	0.0	0.0
Profit/loss after financial items	144.0	-1.3	69.1	-5.0	-232.7
Tax	–	–	–	–	–
Net profit/loss for the period	144.0	-1.3	69.1	-5.0	-232.7
Statement of comprehensive income parent company
Net profit/loss for the period	144.0	-1.3	69.1	-5.0	-232.7
Other comprehensive income	–	–	–	–	–
Total comprehensive profit/loss for the period	144.0	-1.3	69.1	-5.0	-232.7
Balance sheet, condensed			June 30		Dec. 31
SEK M			2011	2010	2010
Goodwill			153.4	–	161.5
Tangible fixed assets			1.2	0.4	1.0
Financial fixed assets			40.6	202.5	40.6
Total fixed assets			195.1	202.8	203.1
Current receivables			22.6	100.7	25.9
Short-term investments			20.0	–	–
Cash and bank balances			574.4	222.5	125.4
Total current assets			617.1	323.1	151.3
Total assets			812.2	525.9	354.4
Shareholders equity			746.8	513.6	288.1
Current liabilities			65.5	12.3	66.3
Total equity and liabilities			812.2	525.9	354.4

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

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, August 11, 2011 Active Biotech AB (publ)

Tomas Leanderson President and CEO

This interim report has not been audited by the company's auditors.

Active Biotech AB (NASDAQ OMX NORDIC: ACTI) is a biotechnology company with focus on autoimmune/inflammatory diseases and cancer. Projects in 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 RhuDex™ for RA. Please visit www.activebiotech.com for more information.

Active Biotech 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 August 11, 2011 at 8:30 a.m.