Herantis Pharma Plc's half year financial report January 1 - June 30, 2017 (unaudited)

Herantis Pharma Plc
Company release August 29, 2017 at 9:00am

Drug development progresses towards randomized trials

Herantis Pharma Plc's half year financial report January 1 - June 30, 2017 (unaudited)

Highlights in January-June 2017 (compared with January-June 2016):

• Herantis Pharma's ("Herantis") Phase 1 clinical study with Lymfactin® advanced in March to the highest dose and in June to the last patient cohort. The company announced in June that it had started planning a Phase 2 clinical study.
• The Swedish drug and device authority MPA approved in March the first clinical study with Herantis' investigational drug CDNF for the treatment of Parkinson's disease. The same study was approved in June by Finland's drug authority Fimea.
• United States' patent authority USPTO granted Herantis a patent on the therapeutic use of MANF in May.
• Revenue was €0.0 (25.3) thousand
• Cash flow from operations was €-0.9 (-2.1) million
• Earnings per share were €-0.49 (-0.63)
• Cash and cash equivalents on June 30, 2017 amounted to €2.2 (3.7) million
• The company's financial position in the last half-year period are as expected and there have not been any exceptional events.

Key figures

Formulae used in calculating key figures
Equity ratio = Equity / balance sheet total
Earnings per share = Profit for period / average number of shares
Average number of shares = Weighted average number of shares. The number of shares is weighted by the number of days each share has been outstanding during the review period.

Guidance for 2017
The company does not expect essential revenues in 2017. The company continues to invest in its ongoing development programs in Secondary Lymphedema and Parkinson's disease, and expects to be cash positive at the end of the year.

Outlook for 2017
Herantis' long-term goal is to significantly increase its business through commercialization agreements for its drug candidates. The company continues discussing collaboration possibilities with potential development partners for its development programs. Thanks to the significant grant awarded by the European Union's the company can continue its drug development further than previously estimated before signing any collaboration agreements to optimize shareholder value in Herantis.
The main objectives for 2017 are recruiting and safely treating patients in the clinical trials with Lymfactin® and CDNF. Both of these drug candidates aim at a breakthrough in unmet clinical needs and are based on leading science in their fields.

Pekka Simula, CEO:
The company's development programs in the treatment of lymphedema and Parkinson's disease progressed favorably during the review period. For both the company and patients it is most important that our drug candidate Lymfactin® has initially proven safe in patient treatments, and independent experts recommended continuing treatments with the highest dose. The highest dose translates into the greatest chance of benefit for the patients.
Another important achievement for the company was clinical trial approvals in both Sweden and Finland for our drug candidate CDNF in Parkinson's disease. This ensures we can fully exploit the about €6 million grant awarded by the European Union for the clinical study.
The EU funding was directed for clinical development based on leading science and having the highest potential to advance clinical practice. This is an appropriate description of all our work. Our development programs are based on internationally renowned long-term scientific research and aim at clinical breakthroughs in diseases with unmet clinical needs.
From Herantis' viewpoint it is also interesting that the investors in our field are in general increasingly looking at novel biological drug candidates based on scientific breakthrough even if their risks are considered greater as compared to conventional drugs. Societies and insurance companies, i.e. the payers of ever more expensive therapeutics, are becoming more sensitive to costs and demand better therapies in return for the high prices. Our societies cannot afford paying ten times more for a new drug, which is only slightly more efficacious than the older and economical medicine. New drugs need to be significantly better than the old ones.
In case of Herantis' Lymfactin® this makes an easy equation. There are no approved medicines for the treatment of lymphedema. Lymfactin® aims at repairing the damages that cause lymphedema. We aim at curing lymphedema instead of just alleviating its symptoms.
For Parkinson's disease a clinical breakthrough could mean a treatment that stops progression of the disease. This is exactly our aim with our CDNF; known treatments can only provide relief in some of the symptoms of the disease. According to a study at the University of Pennsylvania a treatment to stop the progression of Parkinson's disease would save $400,000 per patient in the United States. With 60,000 new patients diagnosed each year such treatment would reduce the economical burden associated with Parkinson's by estimated $24 billion a year.
Drug developers like to remind of the human suffering they are trying to reduce. For the investors it is also important that the drugs-in-development make sense from the health-economic viewpoint.

REVIEW OF OPERATIONS JANUARY 1-JUNE 30, 2017

Herantis' drug development
Herantis develops innovative drugs based on leading scientific research in their fields that aim at breakthrough in unmet clinical needs. The company's objective is to establish the safety of its drug candidates in early-stage clinical studies, show signals of their efficacy, and then negotiate commercialization agreements with large pharmaceutical companies.

Lymfactin® for breast cancer associated lymphedema
Surgery or trauma can damage lymph nodes, which may lead into secondary lymphedema (LE). Its common symptoms are permanent swelling of the affected limb, thickening and hardening of skin, limited limb mobility, pain, and increased sensitivity to inflammations. Secondary lymphedema is a chronic, progressive disease that severely decreases the patient's quality of life. Current treatments such as compression garments, special massage, and exercise may relieve symptoms but do not cure the damages of the lymphatic system that cause the disease.
Herantis' Lymfactin® is an investigational gene therapy drug that produces a growth factor called VEGF-C, which is highly selective to the growth of lymphatic vessels. Based on preclinical results Lymfactin® promotes the regeneration of lymphatic vessels and thus repairs damages of the lymphatic system. Lymfactin® is based on research at an Academy of Finland Centre of Excellence led by Professor Kari Alitalo at the University of Helsinki.
Lymfactin® is currently in a Phase 1 clinical study in patients with breast cancer associated LE. The company announced in the first half of 2017 that the study had advanced favorably and estimated that patient recruitment would be completed by the end of 2017. The company also announced having started planning a Phase 2 clinical study. Herantis believes that if Lymfactin® is shown efficacious it may also be suitable for the treatment of other types of secondary lymphedema.

CDNF neuroprotective factor for Parkinson's disease
Herantis develops its drug candidate CDNF for the treatment of Parkinson's disease (PD). Parkinson's disease is a slowly progressing neurodegenerative disease that cannot be cured. Estimated 7 million people worldwide have Parkinson's disease. Known treatments only alleviate the motor symptoms of the disease but have no effect on its progress, which is caused by the death of dopaminergic neurons in the brain.
CDNF is a protein naturally present in humans. It was discovered in the long-term academic research led by Professor Mart Saarma and shown to protect dopaminergic neurons. In preclinical disease models CDNF has broadly alleviated the symptoms of Parkinson's disease and protected and recovered dopaminergic neurons. Herantis aims at developing CDNF into a drug that addresses both motor and non-motor symptoms of PD and also stops disease progression.
Thanks to the promising scientific results and development work the European Union granted an approximately €6 million grant for the Phase 1-2 clinical study of CDNF for the treatment of PD. The grant became effective 1 Jan 2017 and the clinical study intends at starting patient recruitment in Q3/2017. The clinical study will assess the safety and signals of efficacy in 18 patients with Parkinson's disease at three university hospitals in Finland and Sweden.

CDNF neuroprotective factor for ALS
ALS (Amyotrophic Lateral Sclerosis) is a fatal motor neuron disease. As the disease progresses the patient loses control of her muscles, which leads to difficulties in motion, speech, swallowing, and breathing. The estimated average survival from symptom onset is from two to five years. There is no known cure; present treatments can only alleviate the symptoms of ALS. An estimated 140,000 people contract ALS annually. The European Medicines Agency EMA and the US Food and Drug Administration FDA have both granted an Orphan Designation for Herantis' CDNF for the treatment of ALS based on the preliminary preclinical results on its possible efficacy. The company is exploring possibilities to start a clinical development program in ALS. Decisions on starting such a program have not been made and no funding is allocated.

MANF neuroprotective factor

MANF is the only known neuroprotective factor similar to Herantis' patented CDNF. CDNF and MANF for instance protect cells from endoplasmic reticulum stress, a condition linked to several neurodegenerative and other chronic diseases. Herantis has been a patent in the USA for the use of MANF for the treatment of neurological diseases including Parkinson's disease, epilepsy, and ischemic brain injury. Herantis will inform separately if it launches formal drug development of MANF.

Cis-UCA eye drops for dry eye

Dry eye syndrome (Keratoconjunctivitis sicca) is the most common cause of irritation in the eye. Its typical symptoms include dryness of the eye, a burning sensation, pain, redness and the sensation of a foreign body in the eye. Severe or prolonged dry eye syndrome may damage the surface of the eye and reduce eyesight.
Herantis' Phase 2 randomized clinical study of the cis-UCA eye drop for the treatment of dry eye was completed in 2015. The study did not show statistically significant improvements in the primary endpoints in comparison with placebo and the company has fully written off the related development investments in its balance sheet. Herantis will continue partnering discussions in 2017 for product development collaboration.

FINANCIAL REVIEW JANUARY 1-JUNE 30, 2017

Income from business operations, R&D expenses
Herantis Group did not have essential revenues in the review period or in the corresponding period in the previous year.
The R&D expenses for the review period were €0.7 million, recorded in the profit and loss statement as an expense for the period. The R&D expenses for the review period mainly comprised for the clinical study with Lymfactin® for the treatment of breast cancer associated lymphedema and for preparations for the clinical study with CDNF for the treatment of Parkinson's disease. The group's R&D expenses for the corresponding period in the previous year, €1.2 million, were recorded as the review period's expenses in the profit and loss statement.
The profit for the review period was €-2.0 (-2.6) million.

Financing and capital expenditure
The company's cash and cash equivalents on June 30, 2017 amounted to €2.2 (3.7) million.
In addition the company has R&D loans previously granted by the Finnish Funding Agency for Innovation, Tekes, to be drawn in the amount of €1.6 million. During the review period Herantis drew €0.3 million in Tekes loans.
In addition the European Union has awarded a grant of €6.0 million for the project TreatER. The TreatER project is essentially the Phase 1-2 clinical study of Herantis' CDNF for the treatment of Parkinson's disease. During the review period the company received an advance payment of €0.7 million related to the project. Advance payments have also been paid to the other EU project participants such as the hospitals where the patients will be treated.
The company estimates that its current funding will suffice approximately to the end of 2018. However the EU funding granted for the TreatER project is estimated to suffice until project completion at the end of 2019.
The consolidated cash flow from operations in the review period was €-0.9
(-2.1) million.

Acquisitions and directed share issues
There have been no acquisitions or directed share issues during the review period.

Balance sheet
The consolidated balance sheet on June 30, 2017 stood at €8.9 (11.6) million.
At the end of the review period on June 30, 2017 the consolidated balance sheet included short-term debt in the amount of €1.4 (0.5) million, long-term loans in the amount of €7.9 (7.6) million, and capital loans in the amount of €0.1 (0.1) million. Financing earnings and expenses totaled €0.0 (0.0) million.
No R&D expenses were capitalized during the review period.

Equity
Consolidated equity on June 30, 2017 was €-0.5 (3.4) million. The change is a result of the consolidated loss of the review period.

Personnel, management, and administration
The number of personnel at the end of the review period on June 30, 2017 was 7 (7) persons.
During the review period, the company's Board of Directors comprised Pekka Mattila (Chairman), Jim Phillips, Aki Prihti, Timo Veromaa and Frans Wuite, The Managing Director for the company was Pekka Simula.

Ordinary Annual General Meeting 2017
Herantis' ordinary Annual General Meeting (AGM) was held in Helsinki on April 11, 2017.
The AGM adopted the annual accounts for financial year 2016 and resolved to discharge the members of the Board of Directors and the Managing Director from liability. In accordance with the proposal by the Board of Directors, the AGM resolved that no dividend be paid for the financial period January 1-December 31, 2016, and that the loss for the period be recorded on the profit and loss account.
The AGM resolved that the remuneration for the members of the Board of Directors shall be €1,000 per month, with the exception of its Chairman, whose remuneration shall be €2,000 per month. It was further resolved that the Board members shall be eligible to subscribe for stock options under the Stock option program 2014 I, according to the rules of which the Board members can be granted stock options for each full 12-month period as a Board member. Board members are also reimbursed reasonable travel expenses related to Board of Director's duties.
The AGM decided that the Auditor will be paid reasonable remuneration in accordance with its invoice approved by the company.
The firm of authorized public accountants PricewaterhouseCoopers Oy was appointed Herantis Pharma Plc's Auditor for the term ending at the closing of the next AGM, with Mr. Martin Grandell, APA, as the responsible auditor.

Share based incentive program
During the review period the company cancelled a total of 96,625 stock option rights that would have entitled to the subscription of 96,625 new shares in the company. The share subscription period of these stock option rights, which belonged to the stock option programs 2014 II and 2014 III had expired.
Herantis has three stock option programs: Stock option program 2010, Stock option program 2014 I, and Stock option program 2016 I, whereby stock options have been offered to key employees of the company to increase their commitment toward long-term contribution to growing shareholder value. The essential details of the stock option programs are listed in the table below. More detailed information is provided on the company's web site at www.herantis.com.

¹ The maximum remaining number of shares to be subscribed for with stock options.

Risks and uncertainties
Herantis is a drug development company and the general risks and uncertainties present in drug development also apply to its operations. Further, Herantis develops novel biological drugs based on novel scientific research and with mechanisms different from currently approved drugs. Therefore the risks and uncertainties can be considered larger than in conventional drug development.
The significant risks and uncertainties in Herantis' business operations are described in the IPO prospectus dated May 12, 2014 that is available on the company's website at www.herantis.com. The medical risk related to the cis-UCA eye drop is partly realizing as the efficacy of the drug candidate proved weaker in the Phase 2 clinical studies than expected on the basis of preclinical studies.

Shares and shareholders
The market capitalization of Herantis Pharma Plc at the end of the review period on June 30, 2017 was €29.0 million. The closing price of the company's share on June 30, 2017 was €7.05. The highest share price during the review period was €9.30, lowest €2.66, average €4.63, and trading volume amounted to 6.0% of the shares in the company.
According to Herantis' shareholder register dated on June 30, 2017, the company had 799 registered shareholders.
On June 30, 2017 the members of Herantis' Board of Directors and the CEO held in aggregate 53,366 (49,866) shares including shares held through their controlled companies, which equaled 1.3 (1.2) percent of the company's total stock. Information on insider trading with the company's shares is published on the company's website.

Events after the review period
No essential updates have taken place after the review period.

Accounting policies
These financial statements have been prepared according to good accounting practice, local legislation and the rules of the First North market. The figures in the half-year report are not audited. The figures are individually rounded from exact figures.

Financial information 2017
The financial statements release will be published 28 Feb 2018.

In case of any discrepancies between the language versions of this half-year financial report the Finnish version shall prevail.
Herantis Pharma Plc
Board of Directors

APPENDICES
Profit and loss statement and Balance sheet January 1-June 30, 2017
Statement of cash flow January 1-June 30, 2017
Statement of changes in equity

Distribution: Nasdaq, principal media

More information:
Herantis Pharma Plc, Pekka Simula, CEO, telephone +358 40 7300 445
Company website: www.herantis.com
Certified Advisor: UB Securities Oy, telephone +358 9 25 380 246

Herantis Pharma in brief:
Herantis Pharma Plc is an innovative drug development company focused on regenerative medicine and unmet clinical needs. Our first-in-class assets are based on globally leading scientific research in their fields: CDNF for disease modification in neurodegenerative diseases, primarily Parkinson's and ALS; and Lymfactin® for breast cancer associated lymphedema, with potential also in other types of lymphedema. The shares of Herantis are listed on the First North Finland marketplace run by Nasdaq Helsinki Ltd.