Financial Statement January 1 to December 31 2023

 

 

 

 

 

Faron Pharmaceuticals Ltd.

(“Faron” or “the Company”)

 

Faron’s Financial Statement Release January 1 to December 31, 2023

 

 

Financial statement release March 13, 2024 at 03:00 AM (EDT) / 07:00 AM (GMT) / 09:00 AM (EET)

 

TURKU, FINLAND / BOSTON, MA – Faron Pharmaceuticals Ltd. (AIM: FARN, First North: FARON), a clinical- stage biopharmaceutical company focused on tackling cancers via novel myeloid cell targeted immunotherapies, today announced audited full-year financial results for January 1 to December 31, 2023 (the “Period”) and provided an overview of recent corporate developments.

 

2023 Highlights

  • Data from the completed Phase I part of the BEXMAB study demonstrated significant overall response rates (ORR) in both previously hypomethylating agent (HMA)-failed (5 out of 5) and higher-risk myelodysplastic syndrome (MDS) patient (5 out of 5) populations. Most responses were deep and durable with 7 out of 10 MDS patients achieving complete remission/ marrow complete remission (CR/mCR) and two demonstrating partial remission (PR), one of whom moved on to receive a stem cell transplantation and the other, hematological improvement without remission (HI-P).
  • Further analysis of the patient profiles of those treated in the Phase I part of the BEXMAB trial showed that prior to responding to bexmarilimab in combination with standard of care (SoC), patients had experienced disease progression following treatment with all of the leading azacitidine combinations such as venetoclax, sabatolimab and magrolimab.
  • The Company made the decision to commence the Phase II part of the BEXMAB study based on guidance from the U.S. Food and Drug Administration (FDA), investigating bexmarilimab in combination with SoC in patients with HMA-refractory or-relapsed MDS.
  • The FDA granted bexmarilimab Orphan Drug Designation (ODD) for the treatment of acute myeloid leukemia (AML).
  • The first in human MATINS study was completed in advanced solid tumor patients. The study results were published in the journal Cell Reports Medicine. Bexmarilimab was well tolerated, showed activation of intratumoral immunity and reprogramming tumor associated macrophages, resulting in an increase in IFN-gamma signature and changes in the tumor microenvironment (TME), and providing significant clinical benefit.
  • The Company conducted three successful fundraising rounds in 2023, successfully raising EUR 25.7 million.
  • A virtual briefing and Q&A will be held today, March 13, 2024 at 8:00 AM (EDT) / 12:00 PM (GMT) / 2:00 PM (EET)

 

Subsequent events

  • In January 2024, Faron dosed the first patients in the Phase II part of its BEXMAB Study, to evaluate the safety and efficacy of bexmarilimab in combination with SoC, in HMA-refractory or relapsed MDS patients. This project Optimus part will provide the final dosing of bexmarilimab for the registrational part.
  • In February 2024, Faron announced that it was in breach of several undertakings agreed in the facilities agreement entered into on February 28, 2022 between IPF Fund II SCA, SICAV-FIAR (“IPF”) as Lender and Faron Pharmaceuticals Ltd as Borrower (“Facilities Agreement”) and subsequent waiver letters provided by IPF, and therefore was in several Events of Default, as defined in the Facilities Agreement.
  • In March 2024, Faron successfully raised a total of EUR 3.2 million in subordinated convertible loan arrangements with certain existing shareholders allowing the Company to make critical payments to third parties under agreed waivers with IPF. As at March 13, 2024, the Company is in compliance with all IPF financial covenants as agreed with the waiver letter. In accordance with the waiver letter, the Company shall issue to IPF additional special rights which entitle them to subscribe for new ordinary shares in the Company.
  • In March 2024, Faron announced that endeavors are continuing and it is in active discussions to secure short- and long-term funding.

 

 

“I am pleased to report that we have made strong progress in 2023 advancing our BEXMAB study of bexmarilimab, our wholly owned immunotherapy asset. Throughout the course of the year, we have reported highly encouraging data for bexmarilimab, showing a remarkable overall response rate in both higher-risk frontline MDS patients as well as HMA-failed MDS patients. These are highly significant findings, given the combinations of treatments these patients had previously failed on and the very limited options available for future therapy. They provide us with a path to market and only bolster our confidence in the potential of this novel immunotherapy to treat patients with aggressive hematological malignancies,” said Dr. Markku Jalkanen, Chief Executive Officer of Faron.

 

HIGHLIGHTS (including post period)

 

Pipeline Highlights

 

Bexmarilimab Faron’s wholly owned, novel precision cancer immunotherapy candidate, in Phase I/II development for difficult-to-treat hematological and solid tumor cancers.

 

Hematological cancer with standard of care (SoC) – BEXMAB

 

  • The Phase II part of the BEXMAB study commenced based on guidance from the U.S. Food and Drug Administration (FDA), investigating bexmarilimab in combination with SoC in patients with HMA-refractory or -relapsed MDS. The first patient was dosed in January 2024.
  • Data from the completed Phase I part of the BEXMAB study demonstrated significant ORR in both previously HMA-failed (5 out of 5) and higher-risk MDS patient (5 out of 5) populations. Most responses were deep and durable with 7 out of 10 MDS patients achieving CR/mCR and two demonstrating PR, one of whom moved on to receive a stem cell transplantation and the other, hematological improvement without remission (HI-P).
  • Further analysis of the patient profiles of those treated in the completed Phase I part of the BEXMAB trial showed that patients had experienced disease progression following previous treatment with azacitidine monotherapy or combinations of up to four therapies that included azacitidine or decitabine + magrolimab, venetoclax and sabatolimab. 3 of the 5 patients were refractory to previous HMA-therapy, with progressive disease (PD) or stable disease (SD) being the best responses achieved from that therapy. 2 patients had relapsed after treatment with azacitidine or an azacitidine+venetoclax combination.
  • The FDA granted ODD for bexmarilimab for the treatment of AML.
  • BEXMAB phase I/II clinical data were presented at key scientific conferences including the American Society of Hematology (ASH) Annual Meeting and the European Hematology Association Congress 2023.
  • Post period, In January 2024, Faron dosed the first patients in the Phase II part of its BEXMAB Study, to evaluate additional safety and efficacy data for bexmarilimab in combination with SoC, in HMA-refractory or relapsed MDS patients, to obtain regulatory feedback from the FDA on a final regulatory pathway for market application (BLA)

 

Single-agent safety and activity in advanced solid tumors – MATINS

  • The first in human MATINS study was completed and the full safety and anti-tumor efficacy results from the first-in-human Phase I/II MATINS trial of bexmarilimab in patients with treatment-refractory late-stage solid tumors was published in Cell Reports Medicine.
  • The Company presented two posters at the American Association for Cancer Research Annual Meeting 2023 on its Phase I/II MATINS study of bexmarilimab in solid tumors and published a manuscript in Cell Reports Medicine.
  • The findings from MATINS, which have established strong foundations for Faron’s ongoing development program, showed activation of intratumoral immunity and reprogramming tumor associated macrophages resulting in increase in IFN-gamma signature and changes in the tumor microevironment (TME), resulting in disease control and prolonged survival in late-stage cancer. Furthermore, targeting Clever-1 with bexmarilimab was well-tolerated.
  • A positive Phase I/II meeting with the FDA supported the potential to continue development of bexmarilimab in solid tumors both as a single agent and in combination with anti-PD-1.

 

Combination potential with PD-1 blockade – BEXCOMBO – and further expansion

  • Preparations are ongoing for the initiation of the Phase II BEXCOMBO trial evaluating bexmarilimab with PD-1 blockade, aimed at improving the clinical benefits from standard-of-care PD-1 blockade. The first proof-of-concept cohort under investigation will be head and neck cancer, followed by non-small cell lung cancers. Patient cohorts will comprise between 15 and 40 subjects, with the opportunity for subgroup enrichment.
  • Given the positive results to date, the Company is exploring bexmarilimab’s potential in frontline HR MDS, chronic myelomonocytic leukaemia (CMML) patients and considering further development and expansion opportunities with bexmarilimab in hematological cancers in the form of further partnerships.

 

 

Traumakine® – Faron’s investigational intravenous (IV) interferon beta-1a therapy, in development for hyperinflammatory conditions.

  • The Company is in collaboration with the Fred Hutchinson Cancer Research Center in Seattle, Washington, to further investigate the use of IV IFN beta-1a for the prevention of organ damage from cytokine release syndrome (CRS) and other CAR-T therapy side effects, such as neurotoxicity (ICANs).

 

 

Corporate Highlights

  • The balance sheet was strengthened through three private placements directed to institutional and other investors to raising EUR 25.7 million during 2023.
  • James O’Brien, CPA, MBA, joined as Chief Financial Officer. Mr. O’Brien is an accomplished biotech and financial executive with extensive experience in the US capital markets. Strengthening of the Board of Directors with the appointments of Dr. Marie-Louise Fjällskog, Ms. Christine Roth and Mr. Tuomo Pätsi, who joined the Board as Non-Executive Directors of the Company. Dr. Marie-Louise Fjällskog was previously the Chief Medical Officer at Faron. In her position as a Board member, she continues to play an integral role in the development of bexmarilimab, by providing her clinical and regulatory expertise to support the Company’s progress. Ms. Christine Roth is a pharmaceutical executive with over three decades of experience in the industry, with expertise across various therapy areas including Oncology, Cardiovascular, Metabolic, and Infectious Diseases. Mr. Pätsi is an experienced biotech and pharmaceutical executive who was until recently Executive Vice President for Seagen Inc., a US-based, cancer-focused biotechnology company.
  • Mr. Leopoldo Zambeletti, who joined Faron’s Board as a Non-Executive Director in September 2015, stepped down from the Board, to take on a business development consulting role within Faron. He is a highly respected figure within the life sciences and investment banking industries and, since 2013, has been an independent strategic advisor to life science companies on mergers and acquisitions, out-licensing deals, and financing strategy.
  • Dr. Birge Berns, MD, joined Faron as the Company’s interim Chief Medical Officer.  Dr. Berns is a seasoned senior pharmaceuticals executive with a background in oncology, clinical medicine, rheumatology and immunology. She brings more than 25 years’ experience from senior leadership roles in global pharmaceutical companies, including Sanofi Aventis and Johnson & Johnson.
  • Dr. Gregory B. Brown and Ms. Anne Whitaker stepped down from their positions as a Non-Executive Directors.

 

Full-year Financial Results

 

  • On December 31, 2023, Faron held cash balances of EUR 6,9 million (2022: EUR 7,0 million). 
  • Loss for the period for the financial year ended December 31, 2023, was EUR 30,9 million (2022: EUR 28,7 million).  
  • Net assets on December 31, 2023, were EUR -15,2 million (2022: EUR -11,5 million).
  • In January 2023 the Company successfully raised a total of EUR 12,0 million gross through the issuance of 3,692,308 ordinary shares to investors.
  • In June 2023, Faron conducted a placement of 2,601,510 newly issued treasury shares to investors to raise EUR 6,6 million gross.
  • In October 2023, the Company successfully raised EUR 7,1 million gross through the issuance of 2,491,998 ordinary shares to investors. 
  • The primary reason for conducting the placings were to accelerate and expand the clinical development of the Company’s main drug candidate, bexmarilimab, advance bexmarilimab’s commercial scale production, support general corporate purposes and other pipeline development, and to strengthen the Company’s balance sheet.
  • Post period, in February 2024, the Company announced that it is in breach of several undertakings agreed in the Facilities Agreement with IPF and subsequent waiver letters provided by IPF and is therefore in several events of default.
  • Post period, in March 2024, the Company successfully raised a total of EUR 3,2 million in convertible loans allowing the Company to secure short-term financing.  The company continues active endeavors to secure longer term funding.

 

 

 

 

Consolidated key figures, IFRS

 

EUR ’000

Unaudited

7-12/2023
6 months

Unaudited

7-12/2022
6 months

1-12/2023
12 months

1-12/2022
12 months

Other operating income

0

318

0

803

Research and Development expenses

(11,024)

(10,683)

(19,542)

(20,730)

General and Administrative expenses

(4,732)

(3,697)

(9,026)

(7,498)

Loss for the period

(15,756)

(14,062)

(28,568)

(28,730)

 

 

Unaudited

7-12/2023
6 months

Unaudited

7-12/2022
6 months

1-12/2023
12 months

1-12/2022
12 months

Loss per share EUR

(0.26)

(0.27)

(0.48)

(0.52)

Number of shares at end of period

68,786,699

59,805,383

68,786,699

59,805,383

Average number of shares

67,137,790

57,230,625

65,055,036

55,229,835

 

EUR ’000

Unaudited

30 June 2023

Unaudited

30 June 2022

31 December 2023

31 December 2022

Cash and cash equivalents

6,315

9,936

6,875

6,990

Equity

(9,483)

(5,194)

(15,160)

(11,476)

Balance Sheet total

12,836

16,729

10,220

11,271

 

Board of Directors’ Proposal on the Dividend

The Group’s comprehensive loss for the period was EUR 30,943,935 (2022: EUR 28,924,250). The Board of Directors proposes to the Annual General Meeting 2024 not to pay a dividend.

 

March 13, 2023

Faron Pharmaceuticals Oy

Board of Directors

 

 

 

 

Conference call information

A virtual briefing and Q&A session for investors, analysts and media will be hosted by Dr. Markku Jalkanen, Chief Executive Officer, and James O’Brien, Chief Financial Officer, today, March 13, 2024, at 8:00 AM (EDT) / 12:00 PM (GMT) / 2:00 PM (EET).

 

Webcast registration link: https://faron.videosync.fi/q4-2023

 

The full-year report, presentation, and a replay of the webcast will be available on the Company’s website at https://www.faron.com/investors.

 

 

For more information please contact:

 

Investor Contact

LifeSci Advisors

Daniel Ferry

Managing Director

daniel@lifesciadvisors.com

+1 (617) 430-7576

 

Media Contact

ICR Consilium

Mary-Jane Elliott, David Daley, Lindsey Neville

Phone: +44 (0)20 3709 5700

E-mail: faron@consilium-comms.com 

 

Cairn Financial Advisers LLP, Nomad

Sandy Jamieson, Jo Turner

Phone: +44 (0) 207 213 0880

 

Peel Hunt LLP, Broker

Christopher Golden, James Steel

Phone: +44 (0) 20 7418 8900

 

Sisu Partners Oy, Certified Adviser on Nasdaq First North

Juha Karttunen

Phone: +358 (0)40 555 4727

Jukka Järvelä

Phone: +358 (0)50 553 8990

Publication of financial information during year 2024

Faron’s financial statements for full year 2023 will be published today, March 13, 2024 and will also be available on Faron’s website at https://www.faron.com/investors/results. The half-year financial report for the period January 1 to June 30, 2024 is scheduled to be published on August 27, 2024. The Annual General Meeting is planned for April 5, 2024. A separate stock exchange notice will be issued by Faron’s Board of Directors to convene the meeting.

 

About bexmarilimab

Bexmarilimab is Faron’s wholly owned, investigational immunotherapy designed to overcome resistance to existing treatments and optimize clinical outcomes, by targeting myeloid cell function and igniting the immune system. Bexmarilimab binds to Clever-1, an immunosuppressive receptor found on macrophages leading to tumor growth and metastases (i.e. helps cancer evade the immune system). By targeting the Clever-1 receptor on macrophages, bexmarilimab alters the tumor microenvironment, reprogramming macrophages from an immunosuppressive (M2) state to an immunostimulatory (M1) one, upregulating interferon production and priming the immune system to attack tumors and sensitizing cancer cells to standard of care.

 

About BEXMAB

The BEXMAB study is an open-label Phase I/II clinical trial investigating bexmarilimab in combination with standard of care (SoC) in the aggressive hematological malignancies of acute myeloid leukemia (AML) and myelodysplastic syndrome (MDS). The primary objective is to determine the safety and tolerability of bexmarilimab in combination with SoC (azacitidine) treatment. Directly targeting Clever-1 could limit the replication capacity of cancer cells, increase antigen presentation, ignite an immune response, and allow current treatments to be more effective. Clever-1 is highly expressed in both AML and MDS and associated with therapy resistance, limited T cell activation and poor outcomes.

 

About Faron Pharmaceuticals Ltd.

Faron (AIM: FARN, First North: FARON) is a global, clinical-stage biopharmaceutical company, focused on tackling cancers via novel immunotherapies. Its mission is to bring the promise of immunotherapy to a broader population by uncovering novel ways to control and harness the power of the immune system. The Company’s lead asset is bexmarilimab, a novel anti-Clever-1 humanized antibody, with the potential to remove immunosuppression of cancers through reprogramming myeloid cell function. Bexmarilimab is being investigated in Phase I/II clinical trials as a potential therapy for patients with hematological cancers in combination with other standard treatments. Further information is available at www.faron.com.

 

Forward-Looking Statements

 

Certain statements in this announcement are, or may be deemed to be, forward-looking statements. Forward looking statements are identified by their use of terms and phrases such as ”believe”, ”could”, “should”, “expect”, “hope”, “seek”, ”envisage”, ”estimate”, ”intend”, ”may”, ”plan”, ”potentially”, ”will” or the negative of those, variations or comparable expressions, including references to assumptions. These forward-looking statements are not based on historical facts but rather on the Directors’ current expectations and assumptions regarding the Company’s future growth, results of operations, performance, future capital and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, business prospects and opportunities. Such forward-looking statements reflect the Directors’ current beliefs and assumptions and are based on information currently available to the Directors.

 

A number of factors could cause actual results to differ materially from the results and expectations discussed in the forward-looking statements, many of which are beyond the control of the Company. In addition, other factors which could cause actual results to differ materially include the ability of the Company to successfully license its programs within the anticipated timeframe or at all, risks associated with vulnerability to general economic and business conditions, competition, environmental and other regulatory changes, actions by governmental authorities, the availability of capital markets or other sources of funding, reliance on key personnel, uninsured and underinsured losses and other factors. Although any forward-looking statements contained in this announcement are based upon what the Directors believe to be reasonable assumptions, the Company cannot assure investors that actual results will be consistent with such forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. Subject to any continuing obligations under applicable law or any relevant AIM Rule requirements, in providing this information the Company does not undertake any obligation to publicly update or revise any of the forward-looking statements or to advise of any change in events, conditions or circumstances on which any such statement is based.

 

 

CEO Statement

 

2023 was a year of significant progress for Faron with momentum building in our ambitious bexmarilimab development program and a continued laser focus on proving the potential of this novel myeloid cell re-programming immunotherapy to treat patients with aggressive hematological malignancies.

Initial promising results emerged early in 2023 from the first part of our Phase I/II BEXMAB study, investigating bexmarilimab in combination with standard of care (azacitidine and venetoclax) in relapsed/refractory acute myeloid leukemia (AML) and myelodysplastic syndromes (MDS) patients who had failed hypomethylating agents (HMAs). These early, positive responses in a very difficult to treat refractory setting were extremely exciting, given patients in the trial had failed standard of care and were left with few treatment options.

Throughout 2023 the trial delivered highly encouraging results which continued to improve over time. And by the time the first part of the trial had completed, the data was no less compelling. The bexmarilimab combination therapy had shown a strong overall response rate (ORR) in both higher-risk frontline MDS patients (5/5 patients) as well as HMA-failed MDS patients (5/5 patients). Observed responses were deep and durable with 7/10 MDS patients achieving complete remission/ marrow complete remission (CR/mCR), and two demonstrating partial remission (PR), one of whom moved on to receive a stem cell transplantation and the other, hematological improvement without remission (HI-P).

The combination continued to be well-tolerated and generated strong and durable leukemic blast eradication and immune responses. These were tremendous data, supporting bexmarilimab’s unique mechanism of action in the field of myeloid cell re-programming. And providing compelling evidence for us to continue development, at pace.

We rapidly initiated the second phase of the BEXMAB study in November, selecting HMA-refractory or -relapsed MDS as the initial indication, based on guidance from the U.S. Food and Drug Administration (FDA). MDS presents a considerable patient burden given the limited efficacy of the current standard of care, resulting in relatively low response rates and poor overall survival. Our data from the first part of the study underscored the potential of combining bexmarilimab with existing treatments to advance care for patients who so desperately need help. Post period, in January 2024, the first patients were dosed in the second phase of the study and the team secured additional trial sites to speed up its recruitment.

This is an incredibly important stage in bexmarilimab’s development as data from this phase of the trial will enable us to discuss a potential registrational study plan with the FDA.

We are thrilled with this progress and our absolute priority is to pursue an accelerated path to approval for bexmarilimab in its initial indication, where we know the need is so great. We also understand the broader opportunities for this immunotherapy. The FDA has granted Orphan Drug Designation (ODD) to bexmarilimab for the treatment of acute myeloid leukemia (AML), another hematological cancer with too few treatment options. Armed with the wealth of data generated so far in the BEXMAB study, we are exploring bexmarilimab’s potential in low risk MDS as well as chronic myelomonocytic leukaemia (CMML) patients. These are development and expansion opportunities that we will consider in the form of partnerships as our research continues.

Communicating to the broader healthcare community was an important aspect of our work in 2023 and I am delighted that the team was able to share and discuss the strong data emerging from the BEXMAB program at many of the leading scientific conferences, including the American Association for Cancer Research Annual Meeting, the European Hematology Association (EHA) 2023 Congress and the 65th American Society of Hematology (ASH) Annual Meeting. It was also a significant moment in December of 2023 when the leading scientific journal, Cell Reports Medicine, published the full safety and anti-tumor efficacy results from the Company’s first-in-human Phase I/II MATINS trial of bexmarilimab monotherapy in solid tumors. That trial achieved disease control and prolonged survival in a proportion of patients with very late-stage cancers who had exhausted all standard treatment options. It formed the bedrock of our understanding of the potential of bexmarilimab.

Alongside bexmarilimab’s significant advancements we have continued to strengthen the Company’s foundations. The appointment of Mr. James O’Brien, CPA, MBA, as Chief Financial Officer, supports our journey to becoming a global pharmaceutical company, given his extensive experience in the US capital markets and strong track record as an accomplished biotech and financial executive. When Dr. Marie-Louise Fjällskog stepped down as Faron’s Chief Medical Officer, we were delighted that she agreed to continue playing an integral role in the development of bexmarilimab, by providing clinical and regulatory expertise through her Non-Executive Director role on our Board. Dr. Birge Berns, who we appointed interim Chief Medical Officer, is a seasoned senior pharmaceuticals executive with a background in oncology, clinical medicine, rheumatology and immunology. She brings a wealth of global pharmaceutical experience that is critical to this business.

I am excited for the Company’s future in 2024. The latest stage of the BEXMAB trial will provide important data to support our continued discussions with the FDA and, we hope, provide us with a clear pathway to bringing bexmarilimab to patients. Our confidence grows in the potential of this novel therapy to provide better patient outcomes and improve the quality of life of those suffering from aggressive hematological cancers. The excellent BEXMAB data have intensified numerous ongoing partnering discussions, and we are looking forward to advancing these discussions over the coming year.

None of this work would be possible without the ongoing support from our shareholders, to whom I express my sincere thanks. And to my colleagues on the management team, and the wider Faron community, thank you for your continued commitment to making this Company’s vision a reality and bringing the promise of bexmarilimab to patients.

Markku Jalkanen

Chief Executive Officer

March 13, 2024
 

Chairman Statement

2023 has been another solid year of clinical trial progress for Faron. We continue to see bexmarilimab, our novel, wholly owned investigational immunotherapy candidate as the major value driver for Faron, and so our focus has been, and remains, to continue to advance bexmarilimab through clinical development.

We were pleased to conclude the MATINS trial, which provided a huge amount of information around the safety of bexmarilimab in a monotherapy setting and we were honoured to present and publish the data at several conferences and in important scientific Journals.   As we have said for a long time, we believe the future of cancer therapy for later-stage treatment is in the combination setting and we strongly believe, reinforced by the remarkable clinical data from the last year, that bexmarilimab will be part of the backbone of a combination setting.

Our most advanced program, and our main focus at Faron, is our Phase I/II BEXMAB trial investigating the safety, tolerability and preliminary efficacy of bexmarilimab in combination with standard of care therapies. Over the course of the year, we have seen very encouraging data from the BEXMAB trial with bexmarilimab continuing to show real clinical benefit in specific patient populations. We have consistently provided updates to the market and presented the data at several prestigious scientific conferences where we have had very positive feedback from key opinion leaders as well as from the clinicians in our trials.  This has given us continued confidence in the potential of bexmarilimab to provide better patient outcomes and improve the quality of life in patients suffering from these aggressive conditions.  We will continue to explore the best options to commercialize bexmarilimab in the combination setting and, as we move to next year, we are looking to have substantial interactions with the US FDA about the best path to market in our chosen indications.

We are very fortunate at Faron to have long-term supportive investors and so, despite the incredibly challenging funding environment seen this past year in both Europe and the US, we were pleased to raise additional capital throughout the period totalling EUR 25,7 million.  Amongst other things, these funds have allowed us to accelerate our bexmarilimab program, bringing this much needed potential treatment one step closer to patients.  We will look to strengthen our shareholder base as we move into 2024.

We had several Board and management changes over the course of the year. Dr. Gregory B. Brown and Ms. Anne Whitaker both stepped down from their positions as a Non-Executive Directors of the Company and Faron Board Member Mr. Leopoldo Zambeletti also stepped down to assume a transactional advisor role within the Company on business development opportunities.  We were pleased, however, to welcome Mr. Tuomo Pätsi and Ms. Christine Roth as Non-Executive Directors of the Company. Ms. Roth has played key roles in the development and launch of several therapies, including the first immune-oncology therapy and intentionally designed targeted therapy combinations.

Dr. Marie-Louise Fjällskog, moved from Chief Medical Officer to assume a Board position and we are very grateful that when she decided to retire, she had the confidence to continue with the Company in this role.  We also appointed a new Chief Financial Officer, Mr. James O’Brien, a very experienced US based CFO who has already made a big impact, and Dr. Birge Berns, MD as Interim Chief Medical Officer.

I would like to take this opportunity to thank our outgoing Board members for their service and guidance to Faron during their tenure and to Mr. Toni Hänninen, our previous CFO, for his service to Faron over the years.

As always, I would like to thank the whole management team, led by Dr. Markku Jalkanen, Chief Executive Officer, for their continued dedication and guidance, my colleagues on the Board for their commitment to the Company and our partner organisations and steering committee members for their support and expertise. I would also like to extend thanks to all the employees at Faron for their hard work and dedication.  Most importantly, I would like to thank all the patients on our clinical trials, their families, and our trial investigators without whom we would not be where we are today. 2024 is set to be a pivotal for Faron when BEXMAB will deliver key data giving us a clearer direction towards commercialization. I look forward to providing further updates as we continue to progress our innovative pipeline. 

Dr Frank Armstrong

Chairman

 

Financial Review

 

Despite continuing challenging market conditions in 2023, the Company was able to conduct three successful fundraising rounds. Combined, these financings raised EUR 25,7 million.  As a result of these fundraising efforts, the net cash from financing activities of EUR 23,9 million compared to EUR 23,5 million in 2022. Post period in March 2024, the Company successfully raised a total of EUR 3.2 million in subordinated convertible loan arrangements with existing shareholders.

Faron places a strategic emphasis on capital efficiency, a key element of efforts to extend our cash runway, without compromising the ability to advance our clinical development program. This capital efficiency has allowed us to achieve more with available resources, while focusing on clinical outcomes. During 2023, nearly 70% of cash expenses were spent directly in support of our bexmarilimab clinical development program including manufacturing. General and administrative expenses were flat in 2023 when compared to 2022 excluding one-time items and financing costs.

RESEARCH AND DEVELOPMENT EXPENSES 

R&D costs were EUR 19,5 million in 2023 compared to 20,7 million in 2022, a decrease of EUR 1,2 million. These costs are attributable to advancing our clinical programs including completion of BEXMAB Phase I and the initiation of Phase II. Clinical trial costs include the cost of patient and site enrollment, CRO service costs including monitoring, investigator fees, and compensation and benefits for personnel directly responsible for R&D activities, and product supply costs.  The costs of outsourced clinical trial services were EUR 4,0 million in 2023 compared to EUR 5,1 million in 2022. Compensation and benefits were EUR 3,2 million in 2023 and EUR 5,2 million in 2022 and included stock compensation expense of EUR 0,7 million and EUR 0,3 million in 2023 and 2022, respectively.

GENERAL AND ADMINISTRATION COSTS

G&A expenses were EUR 9,0 million in 2023 compared to EUR 7,5 million in 2022, an increase of EUR 1,5 million. The increase was mainly due to the recognition of the incremental fair value of amending the terms of 2015 option plan of EUR 1,2 million.  Compensation and benefits were EUR 5,7 million in 2023 and EUR 4,5 million in 2022 and included stock compensation expense of EUR 1,7 million and EUR 1,0 million in 2023 and 2022, respectively.

TAXATION

The Company’s tax credit for the fiscal year 2023 can be recorded only after the Finnish tax authorities have approved the tax report and confirmed the amount of tax-deductible expenses. The total amount of cumulative tax losses carried forward approved by tax authorities on December 31, 2023 was EUR 51,6 million (2022: EUR 47,1 million). The Company estimates that it can utilize most of these during the years 2024 to 2034 by offsetting them against potential future profits. In addition, the Company has EUR 95,2 million of R&D costs incurred in the financial years 2010 – 2023 that have not yet been deducted from taxation. This amount can be deducted over an indefinite period at the Company’s discretion.

LOSSES

Loss before income tax and total comprehensive income in 2023 was EUR 30,9 million compared to EUR 28,7 million in 2022, which represents a loss of EUR 0.48 per share and EUR 0.52 per share in 2023 and 2022, respectively.

CASH FLOWS

Net cash flow in each of the years ended December 31, 2023 and 2022 was essentially flat. Cash used for operating activities in 2023 was EUR 23,8 million compared to 2022 of EUR 23,0 million. Net cash inflow from financing activities in 2023 was EUR 24,0 million compared to 2022 of EUR 23,5 million.

FUNDRAISING

In January 2023 the Company successfully raised a total of EUR 12,0 million gross through the issuance of 3,692,308 ordinary shares to investors. In June 2023, Faron conducted a placement of 2,601,510 newly issued treasury shares to raise EUR 6.6 million gross. In October 2023, the Company successfully raised EUR 7,1 million gross through the issuance of 2,491,998 ordinary shares to investors. Post period, In March 2024, the Company successfully raised a total of EUR 3,2 million in subordinated convertible loan arrangements with certain existing shareholders.

 

FINANCIAL POSITION

As of 31 December 2023, total cash and cash equivalents held were EUR 6,9 million compared to 2022 of EUR 7,0 million.

GOING CONCERN

As part of their going concern review, the Directors have followed International Accounting Standard 1, Presentation of Financial Statements (IAS 1). The Company and its subsidiaries are subject to a number of risks similar to those of other development state pharmaceutical companies. These risks include, amongst others, generation of revenues in due course from the development portfolio and risks associated with research, development, testing and obtaining related regulatory approvals of its pipeline products. Ultimately, the attainment of profitable operations is dependent on future uncertain events which include obtaining adequate financing to fulfill the Group’s commercial and development activities and generate a level of revenue adequate to support the Group’s cost structure.

The Group generated a net loss of EUR30,9 million and recorded EUR 23,8 million cash outflow from operating activities during the year ended 31 December 2023. At the end of the financial year, it had total negative equity of EUR15,2 million including an accumulated deficit of EUR 172,2 million. As of that date, the group had cash and cash equivalents of EUR6,9 million.

The Directors have prepared detailed financial forecasts and cash flows looking beyond 12 months from the date of the approval of these financial statements. In developing these forecasts, the Directors have made assumptions based upon their view of the current and future economic conditions that are expected to prevail over the forecast period. The Director’s estimate that the cash held by the Group, together with known receivables will be sufficient to support the current level of activities into the second quarter of 2024. The Group also maintains loan agreements which include financial covenants related to minimum cash balance and thus loan amounts (EUR 9,4 million on December 31, 2023) become due if the Group is not able to maintain minimum cash balances or negotiate a waiver with the lender. The directors are continuing to explore sources of finance available to the Group and they believe that they have a reasonable expectation that they will be able to secure sufficient cash inflows for the Group to continue its activities for not less than 12 months from December 31, 2023; they have therefore prepared the financial statements on a going concern basis.

During the financial period ended 31, December 2023, the Group raised EUR 25.7 million in three successful fundraising rounds. . Subsequently, in March 2024, the Group received EUR 3,2 million Capital Loan to secure immediate short-term financing needs until the end of March 2024. The Capital Loan shall be governed by the provisions of Chapter 12 of the Finnish Companies Act (624/2006, as amended) (the “Finnish Companies Act”) concerning capital loans (in Finnish: pääomalaina).

The Loans shall be converted to new shares in the Company as a part of (and at the subscription price of) the next investment round where shares or other equity securities are issued by the Company to existing shareholders and/or new third- party investors, with a minimum size of EUR 8.0 million (“Investment Round”).

In the event that the subscription price in such Investment Round exceeds EUR 1.50 per share, an Investor shall have the right to postpone the conversion of the Loan until June 10, 2024 (“Due Date”). In the event that there is no Investment Round by the Due Date (or the subscription price of the Investment Round exceeds EUR 1.50 per share and the respective Investor has decided to postpone the conversion of the Loan) and the Loan has not been otherwise repaid prior to the Due Date (subject to a subordination agreement to be entered into between the Investors, the Company and IPF), then the Loan shall be at the request of the Investor converted into new shares in the Company in connection with the Due Date. In such case, the subscription price per share shall be EUR 1.50 per share. However, if then the Investor elects not to exercise its conversion right on the Due Date, (such option being only available if there has not been any Investment Round), the Due Date of the Loan will automatically be extended until December 31, 2024 (“Final Due Date”). On such Final Due Date, the Loan shall be either repaid in full in cash, subject to the terms of the subordination agreement, or converted into new shares in the Company with the subscription price of EUR 1.50 per share, subject to a valid share issue authorization being in place.

In case the Loan is converted before the Due Date, each Investor is entitled to an arrangement fee of 15% of its respective Loan amount. If conversion has not taken place prior to the Due Date, the arrangement fee will be 30% of the Investor’s respective Loan amount. No interest shall be payable on the Loan if a conversion takes place before May 30, 2024, and thereafter the interest will be 12% + 3-months Euribor and paid subject to the subordination agreement.

The Group is actively pursuing the following activities during 2024:

  • Securing approximately EUR5,0 million of short-term bridge financing to extend the Group’s cash runway until longer-term financing can be obtained.
  • Securing longer-term funding of approximately EUR 35.0 million in total. The Directors intend to propose to the Annual General Meeting on 5 April 2024 an authorization for a larger share issuance contemplated to be launched as a public offering (with planned allocation preferences to existing shareholders and bridge finance lenders, including the Investors to enable the conversion of the Capital Loan and in compliance with the relevant securities markets regulation) as soon as practicable once the required preparations and approvals are in place. The targeted size of the contemplated share issue is planned to be set accordingly, to meet cash runway needs for 2024.
  • Evaluating and negotiating several business development alternatives that may result in non-dilutive funding.
  • Evaluating new sources of financing from third parties on acceptable terms. With respect to the availability of additional funding from IPF, the respective term allowing the Group to draw on Tranche B and Tranche C has expired and the availability of Funds from IPF would be subject to further negotiations. The Group does not anticipate, at this time, having the ability to draw on Tranche B or Tranche C under favorable terms, in the near future. 
  • Because the additional finance is not committed at the date of issuance of these financial statements, these circumstances represent a material uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern. Should the Group be unable to obtain further financing such that the going concern basis of preparation were no longer appropriate, adjustments would be required, including to reduce balance sheet values of assets to their recoverable amounts.

HEADCOUNT

Faron’s headcount at the end of year was 34 (2022: 40).

SHARES AND SHARE CAPITAL

During the period January 1 to December 31, 2023, the Company, using the share authorities granted at the Extraordinary General Meeting held on July 7, 2022, issued a total of 3,692,308 new ordinary shares at an issuance price of EUR 3.25 per share to investors. During the same period, the Company, using the share authorities granted at the Annual General Meeting held on March 24, 2023, issued a total of 2,601,510 shares at an issuance price of EUR 2.55 per share to investors. During the same period, the Company, using the share authorities granted at the Annual General Meeting held on March 24, 2023, issued a total of 2,491,998 new ordinary shares at an issuance price of EUR 2.85 to investors. The subscription price net of costs was credited in full to the Company’s reserve for invested unrestricted equity, and the share capital of the Company was not increased. The Company has no shares in treasury; therefore, at the end of 2023 the total number of voting rights was 68,786,699.

 

 

 

 

 

Consolidated Income Statement, IFRS

 EUR ’000

Unaudited

7-12/2023
6 months

Unaudited

7-12/2022
6 months

1-12/2023
12 months

1-12/2022
12 months

Other operating income

0

318

0

803

Research and development expenses

(11,024)

(10,683)

(19,542)

(20,730)

General and administrative expenses

(4,732)

(3,697)

(9,026)

(7,498)

Operating loss

(15,756)

(14,062)

(28,568)

(27,426)

Financial income

233

(596)

233

96

Financial expense

(1,691)

(970)

(2,609)

(1,400)

Loss before tax

(17,214)

(15,628)

(30,944)

(28,730)

Tax expense

0

19

0

0

Loss for the period

(17,214)

(15,609)

(30,944)

(28,730)

 

 

 

 

 

Other comprehensive gain/loss

2

6

2

17

Total comprehensive loss for the period

(17,212)

(15,603)

(30,942)

(28,713)

 

 

 

 

 

Loss per ordinary share

 

 

 

 

Basic and diluted loss per share, EUR

(0.26)

(0.27)

(0.48)

(0.52)

 

 

Consolidated Balance Sheet, IFRS

 

 

EUR ‘000

31 December 2023

31 December 2022

Assets

 

 

Non-current assets

 

 

Machinery and equipment

6

13

Right-of-use-assets

198

314

Intangible assets

1,088

1,154

Prepayments and other receivables

60

60

Total non-current assets

1,352

1,541

 

 

 

Current assets

 

 

Prepayments and other receivables

1,992

2,740

Cash and cash equivalents

6,875

6,990

Total current assets

8,868

9,730

 

 

 

Total assets

10,220

11,271

 

 

 

Equity and liabilities

 

 

 

 

 

Capital and reserves attributable to the equity holders of Faron

 

 

Share capital

2,691

2,691

Reserve for invested unrestricted equity

154,352

129,544

Accumulated deficit

(172,208)

(143,713)

Translation difference

4

2

Total equity

(15,160)

(11,476)

 

 

 

Provisions

 

 

Other provisions

0

158

Total provisions

0

158

 

 

 

Non-current liabilities

 

 

Borrowings

9,423

11,102

Lease liabilities

50

163

Other liabilities

895

853

Total non-current liabilities

10,369

12,118

 

 

 

Current liabilities

 

 

Borrowings

3,475

1,851

Lease liabilities

163

153

Trade payables

8,971

6,014

Accruals and other current liabilities

2,403

2,453

Total current liabilities

15,012

10,471

 

 

 

Total liabilities

25,380

22,748

 

 

 

Total equity and liabilities

10,220

11,271

 

 

 

 

 

 

Consolidated Statement of Changes in Equity, IFRS

EUR ‘000

Share capital

Reserve for invested unrestrict-
ed equity

Trans-
lation
difference

Accumu-lated deficit

Total equity

 

 

 

 

 

 

Balance as at 31 December 2021

2,691

116,507

(15)

(116,265)

2,919

 

 

 

 

 

 

Comprehensive loss for the year 2022

0

0

17

(28,730)

(28,713)

 

 

 

 

 

 

Transactions with equity holders of the Company

 

 

 

 

Issue of ordinary shares, net of transaction costs

0

13,037

0

0

13,037

Share-based compensation

0

0

 0

1,297

1,297

Other movements

 0

0

0

(16)

(16)

 

0

13,037

17

(27,448)

(14,395)

 

 

 

 

 

 

Balance as at 31 December 2022

2,691

129,544

2

(143,713)

(11,476)

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss for the year 2023

0

0

2

(30,944)

(30,942)

 

 

 

 

 

 

Transactions with equity holders of the Company

 

 

 

 

 

Issue of ordinary shares, net of transaction costs

0

24,808

0

0

24,808

Share-based compensation

0

0

0

2,450

2,450

 

0

24,808

2

(28,494)

(3,684)

 

 

 

 

 

 

Balance as at 31 December 2023

2,691

154,352

4

(172,208)

(15,160)

 

 

 

 

Consolidated Cash Flow Statement, IFRS

 

EUR ‘000

Unaudited

Unaudited

1-12.2023

1-12.2022

7-12.2023

7-12.2022

12 months

12 months

6 months

6 months

 

 

Cash flow from operating activities

 

 

 

 

Loss before tax

(17,214)

(15,628)

(30,944)

(28,730)

Adjustments for:

 

 

 

 

Received grant

(33)

(388)

(33)

(803)

Depreciation and amortization

172

149

346

300

Change in provision

0

(158)

(158)

(158)

Financial items

1,458

787

2,376

1,304

 

 

 

 

 

Tax expense

0

19

0

0

 

 

 

 

 

Share-based compensation

1,964

632

2,450

1,297

Adjusted loss from operations before changes in working capital

(13,653)

(14,587)

(25,963)

(26,790)

Change in net working capital:

 

 

 

 

Prepayments and other receivables

(728)

2,045

300

2,864

Trade payables

3,002

(657)

2,994

719

Other liabilities

223

2,197

(50)

1,183

Cash used in operations

(11,156)

(11,001)

(22,719)

(22,023)

 

 

 

 

 

Transaction costs related to loans and borrowings

0

0

0

(165)

Interest received

243

11

243

11

Interest paid

(548)

(708)

(1,330)

(816)

Net cash used in operating activities

(11,461)

(11,698)

(23,806)

(22,993)

 

 

 

 

 

Cash flow from investing activities

 

 

 

 

Payments for intangible assets

(56)

(218)

(123)

(385)

Payments for equipment

0

0

0

0

Net cash used in investing activities

(56)

(218)

(123)

(385)

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

Proceeds from issue of shares

13,954

8,923

26,031

13,445

Share issue transaction cost

(542)

(174)

(1,190)

(365)

Proceeds from borrowings

0

(0)

64

10,389

Repayment of borrowings

(861)

0

(861)

(105)

Transaction and structuring fees of borrowings

(400)

0

(400)

0

Proceed from grants

99

231

481

231

Payment of lease liabilities

(58)

(20)

(142)

(116)

Net cash from financing activities

12,192

8,959

23,983

23,478

 

 

 

 

 

Net increase (+) / decrease (-) in cash and cash equivalents

560

(2,946)

(114)

137

Effect of exchange rate changes on cash and cash equivalents

(116)

11

(168)

37

 

 

 

 

 

Cash and cash equivalents at 1 January / 1 July

6,315

9,936

6,315

6,853

Cash and cash equivalents at 31 December

6,876

6,990

6,876

6,6990

 

Financial Statement January 1 to December 31 2022

Faron Pharmaceuticals Oy

 

Faron’s Financial Statement Release January 1 to December 31, 2022

 

Financial statement release March 3, 2023 at 09:00 AM (EET) / 07:00 AM (GMT) / 03:00 AM (EDT)  

TURKU, FINLAND / BOSTON, MA Faron Pharmaceuticals Oy (“Company”, AIM: FARN, First North: FARON) together with its subsidiaries (“Faron”), a clinical stage biopharmaceutical group focused on building the future of immunotherapy by harnessing the power of the immune system to tackle cancer and inflammation, today announced audited full-year financial results for January 1 to December 31, 2022 (the “period”) and H2 2022 and provided an overview of recent corporate developments.

 

2022 Highlights

      Faron reported that for the Phase I/II BEXMAB study of bexmarilimab, in combination with standard of care (SoC), in aggressive hematological malignancies including acute myeloid leukemia (AML) and myelodysplastic syndrome (MDS), that a partial responder achieved complete remission of blasts in blood and bone marrow followed by normalization of blood counts. A second patient showed reduced blast counts.

      Bexmarilimab has been evaluated as a single agent in the Phase I/II MATINS in more than 200 patients and found to be well-tolerated.

      In MATINS, median overall survival was 14.9 months for patients who achieved stabilization of disease from bexmarilimab compared to 4.4 months for those who did not, representing a 3.4-fold increase.

      Bexmarilimab ignites the immune system by inducing IFN-y production. A high baseline level of IFN-γ in the tumor indicates that the immune system is already set to attack cancer cells and seems required for PD-1 blockade to work. Thus, adding bexmarilimab to PD-1 blockade is anticipated to enhance efficacy.  

      The Company plans to initiate the Phase II BEXCOMBO study investigating bexmarilimab in metastatic or unresectable, recurrent HNSCC, locally advanced or metastatic UCC and metastatic NSCLC where first-line PD-1 blockade is approved SoC. 

      The Company conducted two successful fundraising rounds in 2022. Combined, they raised EUR 13.4 million gross and both rounds included new and existing investors. The Company also obtained up to EUR 30.0 million debt funding from IPF Partners, drew EUR 10.0 million upon signing in February 2022, further tranches possible under certain conditions

      Virtual briefing and Q&A to be held today at 8:00 AM (EDT) / 12:00 PM (GMT) / 2:00 PM (EET)

 

Major Events After the 2022 Financial Year

      Post period in January 2023, Faron reported that three out of five patients achieved objective responses in the first doublet cohort of the Phase I/II BEXMAB study evaluating the combination of azacitidine and bexmarilimab. Two of the three responders were refractory to standard of care (SoC) azacitidine monotherapy. The addition of bexmarilimab to standard of care was well-tolerated.

      Both the 1mg/kg and 3mg/kg doublet arms are fully enrolled, and the dose-escalation meeting is planned for Q1 2023.

      The Company successfully raised a total of EUR 12.0 million gross. This fundraising round was supported by long-only institutional investors, family offices, existing shareholders, and the Leukemia & Lymphoma Society® (LLS).

      Faron will support activities in preparation of a potential clinical trial with the Fred Hutchinson Cancer Center in Seattle, Washington, to investigate intravenous (IV) interferon beta in the prevention of cytokine release syndrome (CRS) and other CAR-T therapy side effects, such as neurotoxicity.

 

“I am extremely proud of the progress we made in 2022 for the bexmarilimab program and building our corporate infrastructure, both in the US and in Europe, to support the ambitious plans we have for 2023 and beyond,” said Dr. Markku Jalkanen, Chief Executive Officer of Faron. “Last year we accelerated the development of bexmarilimab in hematological malignancies and reported exciting early data that lays a solid trajectory. We also demonstrated compelling antitumor activity in heavily pretreated patients across multiple solid tumor types, setting the stage for a combination with standard of care in first-line solid tumors. We accomplished all of this while also strengthening our balance sheet, adding highly experienced team members and expanding our global footprint with a growing presence in the US.”

 

HIGHLIGHTS (including post period):

 

Pipeline Highlights

Bexmarilimab Faron’s wholly owned, novel precision cancer immunotherapy candidate, in Phase I/II development for difficult-to-treat cancers.

Hematological cancers

      Faron reported objective responses for three out of five patients enrolled in the first doublet cohort of the Phase I/II BEXMAB study investigating bexmarilimab and azacitidine in patients with hematological cancers. Notably, 2 of the 3 responders had been refractory to prior azicitidine therapy. No additional adverse events have been observed adding bexmarilimab to standard of care.

      BEXMAB’s 1mg/kg and 3mg/kg bexmarilimab doublet cohorts have fully enrolled. Faron anticipates sites in the US to be opened during Q1 2023 to speed up recruitment even further.

Advanced solid tumors

      Bexmarilimab has been evaluated as a single agent in the Phase I/II MATINS in more than 250 patients and found to be well-tolerated.

      Up to 36% of heavily pretreated patients achieved disease control in certain indications.

      Median overall survival was 14.9 months for patients who achieved stabilization of disease from bexmarilimab compared to 4.4 months for those who did not, representing a 3.4-fold increase.

      Bexmarilimab treatment in MATINS induced significant systemic interferon gamma (IFN-γ) increase, again showing the therapy’s capacity to activate immune response in cancer patients, especially in patients with immunologically “cold” tumors. As presented at ASCO2022 in Chicago, the higher baseline CLEVER-1 levels in the tumors were associated with clinical benefit and could become an essential component as a diagnostic tool for patient selection.

      An FDA meeting will take place in Q1 2023 for feedback on the recommended dosing regimen and study design for further development of single agent bexmarilimab.

 

Traumakine® – Faron’s investigational intravenous (IV) interferon beta-1a therapy, in development for the prevention of complications from cytokine release syndrome, and hyperinflammatory conditions.

 

      Faron has refocused its therapeutic strategy of Traumakine and closed its Phase II/III HIBISCUS trial investigating Traumakine in the treatment of hospitalized COVID-19 patients compared to corticosteroid treatment with dexamethasone.

      Data from the preclinical Salvage, Preservation, and Advanced Resuscitation through Endothelial Stabilization (SPARES) study was presented at the Military Health System Research Symposium (MHSRS) held in Orlando, Florida. The results further highlight the promise of IV interferon beta-1a (IFN beta-1a) therapy as a potential therapeutic for emergency and trauma patients, especially when given early on.

      The Company filed a patent to the US Patent Office and Trademark Office regarding a patient selection method in terms of steroid treatment with an identified gene mutation in the interferon beta receptor. It received positive feedback in 2022.  

      Scientific Reports published data from INFORAAA study showing Traumakine induced up-regulation of CD73 was associated with 100% survival in surgically operated ruptured abdominal aorta aneurysm (RAAA) patients. These patients are at high risk of ischemia-reperfusion injury, with expected mortality between 30-40%.

      Another patent has been filed on sequencing interferon beta and steroid treatments, so that steroids can be used once adequate levels of CD73 are reached using IV IFN beta-1a.

 

Haematokine® – An investigative AOC3 (amine oxidase copper containing 3) protein inhibitor targeting Vascular Adhesion Protein-1 (VAP-1) for the use in regenerative medicine for the expansion of hematopoietic stem cells and to treat supressed bone marrow and the production of new blood cells.

 

Corporate Highlights

      Balance sheet was strengthened by raising EUR 13.4 million gross through fundraising rounds. This included two private placements, which encompassed existing and new investors, including The Leukemia & Lymphoma Society® (LLS). In February 2022, Faron also announced a debt funding agreement with IPF Partners for up to EUR 30 million. EUR 10 million was accessed upon signing of the agreement with an additional EUR 20 million available in the future through additional tranches of EUR 5 million and EUR 15 million, subject to certain conditions being met. Post period in January 2023, Faron raised EUR 12.0 million gross from new and existing shareholders, including The Leukemia & Lymphoma Society® (LLS).

      Marie-Louise Fjällskog, M.D., Ph.D., joined Faron’s Global Management Team as Chief Medical Officer, bringing with her over 30 years of experience in clinical oncology, translational research, and drug development. Dr. Fjällskog joined Faron from Sensei Biotherapeutics (NASDAQ: SNSE). As Chief Medical Officer at Sensei, she was responsible for leading clinical and development strategy and operations. Previously, she served as Vice President, Clinical Development at Merus (NASDAQ: MRUS) and Infinity Pharmaceuticals (NASDAQ: INFI) where she led development of multiple small molecule and immuno-oncology clinical programs. She was also formerly Global Clinical Program Leader at the Novartis Institute for Biomedical Research.

      Maija Hollmén, Ph.D, joined Faron’s Global Management Team as Chief Scientific Officer. In her role, Dr. Hollmén oversees preclinical and support clinical development for Faron. Her priority will be the further development of bexmarilimab, Faron’s wholly owned, novel precision cancer immunotherapy candidate. Dr. Hollmén is the world-leading expert on CLEVER-1 biology and CLEVER-1-expressing tumor-associated macrophages. She is an Adjunct Professor of Tumor Immunology on the Faculty of Medicine at the University of Turku in Finland, as well as a Principal Investigator.

      Juho Jalkanen, M.D., Ph.D., joined Faron’s Global Management Team as as Chief Operating Officer. In his role, Dr. Jalkanen will lead business strategy and daily operations for Faron. This includes oversight of academic and industry partnerships, resource prioritization and allocation, chemistry, manufacturing and controls, supply chain and driving performance measures. Dr. Jalkanen joined Faron in 2018 as the Faron’s Chief Development Officer. He also served as Faron’s interim Chief Medical Officer in 2021 prior to the appointment of Dr. Marie-Louise Fjällskog.

      Vesa Karvonen, LL.M.  General Counsel and Juuso Vakkuri, MA, MSc, EMBA, Chief Human Resources Officer joined Faron’s Global Management Team.

      Faron appointed Erik Ostrowski as a Non-Executive Director of the Company. Mr. Ostrowski is an experienced biotech and financial executive who is currently the Chief Financial Officer of AVROBIO, Inc. (NASDAQ: AVRO). 
 

 Financial Highlights

      On December 31, 2022, Faron held cash balances of EUR 7.0 million (2021: EUR 6.9 million).

      Loss for the period for the financial year ended December 31, 2022 was EUR 28.7 million (2021: EUR 21.2 million).

      Net assets on December 31, 2022 were EUR -11.5 million (2021: EUR 2.9 million).  

      In June 2022, the Company successfully raised a total of EUR 5.0 million gross (EUR 4.8 million net) from new and existing shareholders, through issuance of a total of 3,318,421 new ordinary shares to itself without consideration. 2,006,621 of those shares were conveyed to investors. In October 2022, the Company successfully raised a total of EUR 8.4 million gross (EUR 8.2 million net) from new and existing shareholders, through issuance of a total of 3,229,930 new ordinary shares to itself. Those shares and the 1,311,800 existing treasury shares were conveyed to investors. Proceeds from both raises will be used to accelerate clinical development of Faron’s main drug candidate, continue the CMC process and US build-up and to strengthen the Company’s balance sheet.             

      In February 2022, the Company secured a debt funding agreement with IPF Partners for up to EUR 30 million. EUR 10 million was accessed upon signing of the agreement with an additional EUR 20 million available in the future though additional tranches of EUR 5 million and EUR 15 million, subject to certain conditions being met.

      Post period, in January 2023 the Company successfully raised a total of EUR 12.0 million gross through the issuance of 3,692,308 ordinary shares to itself without consideration which were conveyed to investors.

 

 

Consolidated key figures, IFRS

EUR ’000

Unaudited

7-12/2022
6 months

Unaudited

7-12/2021
6 months

1-12/2022
12 months

1-12/2021
12 months

Other operating income

318

4,927

803

6,137

Research and Development expenses

(10,683)

(8,361)

(20,730)

(17,369)

General and Administrative expenses

(3,697)

(7,250)

(7,498)

(9,876)

Loss for the period

(15,609)

(10,649)

(28,730)

(21,194)

 

 

Unaudited

7-12/2022
6 months

Unaudited

7-12/2021
6 months

1-12/2022
12 months

1-12/2021
12 months

Loss per share EUR

(0.27)

(0.21)

(0.52)

(0.42)

Number of shares at end of period

59,805,383

53,232,032

59,805,383

53,232,032

Average number of shares

57,230,625

51,836,953

55,229,835

50,723,964

 

EUR ’000

Unaudited

30 June 2022

Unaudited

30 June 2021

31 December 2022

31 December 2021

Cash and cash equivalents

9,936

6,967

6,990

6,853

Equity

(5,194)

2,813

(11,476)

2,919

Balance Sheet total

16,729

11,865

11,271

13,182

 

Board of Directors’ Proposal on the Dividend

The Company’s comprehensive loss for the period was EUR 28,924,250.82 (2021: EUR 21,270,235.71) . The Board of Directors proposes to the Annual General Meeting 2023 not to pay dividend.

March 2, 2023

Faron Pharmaceuticals Oy

Board of Directors

Webcast for investors, analysts and media

A live webcast and Q&A session for investors, analysts and media will be hosted by Dr. Markku Jalkanen, Chief Executive Officer of Faron, and Toni Hänninen, Chief Financial Officer of Faron, at 2:00 pm EET / 12:00 pm GMT / 8:00 am EDT today. The Full-year results release for 2022, presentation, webcast details, and Annual Report 2022 will be made available at www.faron.com/investors. A replay of the analyst briefing will be made available shortly afterwards.

 

Webcast link: https://faron.videosync.fi/2022-financial-statement

 

For more information please contact:

 

Media / Investor Contact

Faron Pharmaceuticals

Jennifer C. Smith-Parker

Head of Communications

Jennifer.Smith-Parker@faron.com

 

Cairn Financial Advisers LLP, Nomad

Sandy Jamieson, Jo Turner

Phone: +44 (0) 207 213 0880

 

Peel Hunt LLP, Broker

Christopher Golden, James Steel

Phone: +44 (0) 20 7418 8900

 

Sisu Partners Oy, Certified Adviser on Nasdaq First North

Juha Karttunen

Phone: +358 (0)40 555 4727

Jukka Järvelä

Phone: +358 (0)50 553 8990

 

Consilium Strategic Communications

Mary-Jane Elliott, David Daley, Lindsey Neville

faron@consilium-comms.com

Phone: +44 (0)20 3709 5700

 

Publication of financial information during year 2023

Faron’s financial statements for full year 2022 will be published today, March 3, 2023 and will also be available on Faron’s website at https://www.faron.com/investors/results. The half-year financial report for the period January 1 to June 30, 2023 is scheduled to be published on August 29, 2023. The Annual General Meeting is planned for March 24, 2023. A separate stock exchange notice will be issued by Faron’s Board of Directors to convene the meeting.

About Bexmarilimab

Bexmarilimab is Faron’s wholly owned, investigative precision immunotherapy with the potential to provide permanent immune stimulation for difficult-to-treat cancers through targeting myeloid cell function. A novel anti-CLEVER-1 humanised antibody, bexmarilimab targets CLEVER-1 positive (Common Lymphatic Endothelial and Vascular Endothelial Receptor 1) tumor-associated macrophages (TAMs) in the tumor microenvironment, converting these highly immunosuppressive M2 macrophages to immune stimulating M1 macrophages. In mouse models, bexmarilimab has successfully blocked or silenced CLEVER-1, activating antigen presentation and promoting interferon gamma secretion by leukocytes. Additional preclinical studies have proven that CLEVER-1, encoded by the Stabilin-1 or STAB-1 gene, is a major source of T cell exhaustion and involved in cancer growth and spread. Observations from clinical studies to date indicate that CLEVER-1 has the capacity to control T cell activation directly, suggesting that the inactivation of CLEVER-1 as an immune suppressive molecule could be more broadly applicable and more important than previously thought. As an immuno-oncology therapy, bexmarilimab has potential as a single-agent therapy or in combination with other standard treatments including immune checkpoint molecules.

About Faron

Faron Pharmaceuticals Oy (AIM: FARN, First North: FARON) together with its subsidiaries, is a clinical stage biopharmaceutical group focused on building the future of immunotherapy by harnessing the power of the immune system to tackle cancer and inflammation. Bexmarilimab, a novel anti-CLEVER-1 humanized antibody, is its investigative precision immunotherapy with the potential to provide permanent immune stimulation for difficult-to-treat cancers through targeting myeloid function. Currently in Phase I/II clinical development as a potential therapy for patients with hematological cancers and untreatable solid tumors, bexmarilimab has potential as a single-agent therapy or in combination with other standard treatments including immune checkpoint molecules. In terms of other pipeline assets, Traumakine® is an investigational intravenous (IV) interferon beta-1a therapy for the treatment of hyperinflammatory conditions. Faron is headquartered in Turku, Finland. Further information is available at www.faron.com.

 

Forward-Looking Statements

Certain statements in this announcement are, or may be deemed to be, forward-looking statements. Forward- looking statements are identified by their use of terms and phrases such as ”believe”, ”could”, “should”, “expect”, “hope”, “seek”, ”envisage”, ”estimate”, ”intend”, ”may”, ”plan”, ”potentially”, ”will” or the negative of those, variations or comparable expressions, including references to assumptions. These forward-looking statements are not based on historical facts but rather on the Directors’ current expectations and assumptions regarding  Faron’s future growth, results of operations, performance, future capital and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, business prospects and opportunities. Such forward-looking statements reflect the Directors’ current beliefs and assumptions and are based on information currently available to the Directors.

A number of factors could cause actual results to differ materially from the results and expectations discussed in the forward-looking statements, many of which are beyond the control of Faron. Other factors which could cause actual results to differ materially include the ability of the Faron to successfully license its programs within the anticipated timeframe or at all, risks associated with vulnerability to general economic and business conditions, competition, environmental and other regulatory changes, actions by governmental authorities, the availability of capital markets or other sources of funding, reliance on key personnel, uninsured and underinsured losses and other factors.  Although any forward-looking statements contained in this announcement are based upon what the Directors believe to be reasonable assumptions, the Company cannot assure investors that actual results will be consistent with such forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. Subject to any continuing obligations under applicable law or any relevant AIM Rule requirements, in providing this information the Faron does not undertake any obligation to publicly update or revise any of the forward-looking statements or to advise of any change in events, conditions or circumstances on which any such statement is based.

 

CEO Statement

The past year 2022 has been an incredible year of transformation for Faron, in terms of development of our key asset bexmarilimab, building up a new Global Management Team with five new C-level members and the initiation of a clinical/regulatory team for US-based activities. We are excited to go into 2023 with strong clinical data behind us and clear plans to move forward.

The year 2022 started with premium recruitment when Dr. Marie-Louise Fjällskog (M.D., PhD) came on board as Chief Medical Officer, bringing over 30 years of experience in clinical oncology, translational research, and drug development. She joined Dr. Juho Jalkanen (M.D., PhD), Chief Operating Officer, as well as our new General Counsel, Vesa Karvonen. We also welcomed Juuso Vakkuri as our Chief Human Resources Officer, and most recently, Dr. Maija Hollmén, PhD, as our Chief Scientific Officer. She will spearhead further inventions around bexmarilimab, Faron’s wholly owned, novel precision cancer immunotherapy candidate.

Our first, large Phase I/II MATINS study has provided us a proper dosing regimen for bexmarilimab and demonstrated a good safety profile. Initial efficacy data on advanced solid tumors allows us to identify biomarkers predicting extended survival of these hard-to-treat cancer patients. Our teams have worked hard to build a solid data package for the FDA on the next steps forward. This feedback will significantly impact our activities in 2023.

Importantly, we have found bexamarilimab is effective for patients who are refractory to PD-1 blockade. These patients have silent immune reaction as observed in low interferon gamma (IFN-gamma) levels. This is opposite to PD-1 blockers that are usually are active in cancer patients with high IFN-gamma levels. This is understandable as their mode of action is based on activating the existing T-cells, not to generate new T-cell populations. Thus, the combination of PD-1 blockade with bexmarilimab provides a unique opportunity to stimulate immune ignition and effective T-cells.

Bexmarilimab is being evaluated for safety and efficacy in the Phase I/II BEXMAB clinical trial, in combination with standard of care (SoC), in aggressive hematological malignancies including acute myeloid leukemia (AML) and myelodysplastic syndrome (MDS). This study is very exciting as now we have cancer cells which express the therapy target molecule CLEVER-1 on their surfaces. This means that wherever they travel in cancer patients, they carry this immunosuppressive element with them. In December, we reported in BEXMAB a partial responder achieving complete remission of blasts in blood and bone marrow followed by normalization of blood counts. A second patient showed reduced blast counts. This is particularly noteworthy considering the population targeted in BEXMAB, such as those having AML, have high mortality rates. Post period, we reported even more positive news: that three out of five patients achieved objective responses in the first doublet cohort of the Phase I/II BEXMAB study evaluating the combination of azacitidine and bexmarilimab. Two of the three responders were refractory to standard of care (SoC) azacitidine monotherapy.

We are thrilled with the progress and are pushing ahead in opening sites at US hematological centers.

We have also been successful in obtaining continued, long-term patent protection for bexmarilimab. During 2021 the United States Patent and Trademark Office and equivalent Japanese patent office approved protection, at least through 2037, for our humanized anti-CLEVER-1 antibody (bexmarilimab) sequence. During 2022 we obtained similarly patent coverage in Europe and other territories providing Faron excellent commercial opportunity in more than 90% of pharmaceutical markets. This fact has been recognised also by our partner candidates.

We have continued background work to advance both Traumakine® and Haematokine® programs to open clinical studies for both in 2023. We decided to close the HIBISCUS study using Traumakine due to lack of steroid-free patients. Our focus now is on opportunities where steroids cannot be used, and where ischemic conditions with vascular damage is the main reason for patient death. For the latter, we will continue to collaborate with the US Department of Defense (DoD). We also understand today the molecular basis of steroid interruption of IFN-beta signalling pathway and what role some genetic alterations may cause.

The third program in our pipeline, Haematokine, an investigational Vascular Adhesion Protein 1 (VAP-1) inhibitor, has preclinical studies continuing. We believe Haematokine could have broad applicability, not just in hematological malignancies, but across the field of regenerative medicine.

Our future looks bright, with the focus for 2023 to accelerate bexmarilimab’s clinical development, especially in BEXMAB. We also aim to initiate the Phase II BEXCOMBO study investigating bexmarilimab in metastatic or unresectable, recurrent HNSCC, locally advanced or metastatic UCC and metastatic NSCLC where first-line PD-1 blockade is approved standard of care. This combination regimen has the potential to change the future of cancer care. Future interactions with the FDA will guide our path forward.

I would like to thank our shareholders for their continued support of Faron and the management team. I would also like to express my profound gratitude to every Faron team member who come to work each day committed to disrupting the current treatment landscape and fundamentally improving patient outcomes.

Markku Jalkanen

Chief Executive Officer

March 2, 2023

 

Chairman Statement

During 2022, Faron has continued to focus on bexmarilimab, our novel, wholly owned novel precision cancer immunotherapy candidate, with exciting clinical data milestones anticipated for 2023. We have also grown the Company in the US and in Finland, bringing world-class expertise into Faron to advance bexmarilimab.

We have the ongoing Phase I/II MATINS clinical trial in pretreated, late-stage cancer, and as a result have delivered on our goals to understand monotherapy bexmarilimab efficacy and safety across multiple tumor types, as well as identify a dose and potential dosing regimens. We have also undertaken substantial work on biomarkers to develop enrichment strategies to identify patients who will best respond in future trials.

Faron has published data on bexmarilimab that consistently supports earlier positive results and continues to underscore that the mechanism of action demonstrates an effect on mortality in responders. The company will be presenting a data package to the US Food and Drug Administration in the first quarter of 2023.

Faron recognises the future of cancer treatment will be in combination therapies, and as such we have reported exciting data from the Phase I/II BEXMAB study in hematological malignancies. We also plan to initiate BEXCOMBO, a Phase II study of the combination therapy bexmarilimab plus PD-1 blockade in patients that have metastatic or unresectable, recurrent HNSCC, locally advanced or metastatic UCC and metastatic NSCLC where first-line PD-1 blockade is approved standard of care.  

We continue to see bexmarilimab as the major value driver for Faron, and our goal is to deliver worldwide approvals to allow bexmarilimab to be used by cancer physicians to treat patients.

Despite Faron’s focus on bexmarilimab, we have used partnerships to develop Traumakine®, Faron’s investigational intravenous (IV) interferon (IFN) beta-1a therapy, to prevent multiorgan dysfunction.

We recognise the funding environment for European companies has been extremely challenging and despite that, we have continued to raise capital to finance Faron’s activities. In 2022, we announced Faron had entered into a secured debt agreement with IPF Partners to advance and accelerate its pipeline programs. We had two equity financing rounds and are pleased we continue to have supportive shareholders in Finland and the rest of Scandinavia. In January 2023 we completed a further financing round of EUR 12 million to support the continued development of bexmarilimab. We are delighted that The Leukemia & Lymphoma Society participated in the previous round and in the January fundraise.

In terms of building the company, Dr. Juho Jalkanen was promoted to COO and we welcomed CMO Marie-Louise Fjällskog, based in Boston, as well as a Vesa Karvonen, our new general counsel based in Turku and Juuso Vakkuri as Chief Human Resources Officer. We have developed the US team in Boston, investing in clinical and regulatory personnel. Erik Ostrowski joined the Board of Directors. He brings substantial finance experience including as the CFO of a NASDAQ-listed company. We anticipate continuing to add employees in 2023.

I’d like to thank the staff of Faron, our partner organizations, study steering and advisory committee members investigators and patients that have participated in our clinical trials. I am indebted to CEO Dr. Markku Jalkanen, CFO Toni Hänninen, COO Juho Jalkanen, CMO Marie-Louise Fjällskog, General Counsel Vesa Karvonen and CHRO Juuso Vakkuri for their contributions to Faron in 2022. We look forward to great success in 2023.

Dr Frank Armstrong

Chairman

March 2, 2023

 

Financial Review

Despite continuing challenging market conditions, the Company was able to conduct two successful fundraising rounds in 2022. Combined, they raised EUR 13.4 million gross and both rounds included new and existing investors. In our fundraising round in June we were able to attract The Leukemia & Lymphoma Society® (LLS) to support our newest bexmarilimab trial, BEXMAB. Faron became part of LLS’ Therapy Acceleration Program® (TAP). In our October fundraise we were further able to attract reputable Finnish pension funds.

Additionally, in February 2022, the Company secured a debt funding agreement with IPF Partners, one of the leading alternative financing providers focused on the healthcare sector, for up to EUR 30 million. EUR 10 million was accessed upon signing of the agreement with an additional EUR 20 million available in the future, subject to certain conditions being met. This funding agreement strengthened our financial position and gives us the flexibility to access supplemental and inexpensive capital as we continue to accelerate the development of our pipeline assets.

As a result of these fundraising efforts, the net cash from financing activities of EUR 23.5 million exceeded the net cash used in operating activities of EU 23.0 million in 2022. We were able to accomplish this while also increasing R&D and reducing G&A expenditures, as per our plan, to focus on accelerating our pipeline.

Post period in January 2023, the Company successfully raised a total of EUR 12.0 million gross. This fundraising round was supported by long-only institutional investors, family offices, existing shareholders and the Leukemia & Lymphoma Society® (LLS).

 

Revenue and Other Operating Income

Faron’s revenue was nil for the year ended December 31, 2022 (2021: EUR nil). Faron recorded other income of EUR 0.8 million that consisted of grants from the European Union and Business Finland.

 

Research and Development Costs

R&D costs increased by EUR 3.4 million from EUR 17.4 million in 2021 to EUR 20.7 million in 2022. In total, almost 90% of the R&D costs are directly attributable to advancing our clinical programs, and Faron expects this to continue as we accelerate patient recruitment. The costs of outsourced clinical trial services were increased by EUR 1.6 million from EUR 3.5 to EUR 5.1 million. The cost of employee benefits increased by EUR 1.9 million from EUR 3.3 to EUR 5.2 million, mainly driven by additional headcount in the US.

 

General and Administration Costs

Administrative expenses decreased by EUR 2.4 million from EUR 9.9 million in 2021 to EUR 7.5 million in 2022. The decrease was mainly due to the EUR 3.5 million decrease of legal expenses, that consisted in 2021 of the arbitration with Rentschler Biopharma SE, resulting in Faron’s favor. Employee benefits increased by EUR 1.1 million from EUR 3.5 million to EUR 4.5 million due to additional headcount.

 

Taxation

The Company’s tax credit for the fiscal year 2022 can be recorded only after the Finnish tax authorities have approved the tax report and confirmed the amount of tax-deductible expenses. The total amount of cumulative tax losses carried forward approved by tax authorities on December 31, 2022 was EUR 47.1 million (2021: EUR 41.0 million). The Company estimates that it can utilize most of these during the years 2023 to 2033 by offsetting them against future profits.

In addition, the Company has EUR 91.8 million of R&D costs incurred in the financial years 2010 – 2022 that have not yet been deducted from taxation. This amount can be deducted over an indefinite period at the Company’s discretion.

 

Losses

Loss before income tax was EUR 28.7 million (2021: EUR 21.2 million). Comprehensive loss for the year was EUR 28.7 million (2021: EUR 21.2 million), representing a loss of EUR 0.52 per share (2021: EUR 0.42 per share).

 

Cash Flows

Net cash flow was EUR 0.1 million positive for the year ended December 31, 2022 (2021: EUR 2.7 million positive). Cash used for operating activities increased by EUR 0.8 million to EUR 23.0 million for the year, compared to EUR 22.2 million for the year ended December 31, 2021. This increase was mostly driven by an increase in R&D investments. Net cash inflow from financing activities was EUR 23.5 million (2021: EUR 25.6 million) mainly due to the successful equity placings completed in June 2022 and October 2022 as well as the proceeds from borrowings of the loan with IPF Partners.

 

Fundraising

In June 2022, the Company successfully raised a total of EUR 5.0 million gross (EUR 4.8 million net) from new and existing shareholders, through issuance of a total of 3,318,421 new ordinary shares to itself without consideration. 2,006,621 of those shares were conveyed to investors. In October 2022, the Company successfully raised a total of EUR 8.4 million gross (EUR 8.2 million net) from new and existing shareholders, through issuance of a total of 3,229,930 new ordinary shares to itself. Those shares and the 1,311,800 existing treasury shares were conveyed to investors. Proceeds from both raises were used to accelerate clinical development of the Company’s main drug candidate, continue the CMC process and US buildup and to strengthen the Company’s balance sheet. In February 2022, the Company secured a debt funding agreement with IPF Partners for up to EUR 30 million. EUR 10 million was accessed upon signing of the agreement with an additional EUR 20 million available in the future, subject to certain conditions being met.

Post period, in January 2023, the Company successfully raised a total of EUR 12.0 million gross through and issuance of 3,692,308 ordinary shares to itself without consideration which were conveyed to investors.

 

Financial Position

As of December 31, 2022, total cash and cash equivalents held were EUR 7.0 million (2021: EUR 6.9 million).

 

Going Concern

As part of their going concern review, the Directors have followed the Finnish Limited Liability Companies Act, the Finnish Accounting Act and the guidelines published by the Financial Reporting Council entitled “Guidance on the Going Concern Basis of Accounting and Reporting on Solvency and Liquidity Risks – Guidance for directors of companies that do not apply the UK Corporate Governance Code”. Faron is subject to a number of risks similar to those of other development stage pharmaceutical companies.

These risks include, amongst others, generation of revenues in due course from the development portfolio and risks associated with research, development, testing and obtaining related regulatory approvals of its pipeline products. Ultimately, the attainment of profitable operations is dependent on future uncertain events which include obtaining adequate financing to fulfil the Faron’s commercial and development activities and generating a level of revenue adequate to support Faron’s cost structure.

Faron made a net loss of EUR 28.7 million during the year ended December 31, 2022. It had a negative equity of EUR 11.4 million including an accumulated deficit of EUR 143.7 million. As of that date, Faron had cash and cash equivalents of EUR 7.0 million.

The Directors have prepared detailed financial forecasts and cash flows looking beyond 12 months from the date of the approval of these financial statements. In developing these forecasts, the Directors have made assumptions based upon their view of the current and future economic conditions that are expected to prevail over the forecast period. The Directors estimate that the cash held by Faron together with known receivables will be sufficient to support the current level of activities into the third quarter of 2023. The Directors are continuing to explore sources of finance available to Faron and they believe they have a reasonable expectation that they will be able to secure sufficient cash inflows for Faron to continue its activities for not less than 12 months from the date of approval of these financial statements; they have therefore prepared the financial statements on a going concern basis. Because the additional finance is not committed at the date of issuance of these financial statements, these circumstances represent a material uncertainty that may cast significant doubt on Faron’s ability to continue as going concern. Should Faron be unable to obtain further finance such that the going concern basis of preparation were no longer appropriate, adjustments would be required, including to reduce balance sheet values of assets to their recoverable amounts, to provide for further liabilities that might arise.

 Headcount

Faron’s headcount at the end of year was 40 (2021: 37).

 Shares and Share Capital

During the period January 1 to December 31, 2022, the Company, using the share authorities granted at the Annual General Meeting held on April 23, 2021, issued a total of 3,318,421 new ordinary shares to itself without consideration and conveyed 2,006,621 of those shares at an issuance price of EUR 2.49 per share to investors. During the same period, the Company, using the share authorities granted at the Extraordinary General Meeting held on July 7, 2022, issued a total of 3,229,932 new ordinary shares to itself without consideration. Those shares and the existing treasury shares were conveyed to investors at an issuance price of EUR 1.85 per share.

The subscription price net of costs was credited in full to the Company’s reserve for invested unrestricted equity, and the share capital of the Company was not increased. The Company has no shares in treasury; therefore at the end of 2022 the total number of voting rights was 59,805,383.  

Toni Hänninen

Chief Financial Officer

March 2, 2023

 

Consolidated Income Statement, IFRS

 EUR ’000

Unaudited

7-12/2022
6 months

Unaudited

7-12/2021
6 months

1-12/2022
12 months

1-12/2021
12 months

Other operating income

318

4,927

803

6,137

Research and development expenses

(10,683)

(8,361)

(20,730)

(17,369)

General and administrative expenses

(3,697)

(7,250)

(7,498)

(9,876)

Operating loss

(14,062)

(10,684)

(27,426)

(21,108)

Financial income

(596)

103

96

165

Financial expense

(970)

(44)

(1,400)

(235)

Loss before tax

(15,628)

(10,625)

(28,730)

(21,178)

Tax expense

19

(9)

0

(16)

Loss for the period

(15,609)

(10,634)

(28,730)

(21,194)

 

 

 

 

 

Other comprehensive gain/loss

6

(15)

17

(15)

Total comprehensive loss for the period

(15,603)

(10,649)

(28,713)

(21,209)

 

 

 

 

 

Loss per ordinary share

 

 

 

 

Basic and diluted loss per share, EUR

(0.27)

(0.21)

(0.52)

(0.42)

 
 

Consolidated Balance Sheet, IFRS

 

 

EUR ‘000

31 December 2022

31 December 2021

Assets

 

 

Non-current assets

 

 

Machinery and equipment

13

20

Right-of-use-assets

314

187

Intangible assets

1,154

899

Prepayments and other receivables

60

53

Total non-current assets

1,541

1,159

 

 

 

Current assets

 

 

Prepayments and other receivables

2,740

5,170

Cash and cash equivalents

6,990

6,853

Total current assets

9,730

12,023

 

 

 

Total assets

11,271

13,182

 

 

 

Equity and liabilities

 

 

 

 

 

Capital and reserves attributable to the equity holders of Faron

 

 

Share capital

2,691

2,691

Reserve for invested unrestricted equity

129,544

116,507

Accumulated deficit

(143,713)

(116,265)

Translation difference

2

(15)

Total equity

(11,476)

2,919

 

 

 

Provisions

 

 

Other provisions

158

0

Total provisions

158

0

 

 

 

Non-current liabilities

 

 

Borrowings

11,102

2,918

Lease liabilities

163

16

Other liabilities

853

151

Total non-current liabilities

12,118

3,085

 

 

 

Current liabilities

 

 

Borrowings

1,851

429

Lease liabilities

153

184

Trade payables

6,014

2,229

Accruals and other current liabilities

2,453

4,336

Total current liabilities

10,471

7,178

 

 

 

Total liabilities

22,748

10,263

 

 

 

Total equity and liabilities

11,271

13,182

 

Consolidated Statement of Changes in Equity, IFRS

EUR ‘000

Share capital

Reserve for invested unrestrict-
ed equity

Trans-
lation
difference

Accumu-lated deficit

Total equity

 

 

 

 

 

 

Balance as at 31 December 2020

2,691

92,015

2

(96,557)

(1,849)

 

 

 

 

 

 

Comprehensive loss for the year 2021

0

0

(15)

(21,194)

(21,209)

 

 

 

 

 

 

Transactions with equity holders of the Company

 

 

 

 

Issue of ordinary shares, net of transaction costs

0

24,492

0

0

24,492

Share-based compensation

0

0

 0

1,487

1,487

 

0

24,492

0

1,487

25,980

 

 

 

 

 

 

Balance as at 31 December 2021

2,691

116,507

(15)

(116,265)

2,919

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss for the year 2022

0

0

17

(28,730)

(28,713)

 

 

 

 

 

 

Transactions with equity holders of the Company

 

 

 

 

 

Issue of ordinary shares, net of transaction costs

0

13,037

0

0

13,037

Share-based compensation

0

0

0

1,297

1,297

Other movements

 0

0

0

(16)

(16)

 

0

13,037

17

(27,448)

(14,395)

 

 

 

 

 

 

Balance as at 31 December 2022

2,691

129,544

2

(143,713)

(11,476)

 

Consolidated Cash Flow Statement, IFRS

EUR ‘000

Unaudited

Unaudited

1-12.2022

1-12.2021

7-12.2022

7-12.2021

12 months

12 months

6 months

6 months

 

 

Cash flow from operating activities

 

 

 

 

Loss before tax

(15,628)

-10,64

(28,730)

(21,194)

Adjustments for:

 

 

 

 

Received grant

(388)

(745)

(803)

(1,387)

Depreciation and amortization

149

165

300

307

Change in provision

(158)

0

(158)

0

Financial items

787

 

1,304

0

Interest expense

0

128

0

216

Tax expense

19

6

0

16

Unrealized foreign exchange loss (gain), net

0

434

0

153

Share-based compensation

632

644

1,297

1,487

Adjusted loss from operations before changes in working capital

(14,587)

(10,008)

(26,790)

(20,402)

Change in net working capital:

 

 

 

 

Prepayments and other receivables

2,045

(-1259)

2,864

(1,919)

Trade payables

(657)

744

719

723

Other liabilities

2,197

24

1,183

(566)

Cash used in operations

(11,001)

(10,499)

(22,023)

(22,163)

Taxes paid

0

(1)

0

(16)

Transaction costs related to loans and borrowings

0

0

(165)

0

Interest received

11

0

11

0

Interest paid

(708)

(10)

(816)

(40)

Net cash used in operating activities

(11,698)

(10,508)

(22,993)

(22,218)

 

 

 

 

 

Cash flow from investing activities

 

 

 

 

Payments for intangible assets

(218)

(76)

(385)

(461)

Payments for equipment

0

(6)

(0)

(13)

Net cash used in investing activities

(218)

(81)

(385)

(473)

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

Proceeds from issue of shares

8,923

10,515

13,445

25,559

Share issue transaction cost

(174)

(405)

(365)

(1,067)

Proceeds from borrowings

(0)

145

10,389

662

Repayment of borrowings

0

0

(105)

(122)

Proceed from grants

231

750

231

750

Payment of lease liabilities

(20)

(95)

(116)

(191)

Net cash from financing activities

8,959

10,910

23,478

25,590

 

 

 

 

 

Net increase (+) / decrease (-) in cash and cash equivalents

(2,946)

320

137

2,899

Effect of exchange rate changes on cash and cash equivalents

11

(434)

37

(153)

 

 

 

 

 

Cash and cash equivalents at 1 January / 1 July

9,936

6,967

6,853

4,108

Cash and cash equivalents at 31 December

6,990

6,853

6,990

6,853

 

 

 

 

 

 

Financial Statement January 1 to December 31 2021

Faron Pharmaceuticals Ltd.

(“Faron” or “Company”)

 

Faron Financial Statement Release January 1 to December 31, 2021

 

Financial statement release March 25, 2022 at 09:00 AM (EET) / 07:00 AM (GMT) / 03:00 AM (EDT) 

Inside information

 

2021 Highlights

  • Bexmarilimab shows compelling antitumor activity in multiple advanced treatment resistant solid tumor types as a monotherapy with strongest clinical benefit rate (partial response or stable disease) observed in five different tumor types – cutaneous melanoma (30%), gastric cancer (30%), cholangiocarcinoma (30%), hepatocellular carcinoma (40%) and breast cancer (40%)
  • Biomarker analysis showed patients with low baseline levels of inflammatory cytokines in blood achieved significantly higher clinical benefit following treatment with bexmarilimab monotherapy
  • First patient dosed in Phase II/III HIBISCUS trial assessing Traumakine® as a first-line treatment for hospitalized COVID-19 patients
  • Balance sheet strengthened by two successful share placings totaling EUR 25.6 million gross, both including investment from European Investment Council (EIC) Fund, a breakthrough initiative from the European Commission
  • Virtual briefing and Q&A to be held today at 8:00 AM (EDT) / 12:00 PM (GMT) / 2:00 PM (EET)

 

Major Events After the 2021 Financial Year

  • Landmark analysis estimates 70% nine-month overall survival rate (11 months from initiation of treatment) for Phase I/II MATINS study patients who benefited from treatment with bexmarilimab and 26% for patients who did not benefit from treatment
  • Secured a debt funding agreement with IPF Partners for up to EUR 30 million – EUR 10 million was accessed in February 2022, with an additional EUR 20 million available in the future, subject to certain conditions being met
  • Marie-Louise Fjällskog, M.D., Ph.D., joined Faron’s Global Management Team as Chief Medical Officer, bringing with her over 30 years of experience in clinical oncology, translational research, and drug development

 

 

TURKU, FINLAND / BOSTON, MA Faron Pharmaceuticals Ltd (AIM: FARN, First North: FARON), a clinical stage biopharmaceutical company focused on building the future of immunotherapy by harnessing the power of the immune system to tackle cancer and inflammation, today announced audited full-year financial results for January 1 to December 31, 2021 (the “period”) and H2 2021 and provided an overview of recent corporate developments.

 

“I am extremely proud of the progress we made in 2021 across each of our pipeline programs and building our corporate infrastructure to support the ambitious plans we have for 2022 and beyond,” said Dr. Markku Jalkanen, Chief Executive Officer of Faron. “Last year we accelerated the development of bexmarilimab as a monotherapy, where it has shown compelling antitumor activity in heavily pre-treated patients across multiple solid tumor types, while also progressing plans to study bexmarilimab in combination with standard of care in first-line solid tumors and in hematological malignancies. We also initiated a study of Traumakine as a first-line treatment for hospitalized COVID-19 patients without prior steroid treatment, which we believe could represent a significant step forward in the treatment of lung failure due to viral infections. We accomplished all of this while also strengthening our balance sheet, adding highly experienced team members and expanding our global footprint with a growing presence in the United States.”

 

HIGHLIGHTS (including post period):

 

Pipeline Highlights

 

Bexmarilimab Faron’s wholly-owned, novel precision cancer immunotherapy candidate, in Phase I/II development for difficult-to-treat cancers.

 

  • Compelling antitumor activity in multiple advanced solid tumor types was reported from patients enrolled in the completed Part I and ongoing Part II of the MATINS study, investigating bexmarilimab as a potential monotherapy in patients with solid tumors who have exhausted all treatment options. The strongest results were observed in cutaneous melanoma, gastric cancer, cholangiocarcinoma, hepatocellular carcinoma and breast cancer with a 30.0% — 40.0% clinical benefit rate (CBR) across these tumor types. 
  • Landmark analysis estimates 70% nine-month overall survival rate for MATINS patients who benefited from treatment with bexmarilimab and 26% for patients who did not benefit from treatment. Median overall survival has not yet been reached in the clinical benefit patient group.
  • Biomarker analysis shows patients with low interferon gamma (IFNy) and tumor necrosis factor alpha (TNFa) levels experienced significantly higher clinical benefit following treatment with bexmarilimab, which is opposite to what is usually seen with checkpoint inhibitors and other T cell activating agents, meaning bexmarilimab has the potential to bring the promise of immunotherapy to a much broader patient population compared to the relatively small percentage of cancer patients benefiting from checkpoint inhibitor therapies today.
  • A more than 100% increase in IFNy levels was seen after the first cycle of bexmarilimab treatment among patients who experienced clinical benefit. In certain patients, bexmarilimab is able to turn cold tumors into hot tumors and may serve as a catalyst for the immune system allowing initially checkpoint inhibitor resistant patients to become responsive to PD-1 blockade.
  • Further clinical trials are planned to start in 2022 to investigate bexmarilimab’s potential in additional clinical settings, including in combination with anti-PD-1 therapy in selected advanced solid tumors and in combination with standard of care in hematological malignancies.
  • A key patent with claims protecting the composition of matter of bexmarilimab was granted by the United States Patent and Trademark Office and equivalent Japanese patent office. This patent family covers bexmarilimab’s binding sequences and Clever-1’s corresponding epitope – specific elements of the antibody-antigen binding site – with an expected expiry date, not including any potential extensions, of 2037. The European Patent Office also issued an allowance letter, which means that more than 80% of pharmaceutical markets are now covered with this patent family.
  • A new role for soluble Clever-1 was identified, related to its capacity to control T cell activation. The scientific findings, from tests on MATINS patients’ plasma, suggest that their high levels of free, soluble Clever-1 can act as a direct inhibitor of T cell activation, providing a greater immunosuppressive effect than previously expected and indicating broader applicability for bexmarilimab. A new patent application has been filed seeking protection for these inventions and related applications.

 

TraumakineFaron’s investigational intravenous (IV) interferon beta-1a therapy, in development for the treatment of acute respiratory distress syndrome (ARDS) and other ischemic or hyperinflammatory conditions.

 

  • Dosing commenced in the Phase II/III HIBISCUS trial investigating Traumakine in the treatment of hospitalized COVID-19 patients compared to corticosteroid treatment with dexamethasone. The US Department of Defense (DoD) selected the HIBISCUS trial to receive $6.1 million of funding from the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
  • Building on Faron’s already strong IP portfolio for Traumakine, Faron signed a sub-license agreement covering a relevant manufacturing patent in the US. Faron also applied for patent protection relating to Traumakine’s induction of CD73 for organ protection, through the sequential use of IV interferon beta-1a followed by corticosteroids for the treatment of systemic inflammation.
  • Scientific Reports published data from INFORAAA study showing Traumakine induced up-regulation of CD73 was associated with 100% survival in surgically operated ruptured abdominal aorta aneurysm (RAAA) patients. These patients are at high risk of ischemia-reperfusion injury, with expected mortality between 30-40%.
  • Partnership established with the 59th Medical Wing of the U.S. Air Force and U.S. Army and U.S. Army Institute of Surgical Research to explore the use of Traumakine for organ protection in combat wounds leading to multi-organ failure from ischemia and reperfusion.
  • New manufacturing process is progressing as planned in collaboration with AGC Biologics.

 

HAEMATOKINEAn AOC3 (amine oxidase copper containing 3) protein inhibitor targeting Vascular Adhesion Protein-1 (VAP-1) in development for use in regenerative medicine and to treat hematological malignancies.

 

  • Faron acquired rights for this potential use of AOC3 inhibitors and will be responsible for the future development of Haematokine and for the management, prosecution, maintenance and filing of patent applications.
  • The multidisciplinary journal Cellular and Molecular Life Sciences published research showing the inhibition of VAP-1 potentially supports the expansion of human hematopoietic stem cells (HSC), which are essential to the formation of new cells within blood. This approach has the potential to benefit a variety of conditions where an expansion of HSC is needed. This includes bone marrow transplantation, where approximately 25% of transplants fail due to poor expansion of transplanted cells.

 

Corporate Highlights

  • Balance sheet was strengthened by raising EUR 25.6 million gross through private placements of new ordinary shares. This includes two placements, which encompassed existing and new investors, including the European Innovation Council Fund, a breakthrough initiative from the European Commission. In February 2022, Faron also announced a debt funding agreement with IPF Partners for up to EUR 30 million. EUR 10 million was accessed upon signing of the agreement with an additional EUR 20 million available in the future through additional tranches of EUR 5 million and EUR 15 million, subject to certain conditions being met.
  • Anne Whitaker joined the Faron Board of Directors, bringing more than 25 years of experience in the life science industry, including senior leadership roles with large pharmaceutical, biotech and specialty pharma companies. Anne is the current Chairman of the Board for Aerami Therapeutics Holdings, Inc. Anne previously served as Chief Executive Officer of Novoclem Therapeutics, Inc., Executive Vice President at Bausch Health, President and Chief Executive Officer of Synta Pharmaceuticals and as President, North America Pharmaceuticals at Sanofi.
  • Marie-Louise Fjällskog, M.D., Ph.D., joined Faron’s Global Management Team as Chief Medical Officer, bringing with her over 30 years of experience in clinical oncology, translational research, and drug development. Dr. Fjällskog joined Faron from Sensei Biotherapeutics (SNSE), a Nasdaq listed immuno-oncology company. As Chief Medical Officer at Sensei, she was responsible for leading clinical and development strategy and operations. Previously, she served as Vice President, Clinical Development at Merus (MRUS) and Infinity Pharmaceuticals (INFI) where she led development of multiple small molecule and immuno-oncology clinical programs. She was also formerly Global Clinical Program Leader at the Novartis Institute for Biomedical Research.
  • Faron hosted a virtual R&D Day in February 2022 presenting the Company’s plans to accelerate the development of bexmarilimab. The event was hosted by Dr. Markku Jalkanen, Chief Executive Officer, and members of the Global Management Team including Dr. Marie-Louise Fjällskog, Chief Medical Officer and Dr. Juho Jalkanen, Chief Operating Officer. External perspectives were provided by Dr. Tyler Curiel, Professor of Medicine and Microbiology, Immunology & Molecular Genetics at The University of Texas Health Science Center at San Antonio, United States and Dr. Maija Hollmén, Adjunct Professor of Tumour Immunology, Group Leader and Academy Research Fellow at the MediCity Research Laboratory, Institute of Biomedicine, University of Turku, Finland.

 

Impact of COVID-19

  • Despite the ongoing global pandemic, the Company was able to continue operations with limited disruptions. This included the successful planning and execution of its clinical trials, which proceeded as planned.
  • Additionally, Faron closely followed and strictly complied with the regulations and recommendations of the Finnish National Institute for Health and Welfare (THL) and other relevant local and international authorities to ensure the safety of its employees, study subjects and partners.

 

 Financial

  • On December 31, 2021, the Company held cash balances of EUR 6.9 million (2020: EUR 4.1 million).
  • Loss for the period for the financial year ended December 31, 2021 was EUR 21.2 million (2020: EUR 16.9 million).
  • Net assets on December 31, 2021 were EUR 2.9 million (2020: EUR -1.8 million).
  • In February 2021, the Company successfully raised a total of EUR 15.0 million gross (EUR 14.4 million net) from new and existing shareholders, through issuance of a total of 3,521,127 new ordinary shares. In September 2021, the Company successfully raised a total of EUR 10.6 million gross (EUR 10.1 million net) from new and existing shareholders, through issuance of a total of 2,763,158 new ordinary shares. Proceeds from both raises will be used to accelerate and expand the clinical development of the Company’s main drug candidates and to strengthen the Company’s balance sheet.
  • Post period, in February 2022, Faron secured a debt funding agreement with IPF Partners for up to EUR 30 million. EUR 10 million was accessed upon signing of the agreement with an additional EUR 20 million available in the future through additional tranches of EUR 5 million and EUR 15 million, subject to certain conditions being met.

 

 

Consolidated key figures, IFRS

 

EUR ’000

Unaudited

7-12/2021
6 months

Unaudited

7-12/2020
6 months

1-12/2021
12 months

1-12/2020
12 months

Revenue

0

0

0

0

Other operating income

4,927

1,379

6,137

2,122

Research and Development expenses

(8,361)

(8,345)

(17,369)

(13,879)

General and Administrative expenses

(7,250)

(2,543)

(9,876)

(4,897)

Loss for the period

(10,649)

(9,603)

(21,209)

(16,946)

 

 

Unaudited

7-12/2021
6 months

Unaudited

7-12/2020
6 months

1-12/2021
12 months

1-12/2020
12 months

 

 

 

 

 

Loss per share EUR

(0.21)

(0.22)

(0.42)

(0.37)

Number of shares at end of period

53,232,032

46,896,747

53,232,032

46,896,747

Average number of shares

51,836,953

44,606,204

50,723,964

45,712,111

 

 

 

EUR ’000

Unaudited

30 June 2021

Unaudited

30 June 2020

31 December 2021

31 December 2020

Cash and cash equivalents

6,967

11,627

6,853

4,108

Equity

2,813

7,313

2,919

(1,849)

Balance Sheet total

11,865

14,343

13,182

8,367

 

 

Board of Directors’ Proposal on the Dividend

The Group’s loss for the accounting period was EUR 21,208,864.89  (2020: EUR 16,946,261.84).

The Board of Directors does not recommend the payment of a dividend (2020: nil).

 

24 March 2022

Faron Pharmaceuticals Ltd

Board of Directors

 

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 (“MAR”).

 

Webcast for investors, analysts and media

A live webcast and Q&A session for investors, analysts and media will be hosted by Dr. Markku Jalkanen, Chief Executive Officer of Faron, and Toni Hänninen, Chief Financial Officer of Faron, at 2:00 pm EET / 12:00 pm GMT / 8:00 am EDT today. The Full-year results release for 2021, presentation, webcast details, and Annual Report 2021 will be made available at www.faron.com/investors. A replay of the analyst briefing will be made available shortly afterwards.

 

Webcast link: https://faron.videosync.fi/2021-results

 

 

For more information please contact:

 

Media / Investor Contact

Faron Pharmaceuticals

Eric Van Zanten

Head of Communications

eric.vanzanten@faron.com

investor.relations@faron.com

Phone: +1 (610) 529-6219

 

Cairn Financial Advisers LLP, Nomad

Sandy Jamieson, Jo Turner

Phone: +44 (0) 207 213 0880

 

Peel Hunt LLP, Broker

Christopher Golden, James Steel

Phone: +44 (0) 20 7418 8900

 

Sisu Partners Oy, Certified Adviser on Nasdaq First North

Juha Karttunen

Phone: +358 (0)40 555 4727

Jukka Järvelä

Phone: +358 (0)50 553 8990

 

Consilium Strategic Communications

Mary-Jane Elliott, David Daley, Lindsey Neville

faron@consilium-comms.com

Phone: +44 (0)20 3709 5700

 

 

Publication of financial information during year 2022

Faron’s financial statements for full year 2021 will be published today, 25 March 2022 and will also be available on the Company’s website at https://www.faron.com/investors/results. The half-year financial report for the period 1 January to 30 June 2022 is scheduled to be published on 25 August 2022. The Annual General Meeting is planned for 22 April 2022. A separate stock exchange notice will be issued by Faron’s Board of Directors to convene the meeting.

 

 

About Bexmarilimab

Bexmarilimab is Faron’s wholly-owned, investigative precision immunotherapy with the potential to provide permanent immune stimulation for difficult-to-treat cancers through targeting myeloid cell function. A novel anti-Clever-1 humanised antibody, bexmarilimab targets Clever-1 positive (Common Lymphatic Endothelial and Vascular Endothelial Receptor 1) tumour associated macrophages (TAMs) in the tumour microenvironment, converting these highly immunosuppressive M2 macrophages to immune stimulating M1 macrophages. In mouse models, bexmarilimab has successfully blocked or silenced Clever-1, activating antigen presentation and promoting interferon gamma secretion by leukocytes. Additional pre-clinical studies have proven that Clever-1, encoded by the Stabilin-1 or STAB-1 gene, is a major source of T cell exhaustion and involved in cancer growth and spread. Observations from clinical studies to date indicate that Clever-1 has the capacity to control T cell activation directly, suggesting that the inactivation of Clever-1 as an immune suppressive molecule could be more broadly applicable and more important than previously thought. As an immuno-oncology therapy, bexmarilimab has potential as a single-agent therapy or in combination with other standard treatments including immune checkpoint molecules. Beyond immuno-oncology, it offers potential in infectious diseases, vaccine development and more.

 

About MATINS

The MATINS (Macrophage Antibody To INhibit immune Suppression) study is a first-in-human open label phase I/II clinical trial investigating the tolerability, safety and efficacy of bexmarilimab in ten different hard-to-treat metastatic or inoperable solid tumour cohorts – cholangiocarcinoma, colorectal cancer, cutaneous melanoma, ER+ breast cancer, gastric cancer, hepatocellular carcinoma, ovarian cancer, uveal melanoma, pancreatic cancer and anaplastic thyroid carcinoma – which are all known to host a significant number of Clever-1 positive tumour-associated macrophages (TAMs). The completed Part I of the trial dealt with tolerability, safety and dose escalation. The ongoing Part II is focused on identifying patients who show an increased number of Clever-1 positive TAMs and exploring safety and efficacy. Part III will be focused on assessing efficacy. Data from MATINS have shown that bexmarilimab has the potential to be the first macrophage immune checkpoint therapy. To date, the investigational therapy has been shown to be safe and well-tolerated, making it a low-risk candidate for combination with existing cancer therapies, and has demonstrated early signs of clinical benefit in patients who have exhausted all other treatment options.

 

About Faron Pharmaceuticals Ltd

Faron (AIM: FARN, First North: FARON) is a clinical stage biopharmaceutical company developing novel treatments for medical conditions with significant unmet needs caused by dysfunction of our immune system. The Company currently has a pipeline based on the receptors involved in regulation of immune response in oncology, organ damage and bone marrow regeneration. Bexmarilimab, a novel anti-Clever-1 humanized antibody, is its investigative precision immunotherapy with the potential to provide permanent immune stimulation for difficult-to-treat cancers through targeting myeloid function. Currently in Phase I/II clinical development as a potential therapy for patients with untreatable solid tumors, bexmarilimab has potential as a single-agent therapy or in combination with other standard treatments including immune checkpoint molecules. Traumakine is an investigational intravenous (IV) interferon beta-1a therapy for the treatment of acute respiratory distress syndrome (ARDS) and other ischemic or hyperinflammatory conditions. Traumakine is currently being evaluated in global trials as a potential treatment for hospitalized patients with COVID-19 and with the 59th Medical Wing of the US Air Force and the US Department of Defense for the prevention of multiple organ dysfunction syndrome (MODS) after ischemia-reperfusion injury caused by a major trauma. Faron is based in Turku, Finland. Further information is available at www.faron.com.

 

Forward Looking Statements

Certain statements in this announcement, are, or may be deemed to be, forward looking statements. Forward looking statements are identified by their use of terms and phrases such as ”believe”, ”could”, “should”, “expect”, “hope”, “seek”, ”envisage”, ”estimate”, ”intend”, ”may”, ”plan”, ”potentially”, ”will” or the negative of those, variations or comparable expressions, including references to assumptions. These forward-looking statements are not based on historical facts but rather on the Directors’ current expectations and assumptions regarding the Company’s future growth, results of operations, performance, future capital and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, business prospects and opportunities. Such forward looking statements reflect the Directors’ current beliefs and assumptions and are based on information currently available to the Directors.

 

A number of factors could cause actual results to differ materially from the results and expectations discussed in the forward-looking statements, many of which are beyond the control of the Company. In particular, the early data from initial patients in the MATINS trial may not be replicated in larger patient numbers and the outcome of clinical trials may not be favourable or clinical trials over and above those currently planned may be required before the Company is able to apply for marketing approval for a product.  In addition,  other factors which could cause actual results to differ materially include the ability of the Company to successfully licence its programmes within the anticipated timeframe or at all, risks associated with vulnerability to general economic and business conditions, competition, environmental and other regulatory changes, actions by governmental authorities, the availability of capital markets or other sources of funding, reliance on key personnel, uninsured and underinsured losses and other factors.  Although any forward-looking statements contained in this announcement are based upon what the Directors believe to be reasonable assumptions, the Company cannot assure investors that actual results will be consistent with such forward looking statements. Accordingly, readers are cautioned not to place undue reliance on forward looking statements. Subject to any continuing obligations under applicable law or any relevant AIM Rule requirements, in providing this information the Company does not undertake any obligation to publicly update or revise any of the forward-looking statements or to advise of any change in events, conditions or circumstances on which any such statement is based.

 

 

Chairman’s Statement

During 2021, Faron has continued to make significant progress across the business. It has maintained its focus on pipeline delivery, including the initiation of clinical trials and generation of further clinical data. The Company has developed the management team with new hires and raised funds during the period, all of which has been achieved against the continued challenges of COVID-19.

 

A key priority for Faron has been to continue to advance its wholly-owned novel precision cancer immunotherapy candidate, bexmarilimab, through the Phase I/II MATINS clinical trial. Over the course of the year the Company has generated and presented further clinical data showing that heavily pre-treated, late-stage cancer patients who receive clinical benefit from bexmarilimab can achieve long term survival. Through the multiple cohorts tested to date, bexmarilimab has generated compelling efficacy data and has continually been shown to be safe and well-tolerated. Faron is continuing to analyze biomarker data from the trial to better understand which patients are most likely to respond.

 

The Company will continue to accelerate bexmarilimab through clinical development and is planning to study bexmarilimab in combination with other checkpoint inhibitors and as a treatment for hematological malignancies, in addition to the ongoing MATINS trial. The evolving data generated to date suggest bexmarilimab is an active drug with a novel mechanism of action which, I believe, has the potential to play a significant role in the future treatment of cancer patients.

 

2021 saw the COVID-19 pandemic continue to evolve. With the global call for research to identify potential therapies being widely answered by life science companies, including Faron, there has been unprecedented innovation in this space. Despite this, there is still a need for new therapeutic options to treat the serious complications of COVID-19, including acute respiratory distress syndrome (ARDS). As such, Faron was pleased to initiate the Phase II/III HIBISCUS trial, investigating Traumakine, Faron’s investigational intravenous (IV) interferon (IFN) beta-1a therapy, in hospitalized COVID-19 patients.

 

Faron has generated a wealth of data on the potential of Traumakine during its clinical development and we were pleased to publish data from the completed Phase II INFORAAA trial showing the up-regulation of CD73 in surgically operated ruptured abdominal aorta aneurysm (RAAA) patients. The results show the role of CD73 in organ protection and its ability to benefit patients undergoing major surgery, and we remain confident that Traumakine has potential beyond ARDS, across multiple indications, where there continues to be significant unmet medical need.

 

Despite the difficult funding environment due to COVID-19, Faron has successfully secured further investment over the period to progress its pipeline. This is testament not only to the potential of our product candidates but also to the expertise and credibility of the management team. The Board meets regularly to discuss the Company’s performance, review the clinical programs, discuss ongoing business strategy and assess the Company’s financial situation in order to continue to progress the pipeline and deliver value for shareholders.

 

On behalf of the Board, I would like to take this opportunity to thank all the staff at Faron, without whom we would not have achieved so much this year; my colleagues on the Board for their commitment to the Company; our partner organisations and steering committee members for their support and expertise; Faron’s investors for showing continued confidence in the Company and, importantly, the health professionals and patients across our trial network. I would also like to extend a warm welcome to Dr. Marie-Louise Fjällskog, our new Chief Medical Officer. Her knowledge and network will be invaluable to Faron as we continue to accelerate bexmarilimab through clinical development whilst progressing our other product candidates.

 

Finally, I would also like to thank the management team, particularly Dr. Markku Jalkanen, Chief Executive Officer, Toni Hänninen, Chief Financial Officer, and Dr. Juho Jalkanen, Chief Operating Officer, who also acted as interim Chief Medical Officer in 2021, for their leadership. Under their expert guidance, we are looking forward to another year of continued progress during 2022.

 

Dr. Frank Armstrong

Chairman

24 March 2022

 

 

Chief Executive Officer’s Review

Despite the ongoing challenges presented by a global pandemic, 2021 was another year of significant progress for our Company. Each of our pipeline assets moved forward and our quest to harness the power of the immune system to tackle cancer and inflammation is closer to being realized. We believe strongly that all three of our programs, bexmarilimab, Traumakine and Haematokine, have the potential to fundamentally change treatment paradigms and meaningfully improve patient outcomes.

 

Since Faron was founded, our focus has been to challenge the status quo and accelerate innovation. Incremental progress is not good enough. We exist to address areas of significant unmet need; areas where there are no currently approved treatment options, or, in the case of cancer, where far too many patients are not benefiting from recent advances.

 

Bexmarilimab has the potential to bring the promise of immunotherapy to many more patients and in 2021 we significantly advanced its development. Our Phase I/II MATINS (Macrophage Antibody To INhibit immune Suppression) study investigating the safety and efficacy of bexmarilimab showed that patients across five different tumor types experienced disease control rates between 30% and 40%. The data also showed that heavily pre-treated, late-stage cancer patients who receive clinical benefit from bexmarilimab can achieve long term survival. These results are important, and the global community took notice when we presented the data at international cancer meetings including ESMO, ESMO-IO and ASCO.

 

We also learned a great deal in 2021 about which cancer patients are most likely to benefit from treatment with bexmarilimab and what happens in the tumor microenvironment when patients respond to treatment. Biomarkers, which are proteins or other substances that are made at higher amounts by cancer cells than normal cells, are a critical missing link in attempting to identify appropriate candidates for immunotherapy and tailoring immunotherapy treatment regimens. The biomarker analysis we conducted showed clearly that patients with low baseline levels of serum interferon gamma (IFNy) and tumor necrosis factor alpha (TNFa) were more likely to experience clinical benefit following treatment with bexmarilimab. Patients with low levels of pro-inflammatory cytokines experiencing higher clinical benefit is opposite to what is usually seen with currently approved checkpoint inhibitors and other T-cell activating agents.

 

Our analysis also showed that among patients who experienced clinical benefit, IFNy levels increased over 100% after the first cycle of bexmarilimab treatment. Interferon gamma is a marker for inflammation which suggests bexmarilimab may amplify an immune response and serve as a catalyst for the immune system allowing initially checkpoint inhibitor resistant patients to become responsive to PD-1 blockade.

 

This enhanced understanding of who is most likely to respond to treatment with bexmarilimab and what happens in the tumor microenvironment allowed us to refocus and accelerate our development plan in 2021. In addition to the ongoing MATINS trial, we progressed plans to study bexmarilimab in combination with other checkpoint inhibitors and as a treatment for hematological malignancies. We are undertaking an ambitious strategy but given the data we have seen to date and our evolving understanding of which biomarkers will predict response to treatment, we believe bexmarilimab has the potential to broadly impact cancer care.

 

We have also been successful in obtaining long term patent protection for bexmarilimab. During 2021 the United States Patent and Trademark Office and equivalent Japanese patent office approved protection, at least through 2037, for our humanized anti-Clever-1 antibody (bexmarilimab) sequence and the counter binding site of this antibody on Clever-1. Faron has also received an allowance letter from the European Patent Office, which now means that more than 80% of pharmaceutical markets are covered with this patent family.

 

Leading our bexmarilimab development efforts moving forward will be Dr. Marie-Louise Fjällskog, who joined Faron in January 2022 as our new Chief Medical Officer. We were thrilled to add someone of Marie-Louise’s caliber to our team. She has over 30 years of experience in clinical oncology, translational research, and drug development and has held senior R&D roles at several clinical stage biotech companies. She was also formerly Global Clinical Program Leader at the Novartis Institute for Biomedical Research where she led global development of oncology treatments targeting CDK4/6, BCL-2, PD-1, CSF-1 and CD73. 

 

In addition to bexmarilimab, 2021 proved to be an important year for Traumakine as well. Traumakine is our investigational intravenous interferon beta-1a therapy, which we are developing for the treatment of acute respiratory distress syndrome (ARDS) and other ischemic or hyperinflammatory conditions. Traumakine works by up-regulating CD73, a critical enzyme which yields anti-inflammatory adenosine and can prevent fluid from building up in and around organs.

 

In August, dosing commenced in the Phase II/III HIBISCUS trial investigating Traumakine in the treatment of hospitalized COVID-19 patients. While hospitalizations and severity of disease have decreased since the initiation of this study, we continue to believe that Traumakine has the potential to become a powerful treatment option for patients who are at risk of developing ARDS as a consequence of a viral infection, such as COVID-19. This trial is supported the US Department of Defense through funding from the Coronavirus Aid, Relief, and Economic Security Act.

 

Additionally, research highlighting results from our Phase II INFORAAA clinical trial, which examined the effect of Traumakine on mortality of surgically operated ruptured abdominal aorta aneurysm (RAAA) patients, was published in the multidisciplinary journal Scientific Reports. Analysis showed that up-regulation of CD73 following treatment with Traumakine was associated with 100% survival compared to the expected mortality rate for operated RAAA patients, which is between 30-40%. Ischemia-reperfusion injury, tissue damage caused when blood supply returns to tissue after a period of oxygen depletion, is the main cause of death for operated RAAA patients. We believe Traumakine has the potential to prevent acute organ injury following major surgery and polytrauma by reducing inflammation and preventing vascular leakage. This could represent a significant advancement in patient care given there are currently no drugs approved for this condition.

 

Similar to the patent advancements we made with bexmarilimab, our intellectual property (IP) portfolio for Traumakine was also strengthened in 2021 by signing a sub-license agreement covering a relevant manufacturing patent in the US. In addition, we applied for patent protection relating to Traumakine’s induction of CD73 for organ protection, through the sequential use of IV interferon beta-1a followed by corticosteroids for the treatment of systemic inflammation. Adding these patent protections to our already strong IP portfolio will ensure we are able to move each of the potential indications forward with the ultimate goal of making this innovative drug available to patients in the coming years.

 

The third program in our pipeline is Haematokine, an investigational Vascular Adhesion Protein1 (VAP-1) inhibitor. Haematokine blocks VAP-1 enzymatic activity, which supports the expansion of human hematopoietic stem cells. This has the potential to benefit a variety of conditions where an expansion of hematopoietic stem cells is needed. Most notably, this includes bone marrow transplantation, where approximately 25% of transplants fail due to poor expansion of transplanted cells.

 

In November, the multidisciplinary journal Cellular and Molecular Life Sciences published research that aligns with our pre-clinical findings. Pre-clinical studies are continuing, and we believe Haematokine could have broad applicability, not just in hematological malignancies, but across the field of regenerative medicine.

 

Our focus for 2022 will be to accelerate bexmarilimab’s clinical development, which in addition to the ongoing MATINS trial will include the initiation of trials investigating bexmarilimab in a first line setting in combination with other checkpoint inhibitors and as a treatment for hematological malignancies. We have a responsibility to the millions of cancer patients across the globe currently not benefiting from existing treatment options to move this novel asset forward as quickly as possible. We will move with urgency because patients can’t wait.

 

I would like to thank our shareholders for their continued support of our Company and the management team. I would also like to express my profound gratitude to every Faronial, which is what we call our team members. They come to work each day committed to disrupting the current treatment landscape and fundamentally improving patient outcomes.

 

As critical as 2021 was, there is no doubt that 2022 will be the most important year in the history of our Company. There is also no doubt that with the team we have in place and with your continued support, we are positioned to exceed even our most ambitious goals.

 

Dr. Markku Jalkanen

Chief Executive Officer

24 March 2022

 

Financial Review

Despite challenging market conditions, we were able to conduct two successful fundraising rounds in 2021. Combined, they raised EUR 25.6 million gross and both rounds included new investors. Both also included investments by the European Investment Council (EIC) Fund, which is focused on investing in companies across Europe developing breakthrough and disruptive technologies. We were proud to become the first publicly listed company to receive an investment from the EIC Fund.

 

As a result of these fundraising efforts, the Company’s net cash flow in 2021 showed EUR 2.9 million positive. We were able to accomplish this while also increasing R&D and G&A expenditures.

 

Post period, in February 2022, Faron secured a debt funding agreement with IPF Partners, one of the leading alternative financing providers focused on the healthcare sector, for up to EUR 30 million. EUR 10 million was accessed upon signing of the agreement with an additional EUR 20 million available in the future, subject to certain conditions being met. This non-dilutive funding agreement strengthened our financial position and gives us the flexibility to access supplemental and inexpensive capital as we continue to accelerate the development of our pipeline assets.

 

Revenue and Other Operating Income

The Company’s revenue was EUR 0.0 million for the year ended 31 December 2021 (2020: EUR nil).

The Company recorded EUR 6.1 million (2020: EUR 2.1 million) of other operating income. This consisted of mainly of the result of the arbitration ruling in favor of Faron in its case against Rentschler Biopharma SE (EUR 3.8 million) and the rest consists of government grant and loan.

 

Research and Development Costs

R&D costs increased by EUR 3.5 million from EUR 13.9 million in 2020 to EUR 17.4 million in 2021. The costs of outsourced clinical trial services were decreased by EUR 0.9 million from EUR 4.4 to EUR 3.5 million. The cost of employee benefits was increased by EUR 0.4 million from EUR 2.9 to EUR 3.3 million, mainly driven by additional headcount.

 

General and Administration Costs

Administrative expenses increased by EUR 5.0 million from EUR 4.9 million in 2020 to EUR 9.9 million in 2021. The increase was mainly due to the EUR 3.1 million increase in other G&A costs, mainly driven by legal expenses, which were offset by other income. Further, employee benefits increased by EUR 1.0 million mainly driven by additional headcount.

 

Taxation

The Company’s tax credit for the fiscal year 2021 can be recorded only after the Finnish tax authorities have approved the tax report and confirmed the amount of tax-deductible expenses. The total amount of cumulative tax losses carried forward approved by tax authorities on 31 December 2021 was EUR 42.6 million (2020: EUR 38.2 million). The Company estimates that it can utilise most of these during the years 2020 to 2021 by offsetting them against future profits. In addition, Faron has EUR 70.1 million of

R&D costs incurred in the financial years 2010 – 2020 that have not yet been deducted from taxation. This amount can be deducted over an indefinite period at the Company’s discretion.

 

Losses

Loss before income tax was EUR 21.2 million (2020: EUR 16.9 million). Net loss for the year was EUR 21.2 million (2020: EUR 16.9 million), representing a loss of EUR 0.42 per share (2020: EUR 0.37 per share) (adjusted for the changes in number of issued shares).

 

Cash Flows

Net cash flow was EUR 2.9 million positive for the year ended 31 December 2021 (2020: EUR 2.8 million negative). Cash used for operating activities increased by EUR 4.7 million to EUR 22.2 million for the year, compared to EUR 17.5 million for the year ended 31 December 2020. This increase was mostly driven by an increase in R&D investments. Net cash inflow from financing activities was EUR 25.6 million (2020: EUR 14.8 million) mainly due to the successful equity placings completed in February 2021 and September 2021.

 

Fundraising

In February 2021, the Company successfully raised a total of EUR 15.0 million gross (EUR 14.4 million net) from new and existing shareholders, through issuance of a total of 3,521,127 new ordinary shares. In September 2021, the Company successfully raised a total of EUR 10.6 million gross (EUR 10.1 million net) from new and existing shareholders, through issuance of a total of 2,763,158 new ordinary shares. Proceeds from both raises will be used to accelerate and expand the clinical development of the Company’s main drug candidates and to strengthen the Company’s balance sheet. Post period, in February 2022, Faron secured a debt funding agreement with IPF Partners for up to EUR 30 million. EUR 10 million was accessed upon signing of the agreement with an additional EUR 20 million available in the future, subject to certain conditions being met.

 

Financial Position

As at 31 December 2021, total cash and cash equivalents held were EUR 6.9 million (2019: EUR 4.1 million).

 

Going Concern

As part of their going concern review, the Directors have followed the Finnish Limited Liability Companies Act, the Finnish Accounting Act and the guidelines published by the Financial Reporting Council entitled “Guidance on the Going Concern Basis of Accounting and Reporting on Solvency and Liquidity Risks – Guidance for directors of companies that do not apply the UK Corporate Governance Code”. The Company and its subsidiaries (the “Group”) are subject to a number of risks similar to those

of other development stage pharmaceutical companies.

 

These risks include, amongst others, generation of revenues in due course from the development portfolio and risks associated with research, development, testing and obtaining related regulatory approvals of its pipeline products. Ultimately, the attainment of profitable operations is dependent on future uncertain events which include obtaining adequate financing to fulfil the Group’s commercial and development activities and generating a level of revenue adequate to support the Group’s cost structure.

The Group made a net loss of EUR 21.2 million during the year ended 31 December 2021. It had a positive equity of EUR 2.9 million including an accumulated deficit of EUR 116.265 million. As at that date, the Group had cash and cash equivalents of EUR 6.9 million.

 

The Directors have prepared detailed financial forecasts and cash flows looking beyond 12 months from the date of the approval of these financial statements. In developing these forecasts, the Directors have made assumptions based upon their view of the current and future economic conditions that are expected to prevail over the forecast period. The Directors estimate that the cash held by the Group together with known receivables will be sufficient to support the current level of activities into the fourth quarter of 2022. The Directors are continuing to explore sources of finance available to the Group and they believe they have a reasonable expectation that they will be able to secure sufficient cash inflows for the Group to continue its activities for not less than 12 months from the date of approval of these financial statements; they have therefore prepared the financial statements on a going concern basis. Because the additional finance is not committed at the date of issuance of these financial statements, these circumstances represent a material uncertainty that may cast significant doubt on the Company’s ability to continue as going concern. Should the Group be unable to obtain further finance such that the going concern basis of preparation were no longer appropriate, adjustments would be required, including to reduce balance sheet values of assets to their recoverable amounts, to provide for further liabilities that might arise.

 

Headcount

Headcount of the Company at the end of year was 37 (2020: 30).

 

Shares and Share Capital

During the period 1 January to 31 December 2021, the Company, using the share authorities granted at the Annual General Meeting held on 18 May 2020, issued a total of 3,521,127 new ordinary shares at an issuance price of EUR 4.26 per share. During the same period, the Company, using the share authorities granted at the Annual General Meeting held on 23 April 2021, issued a total of 2,763,158 new ordinary shares at an issuance price of EUR 3.80 per share.

 

The subscription price net of costs was credited in full to the Company’s reserve for invested unrestricted equity, and the share capital of the Company was not increased.

 

The Company has no shares in treasury; therefore at the end of 2021 the total number of voting rights was 53,232,032.

 

Legal Proceedings

As announced by the Company on 9 November 2021, the arbitration tribunal appointed by the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) ruled in favor of Faron in its case against Rentschler Biopharma SE (“Rentschler”). Faron was seeking damages from Rentschler for unfounded termination of an agreement concerning the manufacturing process for Traumakine. As a result of the favorable arbitration award, Rentschler was ordered to pay Faron EUR 3.8 million in damages. The parties were jointly and severally liable towards the arbitral tribunal and the SCC for the fees and expenses of the arbitral tribunal and the fees of the SCC, which were paid in equal shares. In addition, each party carried its own legal costs. A third-party recovery services provider funded the proceedings for Faron. The funder received compensation from Faron in accordance with the litigation funding agreement. 

 

Toni Hänninen

Chief Financial Officer

24 March 2022

 

 

 

Consolidated Income Statement, IFRS

 EUR ’000

Unaudited

7-12/2021
6 months

Unaudited

7-12/2020
6 months

1-12/2021
12 months

1-12/2020
12 months

Revenue

0

0

0

0

Other operating income

4,927

1,379

6,137

2,122

Research and development expenses

(8,361)

(8,345)

(17,369)

(13,879)

General and administrative expenses

(7,250)

(2,543)

(9,876)

(4,897)

Operating loss

(10,684)

(9,509)

(21,108)

(16,654)

Financial expense

(44)

(160)

(235)

(389)

Financial income

103

76

165

109

Loss before tax

(10,625)

(9,593)

(21,178)

(16,934)

Tax expense

(9)

(10)

(16)

(10)

Loss for the period

(10,634)

(9,603)

(21,194)

(16,944)

 

 

 

 

 

 

Other comprehensive loss

(15)

 

(15)

2

Total comprehensive loss for the period

(10,649)

(9,603)

(21,209)

(16,946)

 

 

 

 

 

Loss per ordinary share

 

 

 

 

Basic and diluted loss per share, EUR

(0.21)

(0.22)

(0.42)

(0.37)

 

 

Consolidated Balance Sheet, IFRS

EUR ’000

31 December 2021

31 December 2020

Assets

 

 

Non-current assets

 

 

Machinery and equipment

20

14

Right-of-use-assets

187

361

Intangible assets

899

565

Prepayments and other receivables

53

56

Total non-current assets

1,159

996

 

 

 

Current assets

 

 

Prepayments and other receivables

5,170

3,263

Cash and cash equivalents

6,853

4,108

Total current assets

12,023

7,371

 

 

 

Total assets

13,182

8,367

 

 

 

Equity and liabilities

 

 

 

 

 

Capital and reserves attributable to the equity holders of the Company

 

 

Share capital

2,691

2,691

Reserve for invested unrestricted equity

116,507

92,015

Accumulated deficit

(116,265)

(96,557)

Translation difference

(15)

2

Total equity

2,919

(1,849)

 

 

 

Non-current liabilities

 

 

Borrowings

2,918

2,728

Lease liabilities

16

199

Other liabilities

151

786

Total non-current liabilities

3,085

3,713

 

 

 

Current liabilities

 

 

Borrowings

429

122

Lease liabilities

184

176

Trade payables

2,229

2,115

Accruals and other current liabilities

4,336

4,090

Total current liabilities

7,178

6,503

 

 

 

Total liabilities

10,263

10,216

 

 

 

Total equity and liabilities

13,182

8,367

 

Consolidated Statement of Changes in Equity, IFRS

EUR ’000

Share capital

Reserve for invested unrestricted equity

Translation difference

Accumulated deficit

Total equity

Balance as at 31 December 2019

2,691

78,916

(79,997)

1,610

 

 

 

 

 

 

Comprehensive loss for the period

2

(16,946)

(16,944)

 

 

 

 

 

 

Transactions with equity holders of the Company

 

 

 

 

 

Issue of ordinary shares, net of transaction costs EUR 1,004 thousand

13,098

13,098

Share-based compensation

386

386

 

13,098

386

13,484

 

 

 

 

 

 

Balance as at 31 December 2020

2,691

92,015

2

(96,557)

(1,849)

 

 

 

 

 

 

Comprehensive loss for the period

(15)

(21,194)

(21,209)

 

 

 

 

 

 

Transactions with equity holders of the Company

 

 

 

 

 

Issue of ordinary shares, net of transaction costs EUR 1,067 thousand

24,492

24,492

Share-based compensation

1,487

1,487

 

24,492

1,487

25,980

Balance as at 31 December 2021

2,691

116,507

(15)

(116,265)

2,919

 

Consolidated Cash Flow Statement, IFRS

EUR ’000

Unaudited

7-12/2021
6 months

Unaudited

7-12/2020
6 months

1-12/2021
12 months

1-12/2020
12 months

Cash flow from operating activities

 

 

 

 

Loss before tax

(10,640)

(9,593)

(21,194)

(16,936)

Adjustments for:

 

 

 

 

Received grant

(745)

(587)

(1,387)

(587)

Depreciation and amortisation

165

153

307

283

Interest expense

128

56

216

149

Tax expense

6

10

16

10

Unrealised foreign exchange loss (gain), net

434

242

153

117

Share-based compensation

644

386

1,487

386

Adjusted loss from operations before changes in working capital

(10,008)

(9,333)

(20,402)

(16,578)

Change in net working capital:

 

 

 

 

Prepayments and other receivables

(-1259)

(1,631)

(1,919)

(1,097)

Trade payables

744

1,878

723

1,641

Other liabilities

24

(83)

(565)

(1,416)

Cash used in operations

(10,499)

(9,169)

(22,163)

(17,450)

Taxes paid

(1)

(1)

(16)

(1)

Interest paid

(10)

1

(40)

(28)

Net cash used in operating activities

(10,508)

(9,169)

(22,218)

(17,479)

 

 

 

 

 

Cash flow from investing activities

 

 

 

 

Payments for intangible assets

(76)

(60)

(461)

(137)

Payments for equipment

(6)

(3)

(13)

(5)

Net cash used in investing activities

(81)

(63)

(473)

(142)

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

Proceeds from issue of shares

10,515

106

25,559

14,103

Share issue transaction cost

(405)

(52)

(1,067)

(1,004)

Proceeds from borrowings

145

630

662

630

Repayment of borrowings

(122)

(122)

Proceed from grants

750

1,375

750

1,375

Payment of lease liabilities

(95)

(104)

(191)

(195)

Net cash from financing activities

10,910

1,955

25,590

14,787

 

 

 

 

 

Net increase (+) / decrease (-) in cash and cash equivalents

320

(7,277)

2,899

(2,834)

Effect of exchange rate changes on cash and cash equivalents

(434)

(242)

(153)

(117)

 

 

 

 

 

Cash and cash equivalents at 1 January

6,967

11,627

4,108

7,059

Cash and cash equivalents at 31 December

6,853

4,108

6,853

4,108

 

 

Financial statement January 1 to December 31 2020

Faron Pharmaceuticals Oy

(“Faron” or the “Company”)

Financial statement release January 1 to December 31, 2020

 

  • Clevegen® (bexmarilimab) Phase I/II MATINS study has shown early clinical benefits in six hard-to-treat solid cancers with further combination studies planned

  • Intravenous interferon beta-1a Traumakine®, for organ damage protection, now also investigated as potential COVID-19 treatment
  • Company’s balance sheet strengthened by successful share placings of €14 million and €15 million (post period)
  • Additional grants of €3.3 million and €4.6 million loans and loan guarantees awarded to drive R&D and CMC programmes

 

Financial statement release, 25 March 2021 at 9.00 AM (EET)

Inside information
 

TURKU – FINLAND – Faron Pharmaceuticals Oy (AIM: FARN, First North: FARON), the clinical stage biopharmaceutical company, today reports its financial statements for the year ended 31 December 2020 and H2 2020.
HIGHLIGHTS

Operational (including post period):

Clevegen® (bexmarilimab) Faron’s wholly-owned, novel precision cancer immunotherapy candidate, in Phase I/II development for difficult-to-treat cancers.

  • Strong patient recruitment continues in Part II of the Phase I/II MATINS trial, investigating the potential of bexmarilimab in patients with solid tumours who have exhausted all treatment options. 10 cancer types – cutaneous melanoma, uveal melanoma, ovarian cancer, colorectal cancer (CRC), hepatocellular cancer, ER+ breast cancer, pancreatic cancer, gastric cancer, cholangiocarcinoma, anaplastic thyroid carcinoma – are currently under investigation.

  • Clinical benefits have been observed across six cancer types to date – CRC, ovarian cancer, cutaneous melanoma, hepatocellular cancer, cholangiocarcinoma and gastric cancer. These are primary candidates to become expansion cohorts for Part III of the study.
  • More frequent dosing, beyond the original three week dosing interval, is being explored in  all six cohort types showing early signs of clinical benefit in order to confirm the optimum dosing regimen for pivotal studies, following analysis of key pharmacokinetic and pharmacodynamic biomarkers indicating the potential for increased bexmarilimab efficacy.
  • Clinical expansion trials will investigate bexmarilimab’s potential in additional clinical settings, with trials expected to start later in 2021 – in combination with standard of care (SOC) as a first-line therapy in selected advanced solid tumours and haematological malignancies. Additionally, trials will also investigate bexmarilimab as a standalone neoadjuvant therapy for patients with early stage CRC and and clear cell renal cell carcinoma.
  • Established soluble Clever-1 as potential inhibitor of T cell activation through the testing of MATINS patients’ plasma. New findings suggest that their high levels of free, soluble Clever-1 can act as a direct inhibitor of T cell activation, thereby providing a broader immunosuppressive effect than previously expected. This suggests that the inactivation of Clever-1 could be more broadly applicable, potentially enabling patients to benefit from immuno-oncology therapies which have previously been ineffective. A new patent application has been filed seeking global protection for these findings and related applications.
  • Commercial scale manufacturing contract for the development and manufacturing of bexmarilimab was established with AGC Biologics.

  • €3.3 million grants to support the development of bexmarilimab were received in 2020 from the European Innovation Council (EIC) Accelerator pilot scheme (€2.5 million) and the Finnish Cancer IO consortium (€0.8 million).
  • Scientific learnings on bexmarilimab were shared at key global conferences including the virtual American Society of Clinical Oncology (ASCO20) Annual Meeting, the European Society of Medical Oncology (ESMO) Virtual Congress and ESMO’s Immuno-Oncology Virtual Congress 2020.

Traumakine® Faron’s investigational intravenous (IV) interferon beta-1a therapy is in development for the treatment of acute respiratory distress syndrome (ARDS) and other ischemic or hyperinflammatory conditions.

  • Supported the global search for potential treatments for COVID-19, with Traumakine’s inclusion in two global initiatives in 2020 – the global REMAP-CAP (Randomized, Embedded, Multifactorial Adaptive Platform Trial for Community-Acquired Pneumonia), which is ongoing across more than 200 sites and 19 countries, and the WHO’s Solidarity trial. The WHO trial determined in October 2020 that subcutaneous IFN beta-1a was ineffective in reducing overall mortality in hospitalised COVID-19 patients. At the time of analysis, too few patients had received an IV formulation of IFN beta to enable interpretation of the data and to draw any conclusions on its effect. WHO has yet to provide the Company with detailed dosing and safety information which is a normal regulatory requirement for drug testing and use.

  • On track to initiate a Faron-sponsored trial investigating the potential of Traumakine to treat COVID-19. The Phase II/III HIBISCUS (Human intravenous Interferon Beta-Ia Safety and preliminary efficacy in hospitalised subjects with CoronavirUS) study will be conducted in approximately 5-10 study sites across the US in hospitalised patients with COVID-19, who do not yet require mechanical ventilation, but maximally low flow oxygen support. Use of corticosteroids concomitantly with Traumakine is not possible in the study setting but enabled in a sequenced manner, following Traumakine treatment. Post period the Company received $6.1 million of funding from the Coronavirus Aid, Relief, and Economic Security (CARES) Act, granted by the US Department of Defense, to support HIBISCUS.
  • Building on Faron’s already strong IP portfolio for Traumakine, the Company applied for additional patent protection for Traumakine relating to the induction of CD73 for organ protection, followed by the use of corticosteroids for the treatment of systemic inflammation. In this sequence, the best effects of both drugs are optimised in a sequence for patient benefit. This order is strongly supported by molecular analysis of IFN-beta signaling pathways in many published articles over recent months.
  • Partnership established with the 59th Medical Wing of the U.S. Air Force and U.S. Army and U.S. Army Institute of Surgical Research to explore the use of Traumakine for organ protection in combat wounds leading to multi-organ failure from ischemia and reperfusion.
  • To support Traumakine’s potential future commercial use, AGC Biologics was selected to be the new manufacturing house for commercial scale production. A €2.1 million low interest rate loan from Business Finland and a €2.5 million loan guarantee from Finnvera, the official Export Credit Agency of Finland, are supporting the establishment of a new cell line for the manufacturing process.
  • Detailed analyses into the deleterious effects of glucocorticoids on Traumakine activity, undertaken following the INTEREST trial results in 2018, were published in Intensive Care Medicine, a world-leading journal in the field of critical care, in May 2020.

Haematokine® An AOC3 (amine oxidase copper containing 3) protein inhibitor in development for use in regenerative medicine and to treat hematological malignancies.

  • Faron acquired rights for this potential use of AOC3 inhibitors in March 2020 and will be responsible for the future development of Haematokine and for the management, prosecution, maintenance and filing of patent applications.

  • IND-enabling studies for this programme are continuing and, following a first review by the Finnish patent office, the Company believes global patent protection could be possible for the Haematokine project.

Corporate

  • Faron hosted a virtual R&D Day presenting the Company’s R&D strategy and insights into its two clinical stage programmes. Alongside Dr Markku Jalkanen, Chief Executive Officer, and members of the Executive Leadership and senior management teams, external perspectives were provided by Prof. Alberto Mantovani, Humanitas University, Milan, Italy; Ass. Prof. Maija Hollmén, MediCity, Turku University, Finland and Dr. Petri Bono, Terveystalo, Helsinki, Finland.

Impact of COVID-19

  • During the pandemic the Company’s ability to secure funding and remote working operations has been key to continued success. Even during exceptional circumstances, Faron has been able to continue to operate its business almost normally and the development of its clinical trials proceeded as planned.

  • Additionally, Faron closely followed and strictly complied with the regulations and recommendations of the Finnish National Institute for Health and Welfare (THL) and other relevant authorities to ensure the safety for its employees, study subjects and partners.

Financial

  • On 31 December 2020, the Company held cash balances of €4.1 million (2019: €7.1 million).

  • Loss for the period for the financial year ended 31 December 2020 was €16.9 million (2019: €13.3 million).
  • Net assets on 31 December 2020 were €-1.8 million (2019: €1.6 million).
  • In April 2020, the Company successfully raised a total of €14.0 million gross (€13.0 million net) from new and existing shareholders, through issuance of total of 3,500,000 new ordinary shares. The majority of these proceeds are being used to expand Clevegen in additional targets in the MATINS trial, support Traumakine in the ongoing REMAP-CAP trial and to strengthen the Company’s balance sheet.
  • The Company received a combination of grants, loans and loan guarantees totalling €7.9 million from Business Finland (May 2020: Grant €0.8 million, June 2020: Loan €2.1 million), The European Innovation Council (June 2020: Grant €2.5 million), Finnvera (Aug 2020: Loan guarantee €2.5 million). A total of €2.2 million of these funds were received during the period and the rest will continue to be received post period.
  • Post period in February 2021, the Company raised €15 million gross (approximately €14.4 million net) from new and existing shareholders through an issuance of 3,521,127 new ordinary shares.

 

Consolidated key figures, IFRS

€’000

Unaudited 7-12/2020
6 months
Unaudited 7-12/2019
6 months
1-12/2020
12 months
1-12/2019
12 months
Revenue 0 0 0 0
Other operating income 1,379 185 2,122 185
Research and Development expenses (8,345) (5,255) (13,879) (10,237)
General and Administrative expenses (2,543) (1,688) (4,897) (3,049)
Loss for the period (9,603) (6,850) (16,946) (13,262)

Unaudited 7-12/2020
6 months

Unaudited 7-12/2019
6 months
1-12/2020
12 months
1-12/2019
12 months
Loss per share EUR (0.22) (0.18) (0.37) (0.36)
Number of shares at end of period 46,896,747 43,290,747 46,896,747 43,290,747
Average number of shares 44,606,204 38,551,293 45,712,111 36,850,577

€’000

Unaudited 30 Jun 2020 Unaudited 30 Jun 2019 31 Dec 2020 31 Dec 2019
Cash and cash equivalents 11,627 2,892 4,108 7,059
Equity 7,313 (1,761) (1,849) 1,610
Balance sheet total 14,343 5,103 8,367 10,209

 

Commenting on the results, Dr Markku Jalkanen, CEO of Faron, said: “The past year has been one of the most significant in Faron’s history, with rapid expansion of our clinical development programme for bexmarilimab, our novel Clever-1 targeting precision immunotherapy. Seeing the latest data from the MATINS trial, showing clinical benefit across six different tumour types, has been highly rewarding and gives us great confidence in the future of this next-generation immunotherapy. Our growing understanding of Clever-1 as an immune suppressive molecule and its role in the systemic inhibition of T-cells only adds to our confidence in bexmarilimab and its potential as a breakthrough therapy with broad application for patients with hard-to-treat cancers or those who no longer respond to current immunotherapies. 

“I am very pleased that we have been able to support ongoing global research efforts to find the much needed, effective treatments for COVID-19 patients. The science behind Traumakine, our intravenous interferon (IFN) beta-1a, and its potential to prevent multi-organ failure by upregulating the key endothelial enzyme CD73, is compelling. We continue to believe that an intravenous formulation of IFN beta-1a is what patients need, to strengthen the body’s own IFN beta signaling – the first line of defence against viral infection – and provide optimal exposure to the lung vasculature. With evidence emerging of increased interferon resistance among COVID-19 variants, suggesting the virus is evolving with new ways to evade our innate immune defences, research into the potential of exogenous interferon to reduce severe disease and mortality in COVID-10 patients remains critical.

”The Company’s successful fundraising in 2020 and, post period, in February this year, puts us in a strong position to continue the progress of our pipeline and brings us closer to our goal of developing ground-breaking new treatments from our unique scientific discoveries. I’d like to thank our shareholders for their continued support and the entire team at Faron for their exceptional efforts during a challenging year.”

 

Board of Directors’ Proposal on the Dividend

The Group’s loss for the accounting period was 16,946,261.84 euro (2019: 13,261,911.93 euro).

The Board of Directors does not recommend the payment of a dividend (2019: nil).

 

24 March 2021

Faron Pharmaceuticals

Board of Directors

 

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 (“MAR”). 
 

Conference call information A virtual briefing and Q&A session for analysts will be hosted by Dr. Markku Jalkanen, Chief Executive Officer, and Toni Hänninen, Chief Financial Officer, at 12:00 pm GMT / 2:00 pm EET / 8:00 am EST on the day of results. The Full-year results release for 2020, presentation, webcast details, and Annual Report 2020 will be made available at www.faron.com/investors. A replay of the analyst briefing will be made available shortly afterwards.  

Webcast link: https://www.lsegissuerservices.com/spark/FaronPharmaceuticalsOy/events/04110470-3c65-4dad-ba56-54b27e83f27f

 

For more information please contact:

Faron Pharmaceuticals Oy

Dr Markku Jalkanen, Chief Executive Officer

investor.relations@faron.com

 

Cairn Financial Advisers LLP, Nomad

Sandy Jamieson, Jo Turner,  Mark Rogers

Phone. +44 (0)20 7213 0880

 

Panmure Gordon (UK) Limited, Broker

Rupert Dearden

Phone: +44 207 886 2500

 

Sisu Partners Oy, Certified Adviser on Nasdaq First North

Juha Karttunen

Phone: +358 (0)40 555 4727

Jukka Järvelä

Phone: +358 (0)50 55 38 990

 

Consilium Strategic Communications

Mary-Jane Elliott, David Daley, Lindsey Neville

Phone: +44 (0)20 3709 5700

E-mail: faron@consilium-comms.com

 

Stern Investor Relations

Julie Seidel

Phone: +1 212 362 1200

Email: julie.seidel@sternir.com

 

Publication of financial information during year 2021

The half-year financial report for the period 1 January to 30 June 2021 is scheduled to be published on 26 August 2021. Faron’s financial statements for full year 2020 will be published on 25 March 2021 and will also be available on the Company’s website at https://www.faron.com/investors/results.

The Annual General Meeting is planned for 23 April 2021. A separate stock exchange notice will be issued by Faron’s Board of Directors to convene the meeting.

 

About Faron Pharmaceuticals Ltd  

Faron (AIM: FARN, First North: FARON) is a clinical stage biopharmaceutical company developing novel treatments for medical conditions with significant unmet needs caused by dysfunction of our immune system. The Company currently has a pipeline based on the receptors involved in regulation of immune response in oncology, organ damage and bone marrow regeneration. Bexmarilimab, a novel anti-Clever-1 humanised antibody, is its investigative precision immunotherapy with the potential to provide permanent immune stimulation for difficult-to-treat cancers through targeting myeloid function. Currently in phase I/II clinical development as a potential therapy for patients with untreatable solid tumours, bexmarilimab has potential as a single-agent therapy or in combination with other standard treatments including immune checkpoint molecules. Traumakine is an investigational intravenous (IV) interferon beta-1a therapy for the treatment of acute respiratory distress syndrome (ARDS) and other ischemic or hyperinflammatory conditions. Traumakine is currently being evaluated in global trials as a potential treatment for hospitalised patients with COVID-19 and with the 59th Medical Wing of the US Air Force and the US Department of Defense for the prevention of multiple organ dysfunction syndrome (MODS) after ischemia-reperfusion injury caused by a major trauma.  Faron is based in Turku, Finland. Further information is available at www.faron.com  

 

Caution regarding forward looking statementsCertain statements in this announcement, are, or may be deemed to be, forward looking statements. Forward looking statements are identified by their use of terms and phrases such as ”believe”, ”could”, “should”, “expect”, “hope”, “seek”, ”envisage”, ”estimate”, ”intend”, ”may”, ”plan”, ”potentially”, ”will” or the negative of those, variations or comparable expressions, including references to assumptions. These forward-looking statements are not based on historical facts but rather on the Directors’ current expectations and assumptions regarding the Company’s future growth, results of operations, performance, future capital and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, business prospects and opportunities. Such forward looking statements reflect the Directors’ current beliefs and assumptions and are based on information currently available to the Directors.A number of factors could cause actual results to differ materially from the results and expectations discussed in the forward-looking statements, many of which are beyond the control of the Company. In particular, the early data from initial patients in the MATINS trial may not be replicated in larger patient numbers and the outcome of clinical trials may not be favourable or clinical trials over and above those currently planned may be required before the Company is able to apply for marketing approval for a product.  In addition,  other factors which could cause actual results to differ materially include the ability of the Company to successfully licence its programmes within the anticipated timeframe or at all, risks associated with vulnerability to general economic and business conditions, competition, environmental and other regulatory changes, actions by governmental authorities, the availability of capital markets or other sources of funding, reliance on key personnel, uninsured and underinsured losses and other factors.  Although any forward-looking statements contained in this announcement are based upon what the Directors believe to be reasonable assumptions, the Company cannot assure investors that actual results will be consistent with such forward looking statements. Accordingly, readers are cautioned not to place undue reliance on forward looking statements. Subject to any continuing obligations under applicable law or any relevant AIM Rule requirements, in providing this information the Company does not undertake any obligation to publicly update or revise any of the forward-looking statements or to advise of any change in events, conditions or circumstances on which any such statement is based.
 

Chairman’s statement

2020 was a year of significant activity for Faron. Despite the challenges that the global pandemic presented to business continuity and clinical trials across the life sciences sector, the Company’s focus on pipeline delivery continued unabated and delivered impressive results.

The development programme for bexmarilimab, Faron’s wholly-owned novel precision cancer immunotherapy candidate, made important clinical progress in 2020 following completion of the dose-finding Part I of the MATINS clinical trial. While intended to investigate safety and tolerability, this part of the trial also delivered exciting data on the potential of this therapy to promote immune activation, and early signs of clinical benefit. With ten different hard-to-treat cancers now under investigation in the second part of the trial, the Company is gaining greater insights into the future clinical use and commercial potential of this unique Clever-1 targeting therapy, with a clear focus on patient populations whose cancers are known to demonstrate significant levels of the Clever-1 receptor.

The Faron team’s analyses of data from the trial, alongside the broader scientific community’s growing understanding of the role of Clever-1 as an immune suppressive molecule, have provided a much clearer understanding of the next steps required for bexmarilimab’s clinical development and support its potential as a breakthrough therapy for the future. Harnessing the immune system to fight cancer using immunotherapy has, undoubtedly, been one of the most exciting breakthroughs in modern science and the first wave of pioneering treatments changed the face of cancer treatment. We know these therapies do not work for everyone and many patients who initially respond will eventually relapse. Combining immunotherapies with complementary approaches is becoming increasingly important in cancer treatment and bexmarilimab’s expanded clinical development programme, investigating its combination with existing treatments, will provide important evidence of its potential use as a future combination therapy.

The emergence of COVID-19 and its serious complications, including acute respiratory distress syndrome (ARDS), mobilised medical and scientific communities in 2020. I was very pleased that Faron answered the global call for potential therapies that might contribute to the fight against the pandemic, by providing Traumakine, Faron’s intravenous (IV) interferon (IFN) beta-1a, to two global initiatives investigating multiple therapies to treat severe COVID-19 patients – the REMAP-CAP (Randomized, Embedded, Multifactorial Adaptive Platform Trial for Community-Acquired Pneumonia) and the World Health Organization’s (WHO) Solidarity trial.

Faron has generated a wealth of data to support the hypothesis that Traumakine can strengthen the body’snatural defences and provide increased protection against serious lung complications. Sadly, the first global initiative to report data –WHO’s Solidarity trial – did not generate supportive results, with too few patients receiving an IV formulation of IFN beta to enable interpretation of the data and to draw any conclusions on the effect of IV IFN beta.

Faron’s earlier observations from Traumakine’s development programme in ARDS patients, that corticosteroid use interferes with Traumakine’s efficacy, are a significant consideration in trialling the potential of this therapy in COVID-19 patients. A third trial investigating Traumakine in COVID-19 patients, the Company’s US phase II/III HIBISCUS trial, in which the use of corticosteroids is only possible following treatment with Traumakine, will yield important results. Interest in IFN beta as a COVID-19 therapy continues to be strong and I am proud that Faron remains actively involved in research to further build the treatment armamentarium against COVID-19.

Through 2020, as the world adapted to life during a pandemic, Faron as a company showed remarkable resilience in the face of such unexpected pressures. Thanks to the strength shown by everyone across the Company, who quickly responded to a very different working environment, all business operations were maintained, clinical progress accelerated and engagement with the scientific community continued at a number of virtual congresses.

Faron’s successful financing, both the capital fundraising and securing non-dilutive funding, was a major undertaking, particularly in a virtual world. It puts the Company in a strong financial position to progress its clinical programmes and related business activities, as well as to explore further scientific opportunities within the Faron pipeline.

On behalf of the Board, I would like to thank everyone who has contributed to Faron maintaining its momentum in a difficult year – each and every member of staff and my colleagues on the Board for their commitment to the Company; our partner organisations and steering committee members for their support and expertise; Faron’s investors for showing continued confidence in the Company and, importantly, the clinicians and patients across our trial network. Particular thanks must also go to our Chief Executive Officer, Markku Jalkanen, and Chief Financial Officer, Toni Hänninen, for their leadership throughout 2020.We look forward to continued progress in 2021.

Dr Frank Armstrong

Chairman

24 March 2021

 

Chief Executive Officer’s Review 

Overview

Faron has three assets (Clevegen®bexmariliumab; Traumakine® and Haematokine®), all focusing on harnessing our immune system. We believe that the three target molecules Clever-1, CD73 and AOC3 provide new medical treatment options either to activate, suppress or maintain the power of our immune system. Our goal is to save lives by developing unique scientific discoveries into ground-breaking new treatments for hard-to-treat and rare diseases. Our work is rooted in two scientific principles. First, a deep knowledge of the pharmacology of our drug candidates. And second, understanding the science of the targeted conditions at the molecular level, to most effectively influence their underlying causes.

Our focus for 2020 has been to continue to progress our wholly-owned novel precision cancer immunotherapy candidate, bexmarilimab, through the first-in-human clinical study, MATINS, in selected metastatic or inoperable solid tumours. We have also been working closely with the regulatory authorities to finalize the HIBISCUS study protocol for Traumakine in acute respiratory distress syndrome (ARDS) and organ failures, and were pleased to provide Traumakine to global initiatives investigating multiple therapies to treat severe COVID-19 patients, although our focus to protect central organ provides significant wider application potential. The third asset around AOC3, Haematokine, could help to recover lost renewal of blood cells and activate our immune defence and other vital blood functions.

Bexmarilimab (Clevegen)

During 2020, we have continued to make strong progress in accelerating the clinical development of bexmarilimab despite the challenges of COVID-19. Bexmarilimab is our wholly-owned novel precision cancer immunotherapy candidate, which causes conversion of the immune environment around a tumour from immune-suppressive to immune-stimulating by reducing the number and function of tumour-associated macrophages (TAMs) by inactivating the function of CLEVER-1 receptor. Bexmarilimab is differentiated from other immunotherapies through its specific targeting of M2 TAMs, which facilitate tumour growth. Through myeloid cell plasticity, bexmarilimab can convert these M2 TAMs to M1s, leaving existing M1 TAMs intact and allowing both to support immune activation against tumours. We believe it has the potential to function as a novel macrophage checkpoint immunotherapy, both as a monotherapy and in combination with other immuno-oncology therapies or standard of care treatments.

MATINS study

The ongoing Phase I/II MATINS (Macrophage Antibody To INhibit immune Suppression) study is a first-in-human open label Phase I/II clinical trial with an adaptive design to investigate the safety and efficacy of bexmarilimab in selected metastatic or inoperable solid tumours.

The completed Part I of the MATINS trial, primarily intended to investigate safety and tolerability, has already shown that bexmarilimab administration promoted immune activation in MATINS patients, with data also indicating that bexmarilimab can down regulate a range of major inhibitory immune checkpoints (like PD-1, CTLA-4, etc.) that current immuno-oncology therapies aim to suppress. Bexmarilimab has also been well tolerated, showing no significant adverse events even at the highest dosing levels.

Clinical progress accelerated early in 2020 and today six out of 10 test cohorts have demonstrated early clinical benefits, being currently primary candidates to become expansion cohorts for Part III of the MATINS study as a monotherapy in patients who have exhausted all treatment options. All these solid cancer types (colorectal cancer, ovarian cancer, cutaneous melanoma, hepatocellular cancer, cholangiocarcinoma – also known as bile duct cancer – and gastric cancer) require additional treatment options and therefore present a significant commercial opportunity.

As a result of key pharmacokinetic and pharmacodynamic biomarkers indicating that more frequent dosing could potentially increase bexmarilimab treatment efficacy, compared to the original dosing interval of every three weeks, the regulatory authorities approved an expansion of MATINS to include two additional CRC cohorts receiving 1 mg/kg dosed at either weekly or two week intervals, which are on-going currently. The aim is to reach enough data to finalise dosing regimen for bexmarilimab prior entering pivotal studies. Recently the MATINS study data monitoring committee (DMC) also proposed to study more frequent dosing  and higher doses across all six cohort types showing early signs of clinical benefit and plans for this are underway.

An additional post period important finding was the discovery of an abundant amount of free, soluble Clever-1 in the plasma of MATINS study patients. Further experimental testing of isolated Clever-1 has indicated that this soluble form is a direct inhibitor of T cell activation and its inactivation could potentially result in an improved immune response and therefore enable patients to benefit from immuno-oncology therapeutics which have previously been ineffective. A new patent application has been filed seeking global protection for these findings and related applications.

Clinical expansion

Many findings support bexmarilimab combination with negative immune check point inhibitors: i) synergistic effect has been observed in animal models, ii) human tumours with high Clever-1 transcript are resistant to current immuno-oncology therapies and iii) bexmarilimab administration can down regulate these inhibitors. These facts have led Faron to design bexmarilimab combination studies with standard of care, as a first-line therapy in selected advanced solid tumours and haematological malignancies, and as a standalone neoadjuvant therapy for patients with early stage colon cancer, all of which Company hopes to start in 2021.

Alongside bexmarilimab’s clinical progress in 2020, the Company has undertaken further work to prepare for its future, by appointing global contract development and manufacturing organisation, AGC Biologics, as the commercial scale manufacturer. AGC Biologics has decades of experience in manufacturing of biotechnological products, including commercial market supplies of FDA (US), PDMA (Japan), MHRA (UK) and EMA (continental Europe) approved products. 

Traumakine

Faron is encouraged by recent vaccine developments to curb the spread of COVID-19 but the need for effective treatment options to reduce intensive care need and mortality for COVID-19 and other virally infected (e.g. influenza) patients remains critical. As such, the Company remains involved in international efforts supported by the global scientific community to explore the therapeutic and antiviral effects of the Company’s intravenous (IV) interferon (IFN) beta-1a, Traumakine, and to continue to develop the asset as a future treatment for acute respiratory distress syndrome (ARDS).

Having demonstrated a compelling argument as one of the body’s main first lines of defence against viral infection, recent findings have also shown that seriously ill COVID-19 patients have compromised interferon responses (Feulliet et al. 2021). These findings continue to drive confidence that treatment with Traumakine can strengthen the body’s natural defences if administered intravenously. Specifically, the intravenous dosing of Faron’s IFN beta-1a provides the lung vasculature with optimal exposure to IFN, which we believe is a critical aspect of Traumakine’s potential to increase protection against serious lung complications.

In 2020, we joined two global initiatives investigating the potential of multiple therapies to treat COVID-19, by providing supplies of Traumakine to the REMAP-CAP programme and the World Health Organization’s (WHO) Solidarity trial. The data readout from the WHO Solidarity trial was announced in October 2020 and concluded that subcutaneous IFN beta-1a was ineffective in treating hospitalised COVID-19 patients. Interestingly, the use of concomitant steroids had no impact on this outcome, confirming again that subcutaneous dosing has limited exposure to the lungs and should not be practiced. Traumakine continues to be investigated as part of the ongoing global REMAP-CAP programme, which is evaluating potential treatments for community-acquired pneumonia, including in COVID-19 patients, and is currently ongoing across more than 200 sites and 19 countries.

Faron is also initiating a third trial investigating the potential of Traumakine to treat COVID-19 – the US Human intravenous Interferon Beta-ISafety and preliminary efficacy in hospitalised subjects with CoronavirUS (HIBISCUS) trial – which, in January 2021, received $6.1 million from the US Department of Defense (DOD) as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The HIBISCUS trial is a phase II/III study to evaluate the potential of Traumakine to treat COVID-19 and will be conducted in approximately 5-10 study sites across the US in hospitalised patients with COVID-19, who do not yet require mechanical ventilation, but maximally low flow oxygen support. Use of corticosteroids concomitantly with Traumakine is not possible in the study setting but enabled in a sequenced manner after Traumakine. Supporting this protocol, a detailed analysis into the effects of glucocorticoids on IV IFN beta-1a activity, which arose following the INTEREST trial in 2018, was published in Intensive Care Medicine, a world leading journal in the field of critical care, in May 2020. The results showed that the desired mechanism of action of IV IFN beta-1a in the lung vasculature – the upregulation of CD73 – is blocked by the administration of glucocorticoids, and co-administration of glucocorticoids with IV IFN beta-1a increases mortality in patients with ARDS compared to patients administered with IV IFN beta-1a alone.

Subject to data from these trials supporting Traumakine’s profile, the Company will work with regulatory authorities and other parties to identify the best path to ensure its future availability to patients.

To progress Traumakine manufacturing and support its potential future commercial use, in August 2020 Faron announced plans to initiate a new state-of-the-art process for Traumakine manufacturing with a €2.1 million low interest rate loan from Business Finland, the governmental innovation financing agency of Finland. This will be used to develop and select a new cell line that can be used for future commercial scale production of Traumakine. The Company subsequently received a loan guarantee from Finnvera for €2.5 million to expand the commercial scale manufacturing.

Haematokine

In March 2020, Faron announced it had acquired rights for the potential new use of AOC3 inhibitors. The AOC3 enzymatic domain, a semicarbazide-sensitive amine oxidase, is known to produce hydrogen peroxide, a potent inflammatory mediator. AOC3 in vivo, ex vivo and in vitro studies have revealed that ACO3’s enzymatic end product hydrogen peroxide (H2O2) controls expansion of hematopoietic stem cells. Hematopoietic Stem Cell Transplantation (HSCT) is today the standard of care in all haematological malignancies. This is due to the fact that transplant failure is a lethal complication and a result of poor expansion of transplanted cells, which can occur in up to 30 per cent of patients. In addition, secondary transplantation and treatments to revive failing transplants are expensive and often unsuccessful. With Haematokine, we believe we can expand stem cells by regulating AOC3 activity.

Pre-clinical studies with humanised AOC3 mice and with ex vivo human cells are currently ongoing and further information will be provided later in the year.

Corporate

In June 2020, we hosted a virtual R&D Day presenting the Company’s R&D strategy and insights into our clinical stage programmes. In addition to Faron’s management, external perspectives were provided by Prof. Alberto Mantovani, Humanitas University, Milan, Italy; Ass. Prof. Maija Hollmén, MediCity, Turku University, Finland and Dr. Petri Bono, Terveystalo, Helsinki, Finland.

At the Annual General Meeting held on 18 May 2020, the number of members of the Board was confirmed as six. Frank Armstrong, Markku Jalkanen, Matti Manner, Leopoldo Zambeletti, Gregory Brown and John Poulos were re-elected to the Board for a term that ends at the end of the next AGM.

The Company also announced in July 2020 that Cairn Financial Advisers LLP had been appointed as Nominated Adviser to the Company with immediate effect with Panmure Gordon (UK) Limited continuing to act as the Company’s Broker.

Financial

During the period, the Company successfully raised approximately €14.0 million (gross), €13.0 million (net) from new and existing shareholders. Additionally, the Company was also awarded grants and loans from Business Finland and from the European Innovation Council (EIC) Accelerator pilot scheme and a Finnvera loan guarantee in total of €7.9 million.

Post period in February 2021, the Company raised €15.0 million gross (approximately €14.4 million net)  from new and existing shareholders through an issuance of 3,521,127 new ordinary shares.

Outlook

Our focus for 2021 will be to continue to progress bexmarilimab’s clinical development through Part II and Part III of the MATINS trial and new combination studies, to further develop our understanding of its potential future clinical use and commercial potential. We are excited to commence the HIBISCUS trial for Traumakine in the US and will continue to provide assistance with global efforts in fighting COVID-19. We are continuing to make progress with potential partners regarding both Clevegen and Traumakine, whilst also exploring funding opportunities to ensure we can continue to progress both products. I would like to thank our shareholders for their continued belief in the Company and the management team and all the employees at Faron for their hard-work and dedication during this challenging year and look forward to updating the market on our progress throughout the course of 2021.

The Board anticipates the following pipeline progress and catalysts during 2021:

Clevegen:

  • Summary of data from MATINS Part I

  • Final CLEVER-1 occupancy data
  • Top line data from MATINS Part II
  • First patient in neoadjuvant CRC and RCC
  • Final dosage and dose frequency decision 
  • Selection of first pivotal cohort from MATINS trial
  • First patient in NSCLC PD(L)1 combination
  • First patient in haematological malignancies
  • Pre-clinical evaluation in multiple new tumour types

Traumakine:

  • Initiation of HIBISCUS

  • Anticipated REMAP-CAP interim read out
  • Formation of a Traumakine Scientific Advisory Board
  • Interim analysis from HIBISCUS
  • Preclinical work on solid organ transplant
  • Partnering update during 2021

AOC3 Antagonist Platform Technology:

  • Additional information from pre-clinical studies with humanised AOC3 mice and with ex vivo human cells during 2021

 

Dr Markku Jalkanen

Chief Executive Officer

24 March 2021

 

Financial review

KEY PERFORMANCE INDICATOR

As a clinical stage drug development company, Faron’s primary interconnected KPIs are cash burn and cashposition. The Company conducted a successful fundraise during 2020. The Company’s net cash flow showed €2.8 million negative due to an increase of R&D and G&A expenditure, partially offset by other income. The Board will consider the appropriateness of monitoring additional KPIs as the Company’s operations advance.

REVENUE AND OTHER OPERATING INCOME

The Company’s revenue was €0.0 million for the year ended 31 December 2020 (2019: €nil).The Company recorded €2.1 million (2019: €0.2 million) of other operating income. This consisted of thereimbursement of already occurred legal expenses by the third-party recovery services provider as announced by the Company on 30 December 2019.

RESEARCH AND DEVELOPMENT COSTS

The R&D costs increased by €3.6 million from €10.2 million in 2019 to €13.9 million in 2020. The costs of outsourced clinical trial services were increased by by €2.5 million from €1.9 to €4.4 million. The cost of employee benefits in the R&D was increased by €0.8 million from €2.1 to €2.9 million, mainly driven by additional headcount.

GENERAL AND ADMINISTRATION COSTS

Administrative expenses increased by €1.9 million from €3.0 million in 2019 to €4.9 million in 2020. The increase was mainly due to the €1.2 million increase in other G&A costs, mainly driven by legal expenses, which were offsed by other income. Futher, employee benefits increased by €0.5 million mainly driven by additonal headcount.

TAXATION

The Company’s tax credit for the fiscal year 2020 can be recorded only after the Finnish tax authorities haveapproved the tax report and confirmed the amount of tax-deductible. The total amount of cumulative taxlosses carried forward approved by tax authorities on 31 December 2020 was €38.2 million (2019: €16.1 million). The Company estimates that it can utilise most of these during the years 2020 to 2021 by offsetting them against future profits. In addition, Faron has €55.0 million of R&D costs incurred in the financial years 2010 – 2020 that have not yet been deducted in its taxation. This amount can be deducted over an indefinite period at the Company’s discretion.

LOSSES

Loss before income tax was €16.9 million (2019: €13.3 million). Net loss for the year was €16.9 million (2019: €13.3 million), representing a loss of €0.37 per share (2019: €0.36 per share) (adjusted for the changes in number of issued shares).

CASH FLOWS

Net cash flow was €2.8 million negative for the year ended 31 December 2020 (2019: €3.0 million positive). Cash used for operating activities increased by €6.0 million to €17.5 million for the year, compared to €11.5 million for the year ended 31 December 2019. This increase was mostly driven by a increase in R&D investments. Net cash inflow from financing activities was €14.8 million (2019: €14.6 million) mainly due to the successful equity placing completed in April 2020.

FUNDRAISING

In April 2020, the Company successfully raised a total of €14.0 million gross (€13.0 million net) through a fundraise from new and existing shareholders. The majority of these proceeds are being used to commence expansion of Clevegen through the MATINS trial, to support Traumakine in the ongoing REMAP-CAP trial and to strengthen the Companys balance sheet.

Post period in February 2021, the Company raised €15.0 million gross (approximately €14.4 million net)  from new and existing shareholders through an issuance of 3,521,127 new ordinary shares.

FINANCIAL POSITION

As at 31 December 2020, total cash and cash equivalents held were €4.1 million (2019: €7.1 million).

GOING CONCERN

As part of their going concern review, the Directors have followed the Finnish Limited Liability Companies Act, the Finnish Accounting Act and the guidelines published by the Financial Reporting Council entitled “Guidance on the Going Concern Basis of Accounting and Reporting on Solvency and Liquidity Risks – Guidance for directors of companies that do not apply the UK Corporate Governance Code”. TheCompany and its subsidiaries (the “Group”) are subject to a number of risks similar to those of other development stage pharmaceutical companies. These risks include, amongst others, generation of revenues in due course from the development portfolio and risks associated with research, development, testing and obtaining related regulatory approvals of its pipeline products. Ultimately, the attainment of profitable operations is dependent on future uncertain events which include obtaining adequate financing to fulfil the Group’s commercial and development activities and generating a level of revenue adequate to support the Group’s cost structure.

The Group made a net loss of €16.9 million during the year ended 31 December 2020. It had a negative equity of €1.8 million including an accumulated deficit of €96.6 million. As at that date, the Group had cash and cash equivalents of €4.1 million.

The Directors have prepared detailed financial forecasts and cash flows looking beyond 12 months from the date of the approval of these financial statements. In developing these forecasts, the Directors have made assumptions based upon their view of the current and future economic conditions that are expected to prevail over the forecast period. The Directors estimate that the cash held by the Group together with known receivables will be sufficient to support the current level of activities into the fourth quarter of 2021. The Directors are continuing to explore sources of finance available to the Group and they believe they have a reasonable expectation that they will be able to secure sufficient cash inflows for the Group to continueits activities for not less than 12 months from the date of approval of these financial statements; they have therefore prepared the financial statements on a going concern basis.

Because the additional finance is not committed at the date of issuance of these financial statements, these circumstances represent a material uncertainty that may cast significant doubt on the Company’s ability to continue as going concern. Should the Group be unable to obtain further finance such that the going concern basis of preparation were no longer appropriate, adjustments would be required, including to reduce balance sheet values of assets to their recoverable amounts, to provide for further liabilities that might arise.

HEADCOUNT

Average headcount of the Company for the year was 30 (2019: 24).

SHARES AND SHARE CAPITAL

During the period 1 January to 31 December 2020, the Company, using the share authorities granted at the Extraordinary General Meetings held on 25 October 2019, issued a total of 3,500,000 new ordinary shares at an issuace price of €4.00 (£3.48) per share. The subscription price net of costs was credited in full to the Company’s reserve for invested unrestricted equity, and the share capital of the Company was not increased.

The Company has no shares in treasury; therefore at the end of 2020 the total number of voting rights was46,896,747.

LEGAL PROCEEDINGS

As announced by the Company on 2 October 2019 and 30 December 2019, the Company has received a letter from Rentschler Biopharma SE in which Rentschler stated that it terminates the agreement concerning the Traumakine API manufacturing. The Company considers that this statement is without merit and has filed a request for arbitration to seek damages. To fund the proceedings, the Company has entered into a litigation funding agreement with a third-party recovery services provider which, in the event of success, would receive a typical portion of any damages awarded. The arbitration is ongoing and the finalarbitration award is expected to be issued by the arbitration tribunal during the autumn 2021.

Toni Hänninen

Chief Financial Officer

24 March 2021

 

Consolidated Income Statement, IFRS

€’000

Unaudited 7-12/2020
6 months
Unaudited 7-12/2019
6 months
1-12/2020
12 months
1-12/2019
12 months
Revenue 0 0 0 0
Other operating income 1,379 185 2,122 185
Research and development expenses (8,345) (5,255) (13,879) (10,237)
General and administrative expenses (2,543) (1,688) (4,897) (3,049)
Operating loss (9,509) (6,758) (16,654) (13,101)
Financial expense (160) (151) (389) (224)
Financial income 76 69 107 74
Loss before tax (9,593) (6,840) (16,936) (13,251)
Tax expense (10) (10) (10) (11)
Loss for the period (9,603) (6,850) (16,946) (13,262)
Other comprehensive income
Total comprehensive loss for the period (9,603) (6,850) (16,946) (13,262)
Loss per ordinary share
Basic and diluted loss per share, EUR (0.22) (0.16) (0.37) (0.36)

Consolidated Balance Sheet, IFRS

€’000

31 December 2020 31 December 2019
Assets
Non-current assets
Machinery and equipment 14 13
Right-of-use-assets 361 386
Intangible assets 565 529
Prepayments and other receivables 56 77
Total non-current assets 996 1,005
Current assets
Prepayments and other receivables 3,263 2,145
Cash and cash equivalents 4,108 7,059
Total current assets 7,371 9,204
Total assets 8,367 10,209
Equity and liabilities
Capital and reserves attributable to the equity holders of the Company
Share capital 2,691 2,691
Reserve for invested unrestricted equity 92,015 78,916
Accumulated deficit (96,557) (79,997)
Translation difference 2
Total equity (1,849) 1,610
Non-current liabilities
Borrowings 2,728 2,263
Lease liabilities 199 261
Other liabilities 786 0
Total non-current liabilities 3,713 2,524
Current liabilities
Borrowings 122 163
Lease liabilities 176 135
Trade payables 4,608 2,967
Other current liabilities 1,597 2,810
Total current liabilities 6,503 6,075
Total liabilities 10,216 8,599
Total equity and liabilities 8,367 10,209

Consolidated Statement of Changes in Equity, IFRS

€’000

Share capital Reserve for invested unrestricted equity Translation difference Accumulated deficit Total equity
Balance as at 31 December 2018 2,691 64,464 (66,786) 369
Comprehensive loss for the period (13,262) (13,262)
Transactions with equity holders of the Company
Issue of ordinary shares, net of transaction costs EUR 1,149 thousand 14,452 14,452
Share-based compensation 51 51
14,452 51 14,503
Balance as at 31 December 2019 2,691 78,916 (79,997) 1,610
Comprehensive loss for the period 2 (16,946) (16,944)
Transactions with equity holders of the Company
Issue of ordinary shares, net of transaction costs EUR 1,004 thousand 13,098 13,098
Share-based compensation 386 386
13,098 386 13,484
Balance as at 31 December 2020 2,691 92,015 2 (96,557) (1,849)

Consolidated Cash Flow Statement, IFRS

€’000

Unaudited 7-12/2020
6 months
Unaudited 7-12/2019
6 months
1-12/2020
12 months
1-12/2019
12 months
Cash flow from operating activities
Loss before tax (9,593) (6,840) (16,936) (13,251)
Adjustments for:
Received grant (587) (587)
Depreciation and amortisation 153 190 283 238
Interest expense 56 119 149 158
Tax expense 10 11 10 11
Unrealised foreign exchange loss (gain), net 242 (36) 117 (7)
Share-based compensation 386 386 51
Adjusted loss from operations before changes in working capital (9,333) (6,556) (16,578) (12,800)
Change in net working capital:
Prepayments and other receivables (1,631) (547) (1,097) 1,173
Trade payables 1,878 99 1,641 (567)
Other liabilities (83) 1,081 (1,416) 731
Cash used in operations (9,169) (5,923) (17,450) (11,463)
Taxes paid (1) (9) (1) (9)
Interest paid 1 (25) (28) (51)
Net cash used in operating activities (9,169) (5,957) (17,479) (11,523)
Cash flow from investing activities
Payments for intangible assets (60) (59) (137) (100)
Payments for equipment (3) (5)
Net cash used in investing activities (63) (59) (142) (100)
Cash flow from financing activities
Proceeds from issue of shares 106 11,166 14,103 15,627
Share issue transaction cost (52) (944) (1,004) (1,175)
Proceeds from borrowings 630 76 630 307
Repayment of borrowings (122)
Proceed from grants 1,375 1,375
Payment of lease liabilities (104) (151) (195) (151)
Net cash from financing activities 1,955 10,147 14,787 14,608
Net increase (+) / decrease (-) in cash and cash equivalents (7,277) 4,131 (2,834) 2,985
Effect of exchange rate changes on cash and cash equivalents (242) 36 (117) 7
Cash and cash equivalents at 1 January 11,627 2,892 7,059 4,067
Cash and cash equivalents at 31 December 4,108 7,059 4,108 7,059

Final Results for the year ended December 31, 2019

Faron Pharmaceuticals Oy

(“Faron” or the “Company”)

Financial statement release January 1 to December 31, 2019

Financial statement release, Turku, 20 March 2019 at 9.00 AM (EET)

Inside information

TURKU, FINLAND – Faron Pharmaceuticals Oy (AIM: FARN, First North: FARON), the clinical stage biopharmaceutical company, today reports its financial statements for the year ended 31 December 2019 and H2 2019.

HIGHLIGHTS

Operational (including post period):

Clevegen® – Regulator of major inhibitory immune checkpoints and wholly-owned novel cancer immunotherapy in development

•      Part I of the open label phase I/II MATINS trial, initiated across multiple sites through Europe and primarily intended to investigate safety and tolerability, was completed with dose escalation reaching its planned maximum level of 10mg/kg. Clevegen demonstrated good tolerability at all dosing levels (0.1 to 10 mg/kg) without dose limiting toxicity.

•      Clevegen promoted immune activation in all dosed patients, measured following treatment with Clevegen and observed as increased circulating CD8+ T cells and CD8+/CD4+ ratio, decreased regulatory T-cells (T-regs) or a substantial increase in mobile natural killer (NK) cells in the blood.

•      Partial responses were observed in two patients. The first, a colorectal cancer (CRC) patient, showed a continuation of lung and lymph node metastasis shrinkage and their tumour load biochemical marker, carcinoembryonic antigen (CEA), also normalised. The second, a heavily pre-treated melanoma patient, showed a reduction in the size of the target lesion tumour (a lung metastasis) by 44 percent and other non-target lesions stabilized. Their biochemical tumour load marker also declined and clearance of pleura fluid was observed.

•      Data showing Clevegen’s potential early efficacy and good tolerability were presented at the European Society of Medical Oncology (ESMO) 2019 Congress in Barcelona, Spain. At the Society’s subsequent Immuno-Oncology Congress 2019 in Geneva, Switzerland, more detailed cell surface biomarker data were presented for the first time showing Clevegen’s potential to downregulate a range of inhibitory immune checkpoints commonly targeted by current immuno-oncology (IO) therapies.

•      The US Food and Drug Administration (FDA) approved Faron’s Investigational New Drug (IND) application for Clevegen, enabling expansion of the MATINS trial into the US.

•      CRC and ovarian cancer were selected by the MATINS data monitoring committee as the first and second expansion cohorts in part II of the study. Both cancer types are known to host a significant number of Clever-1 positive tumour-associated macrophages (TAM) which correlates with increased mortality rates.

•      New experimental data supporting the immunotherapeutic blockade of Clever-1 as an alternative to, or in combination with PD-1 checkpoint inhibition to reactivate immunity against immunosuppressive tumours were published in Clinical Cancer Research, a journal of the American Association for Cancer Research.

•      Several new patent filings were carried out during the period to further strengthen the existing IP around Clevegen use in conditions where harmful immune suppression causes serious diseases.

•      bexmarilimab is under consideration by the World Health Organization as the Proposed International Nonproprietary Name.

•      Manufacturing was established to supply drug product for cohort expansions in part II of the MATINS study.

•      Partnering discussions continued with the aim of supporting expansion of clinical development and exploring the potential of Clevegen in combination with existing immunotherapies and other cancer therapies.

Traumakine® – in development for the treatment of organ failures

•        Faron remains focused on developing Traumakine as a treatment for acute respiratory distress syndrome (ARDS) taking into account the high levels of concomitant corticosteroids used as a standard of care for ARDS and some ruptured abdominal aorta aneurysm (RAAA) patients.

•        Following feedback from the FDA regarding trial design, Faron submitted an amended protocol to the FDA, reflecting the FDA’s feedback that further studies with interferon-beta (IFN-beta) should exclude the use of overlapping corticosteroids since they are likely to block the desired therapeutic effect of Traumakine and may have a potentially deleterious impact on patient outcomes.

•        The FDA accepted Faron’s proposed study protocol for the new Traumakine trial, which excludes the use of concomitant corticosteroids and which will be split in two steps. The first step will commence with INTEGRITY, a pilot randomised and placebo controlled study, which will serve as final adjustment for adequate statistical powering and sample size justification for the pivotal second step, CALIBER.

•        The Company envisages that further Traumakine trials are likely to be funded through a third party.

•        Top-line data from the phase III ARDS trial with Japanese partner Maruishi Pharmaceutical Co., Ltd were, as expected, consistent with the INTEREST study results, showing that treatment with Traumakine did not result in reduced mortality or an increased number of ventilator-free survival days when compared to placebo. In the study, very high concomitant corticosteroids use (77%) was observed.

•        A phase I study in healthy volunteers (pharmacokinetic/dynamic YODA study), examining the administration and concomitant use of corticosteroids with Traumakine, confirmed observations previously seen in the INTEREST study. Traumakine produced the expected levels of bioactivity, suggesting drug formulation was not a factor in the outcome of that trial and that concomitant corticosteroids use interferes in the desired IFN-beta effect on CD73.

•        Interim results from the phase II INFORAAA study examining the effect of Traumakine on mortality (predominantly for multi-organ failure, MOF) and on pharmacodynamic biomarkers in surgically operated RAAA patients, showed biomarker (MxA and CD73) responses indicating a good IFN-beta response from Traumakine. A trend towards reduction of mortality was seen in patients increasing their CD73 plasma levels.

•        Based on the advice from the INFORAAA independent data monitoring committee and investigators, the Company decided to close the INFORAAA trial, as unexpected high use of concomitant corticosteroids prevent the scientific implementation of the INFORAAA protocol.

•        Faron filed a request for arbitration with the Arbitration Institute of the Stockholm Chamber of Commerce seeking damages from Rentschler Biopharma SE for terminating the API manufacturing process for Traumakine.

•        It is the understanding of the Company that the current API manufacturing process used to manufacture Traumakine requires significant upgrading to secure MAA/BLA approval. Various options for manufacturing are currently being explored.

AOC3 Antagonist Platform Technology

•        In March 2020, Faron acquired rights for the potential new use of AOC3 inhibitors. Faron will be responsible for the future development of the AOC3 protein inhibitor and for the management, prosecution, maintenance and filing of patent applications.

Corporate

•        Yrjö Wichmann took up the new position of Vice President, Financing and Investor Relations and Toni Hänninen was appointed as Faron’s new Chief Financial Officer.

•        Faron’s shares were listed on Nasdaq First North Growth Market Helsinki as of 3 December 2019.

Financial

•        On 31 December 2019, the Company held cash balances of €7.1 million (2018: €4.1 million).

•        Loss for the period for the financial year ended 31 December 2019 was €13.3 million (2018: €20.1 million loss).

•        Net assets on 31 December 2019 were €1.6 million (2018: €0.4 million).

•        During the period, in November, August, May and March 2019, the Company successfully raised a total of €15.6 million gross (€14.5 million net) from new and existing shareholders, employees and Company Directors through issuance of a total of 12,262,853 new ordinary shares. The majority of these proceeds are being used to advance Clevegen through the MATINS trial, further Traumakine development through the design and preparation of the next clinical trials and advance partnering discussions in respect of both Traumakine and Clevegen.

FINANCIAL

Consolidated key figures, IFRS

€’000

Unaudited

7-12/2019
6 months

Unaudited

7-12/2018
6 months

1-12/2019
12 months

1-12/2018
12 months

Revenue

0

(1)

0

19

Research and Development expenses

(5,255)

(4,762)

(10,237)

(16,463)

General and Administrative expenses

(1,688)

(1,378)

(3,049)

(3,750)

Loss for the period

(6,850)

(6,026)

(13,262)

(20,086)

Unaudited

7-12/2019
6 months

Unaudited

7-12/2018
6 months

1-12/2019
12 months

1-12/2018
12 months

Loss per share EUR

(0.16)

(0.19)

(0.31)

(0.65)

Number of shares at end of period

43,290,747

31,027,894

43,290,747

31,027,894

Average number of shares

35,533,179

30,749,648

35,533,179

30,749,648

€’000

Unaudited 30 Jun 2019

Unaudited

30 Jun 2018

31 Dec 2019

31 Dec 2018

Cash and cash equivalents

2,892

11,168

7,059

4,067

Equity

(1,761)

6,722

1,610

369

Balance sheet total

5,103

16,716

10,209

8,002

Commenting on the results, Dr Markku Jalkanen, CEO of Faron, said: “Our priority in 2019 was to rapidly accelerate our immunotherapy candidate, Clevegen, through the clinic. With the continued progression of the phase I/II MATINS trial, we are very encouraged by its results so far. Clevegen is clearly exhibiting exciting properties as a potential immunotherapy capable of down regulating a range of major inhibitory immune checkpoints (PD-1, PD-L1, CTLA-4) across several cancers. With our two cohort expansions in colorectal and ovarian cancer, we will continue to rapidly progress the development of Clevegen in patients with limited effective treatment options.   

“We are also pleased that, following feedback from the FDA, we have agreed the trial design for the continued clinical development of Traumakine, which we continue to believe holds great potential as a future treatment for ARDS, regardless of the underlying condition.

“We are very pleased to also have secured a further EUR 8 million through our series of fundraises in late 2019, further supporting the progress of our pipeline. I would like to thank our new and existing shareholders, and the entire team at Faron, for their continued support.”

Board of Directors’ Proposal on the Dividend

The Group’s loss for the accounting period was 13,261,911.93 euro (2018: 20,086,402.60 euro).

The Board of Directors does not recommend the payment of a dividend (2018: nil).

March 19, 2020

Faron Pharmaceuticals

Board of Directors

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 (“MAR”).

Conference call information

Faron will host a conference call for analysts to provide an update on the results followed by a Q&A session at 09:30 GMT / 11:30 EET. A presentation to accompany the call will be available on the Faron website (https://www.faron.com/investors/results) at 09:00 GMT / 11:00 EET

Dial-in details are:

International: +44 (0) 20 7192 8000

Finland: (09) 4245 0806
Conference ID: 7377079

For more information please contact:

Faron Pharmaceuticals Oy

Dr Markku Jalkanen, Chief Executive Officer

investor.relations@faron.com

Panmure Gordon (UK) Limited, Nomad and Broker

Emma Earl, Freddy Crossley (Corporate Finance)

James Stearns (Corporate Broking)

Phone: +44 207 886 2500

Sisu Partners Oy, Certified Adviser on Nasdaq First North

Juha Karttunen, Jussi Majamaa

Phone: +358 (0)40 555 4727

Consilium Strategic Communications

Mary-Jane Elliott, David Daley, Lindsey Neville

Phone: +44 (0)20 3709 5700

E-mail: faron@consilium-comms.com 

Publication of financial information during year 2020

The half-year financial report for the period 1 January to 30 June 2020 is scheduled to be published on 24 September 2020. Faron’s financial statements for full year 2019 will be published on 25 March and will also be available on the Company’s website at https://www.faron.com/investors/results.

The Annual General Meeting is planned for 15 April 2020. A separate stock exchange notice will be issued by Faron’s Board of Directors to convene the meeting.

About Faron Pharmaceuticals Ltd

Faron (AIM:FARN, First North: FARON) is a clinical stage biopharmaceutical company developing novel treatments for medical conditions with significant unmet needs. The Company currently has a pipeline based on the receptors involved in regulation of immune response in oncology and organ damage. Clevegen, its precision immunotherapy, is a novel anti-Clever-1 antibody with the ability to switch immune suppression to immune activation in various conditions, with potential across oncology, infectious disease and vaccine development. Currently in phase I/II clinical development as a novel macrophage checkpoint immunotherapy for patients with untreatable solid tumours, Clevegen has potential as a single-agent therapy or in combination with other immune checkpoint molecules or standard of care therapies. Traumakine, the Company’s pipeline candidate to prevent vascular leakage and organ failures, has completed a phase III clinical trial in Acute Respiratory Distress Syndrome (ARDS). Plans for its future development are being finalised to avoid interfering steroid use together with Traumakine. Faron is based in Turku, Finland. Further information is available at www.faron.com

Caution regarding forward looking statements

Certain statements in this announcement, are, or may be deemed to be, forward looking statements. Forward looking statements are identified by their use of terms and phrases such as ”believe”, ”could”, “should”, “expect”, “hope”, “seek”, ”envisage”, ”estimate”, ”intend”, ”may”, ”plan”, ”potentially”, ”will” or the negative of those, variations or comparable expressions, including references to assumptions. These forward-looking statements are not based on historical facts but rather on the Directors’ current expectations and assumptions regarding the Company’s future growth, results of operations, performance, future capital and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, business prospects and opportunities. Such forward looking statements reflect the Directors’ current beliefs and assumptions and are based on information currently available to the Directors.

A number of factors could cause actual results to differ materially from the results and expectations discussed in the forward-looking statements, many of which are beyond the control of the Company. In particular, the early data from initial patients in the MATINS trial may not be replicated in larger patient numbers and the outcome of clinical trials may not be favourable or clinical trials over and above those currently planned may be required before the Company is able to apply for marketing approval for a product.  In addition,  other factors which could cause actual results to differ materially include the ability of the Company to successfully licence its programmes within the anticipated timeframe or at all, risks associated with vulnerability to general economic and business conditions, competition, environmental and other regulatory changes, actions by governmental authorities, the availability of capital markets or other sources of funding, reliance on key personnel, uninsured and underinsured losses and other factors.  Although any forward-looking statements contained in this announcement are based upon what the Directors believe to be reasonable assumptions, the Company cannot assure investors that actual results will be consistent with such forward looking statements. Accordingly, readers are cautioned not to place undue reliance on forward looking statements. Subject to any continuing obligations under applicable law or any relevant AIM Rule requirements, in providing this information the Company does not undertake any obligation to publicly update or revise any of the forward-looking statements or to advise of any change in events, conditions or circumstances on which any such statement is based.

Chairman’s statement

2019 was a significant year for Faron. The highly experienced management team made significant progress executing the Company’s strategy and maintaining momentum in the delivery of its novel pipeline.

The development programme for Faron’s wholly-owned novel precision cancer immunotherapy candidate, Clevegen, has accelerated rapidly. Promising early clinical data continued to give us confidence in the potential of Clevegen as a next-generation immuno-oncology therapy and one that could potentially be used in combination therapy. The strength of the early clinical data generated in 2019 enabled the Clevegen team to quickly identify a group of patients thought most likely to respond to treatment. Selection of the first expansion cohort in colorectal cancer was a significant achievement and is testament to the focus Faron has placed on Clevegen’s development this year. The US Food and Drug Administration (FDA) approval of the Company’s Investigational New Drug (IND) application for Clevegen was a major development milestone enabling expansion of Clevegen’s clinical development in the US.

Harnessing the immune system to fight cancer has transformed the way patients are treated and scientists continue to make new discoveries in the field of immune-oncology every day. It is exciting to see the Clevegen programme generating such interest in this field, from the scientific community and commercial organisations. The wealth of data generated in 2019 strengthens Faron’s confidence in the programme’s future.

Alongside Clevegen’s development progress in 2019, the Company continued to build on its understanding of the results from Traumakine’s INTEREST trial. Data from a late-stage trial undertaken by our Japanese partner Maruishi were consistent with our study results a year earlier and supported our observation that corticosteroid use interferes with Traumakine efficacy. This observation has since been confirmed by the FDA who, following discussions about the future development path for Traumakine, advised that further studies should exclude the concomitant use of steroids. The body of evidence generated during Traumakine’s development programme is clearly a matter of interest for opinion leaders involved in the treatment of acute respiratory distress syndrome (ARDS) patients and the debate around whether corticosteroids have any beneficial role in ARDS patients continues.

Recent guidance from the World Health Organization (WHO) on the clinical management of severe acute respiratory infection related to the novel coronavirus that emerged in China at the end of 2019 advises against the routine use of corticosteroids. The emergence of this novel virus, and the risk of ARDS among infected patients, is a reminder of the need for new treatments to tackle this potentially fatal condition.

During the year our fundraising activities and our listing on the Nasdaq First North Growth Market in Finland received strong shareholder support enabling us to build a more secure financial position for the Company and give the pipeline its greatest chances of success. It was also encouraging to see the Company’s share price performance in 2019, its growth reflecting the progress of the business and the strength of Faron’s pipeline potential.

On behalf of the Board, I would like to thank all those who have played a part in Faron’s progress in 2019 – the management team, staff and Board for their hard work and commitment, our partners and steering committee members for their support and expertise, and the investigators and patients involved in our clinical trials. I would also like to pay particular thanks to our CEO, Markku Jalkanen who, while guiding Faron through difficult circumstances, has successfully led its transition to becoming a leading immunotherapy company.

We look forward to continued progress with our pipeline products Clevegen and Traumakine in 2020.

Dr Frank Armstrong

Chairman

March 19, 2020

Chief Executive Officer’s Review 

Overview

Faron is focused on immuno-oncology, organ trauma and vascular damage. Our goal is to save lives by developing unique scientific discoveries into ground-breaking new treatments for hard-to-treat and rare diseases. Our work is rooted in two scientific principles. First, a deep knowledge of the pharmacology of our drug candidates. And second, understanding the science of the targeted conditions at the molecular level, to most effectively influence their underlying causes.

Our focus for 2019 has been to continue to progress our wholly-owned novel precision cancer immunotherapy candidate, Clevegen, through the first-in-human clinical study, MATINS, in selected metastatic or inoperable solid tumours. We have also been working closely with the regulatory authorities to determine the future development pathway for Traumakine in ARDS and organ failures.

Clevegen Development

We have made significant, and exciting, clinical progress with Clevegen during 2019. Clevegen is our wholly-owned novel precision cancer immunotherapy candidate, which causes conversion of the immune environment around a tumour from immune-suppressive to immune-stimulating by reducing the number and function of tumour-associated macrophages (TAMs). Clevegen is differentiated from other immunotherapies through its specific targeting of M2 TAMs which facilitate tumour growth. Through myeloid cell plasticity, Clevegen can convert these M2 TAMs to M1s, leaving existing M1 TAMs intact and allowing both to support immune activation against tumours. We believe it has the potential to function as a novel macrophage checkpoint immunotherapy both as a monotherapy and in combination with other immuno-oncology therapies or standard of care treatments.

MATINS Trial

The MATINS (Macrophage Antibody To INhibit immune Suppression) study is a first-in-human open label phase I/II clinical trial with an adaptive design to investigate the safety and efficacy of Clevegen in selected metastatic or inoperable solid tumours. The selected tumours under investigation are cutaneous melanoma, hepatobiliary/hepatocellular, pancreatic, ovarian and colorectal cancer, all known to host a significant number of Clever-1 positive TAMs. Together these five target groups consist of approximately 2 million annual cases worldwide. Cancer patients with high Clever-1 expression are identified with a simple blood myeloid cell staining with Clevegen (“liquid biopsy”).

Part I of the MATINS study was conducted to establish tolerability, safety and dose escalation to optimize dosing. Subjects in Part I of the study received doses of 0.1 mg/ kg, 0.3 mg/kg, 1.0 mg/kg, 3.0 mg/kg and 10 mg/kg. All dose levels tested showed good tolerability with no dose limiting toxicity signals and all subjects dosed in the study experienced a switch in their immune cell profiles following treatment with Clevegen towards increased immune activation, observed as increased circulating CD8+ T cells and CD8+/CD4+ ratio, decreased regulatory T-cells (T-regs) or a substantial increase in mobile natural killer (NK) cells in the blood.

Based on results from the initial part of the MATINS trial, Faron announced in April 2019 that late-stage colorectal cancer (CRC) had been chosen for the first expansion cohort for the second part of the trial. Following the successful conclusion of the dose escalation in Part I, and with approval from the MATINS trial’s data monitoring committee (DMC), Faron initiated this first expansion cohort, Part II, in January 2020. A total of 10 late-stage CRC patients are expected to be dosed at the approved initial dose level of 0.3 mg/kg cohort, including two patients who had previously received this dose in the earlier Part I of the study. Furthermore, in January 2020, we announced that ovarian cancer has been selected as the second expansion cohort in the trial. Both these tumour types are known to host a significant number of Clever-1 positive TAMs which correlates with increased mortality rates among these patients.

In November 2019, the FDA approved the Company’s Investigational New Drug (IND) application for Clevegen (FP-1305), enabling expansion of the MATINS trial into the US. We anticipate opening the first site in mid-2020. In due course, we also plan to file applications for Breakthrough Therapy status in the US and PRIME status in Europe, further facilitating regulatory interactions during the development of Clevegen.

Clevegen’s ability to down regulate a range of major inhibitory checkpoints reaffirms our belief in its potential as a master regulator of immunity and a highly effective immunotherapy. It indicates that Clevegen treatment could potentially allow increased efficacy of other immuno-oncology therapies through the biomarker analysis of patient’s blood cells post Clevegen induced immune activation, finally offering a biological rationale to guide combination therapies. Due to high interest in the potential for new combination therapies in the immuno-oncology field, we are currently engaged in partnering discussions with several parties and hope for a positive outcome from these negotiations during 2020.

Traumakine Development

With no currently approved pharmacological treatments available, acute respiratory distress syndrome (ARDS) remains a significant problem for patients and healthcare systems. During 2019, the Company has continued to further understand the correlation between the combined use of corticosteroids and IFN-beta and has been working closely with the regulatory authorities in order to determine the next steps in Traumakine’s future development pathway.

In April 2019, Faron announced top-line data from the Phase III trial with Japanese partner Maruishi Pharmaceutical Co., Ltd. Results from this trial were in line with the Company’s expectations, and previously announced results observed in the INTEREST trial, showing that treatment with Traumakine did not result in reduced mortality or an increased number of ventilator free survival days when compared to placebo. In order to further examine the effects of concomitant steroid use and Traumakine, as seen in both the INTEREST trial and the Japanese study, Faron conducted the pharmacokinetic/dynamic YODA study in healthy volunteers. Results from this study, announced in June 2019, were consistent with the INTEREST data, supporting the conclusion that coadministration of steroids with Traumakine in patients inhibits IFN-beta action.

Also, in June 2019, Faron announced interim results from the Phase II INFORAAA study, which examined the effect of Traumakine on mortality (predominantly for multi-organ failure, MOF) and pharmacodynamic biomarkers of surgically operated ruptured abdominal aorta aneurysm (RAAA) patients. Based on the advice from the INFORAAA independent data monitoring committee and investigators, the Company decided to close the INFORAAA trial, as unexpected high use of concomitant corticosteroids was preventing the scientific implementation of the INFORAAA protocol.

Interestingly, in January 2020, the World Health Organization (WHO) published a recommendation recognising the risk of using corticosteroids on patients with coronavirus. This recommendation aligns with our findings from the post-hoc analysis of the INTEREST study and strengthens our belief that the whole medical community should be more diligent with regard to the combined use of corticosteroids and type I interferons. Faron’s scientific network has also confirmed this interaction at a molecular level in lung endothelial cells.

The Company remains committed to progressing Traumakine for the treatment of ARDS and, following the Company’s revised protocol submission in February 2020, the FDA have now accepted the protocol design for the next Traumkine study. The study design reflects the feedback and conclusions from the FDA that further studies with IFN beta should exclude the use of concomitant glucocorticoids since they are likely to block the desired therapeutic effect of Traumakine and may have a potentially deleterious impact on patient survival. We are planning to split the clinical development of Traumakine in ARDS into two steps, commencing with INTEGRITY, a pilot randomised and placebo controlled study with approximately 60 patients. The INTEGRITY data will then serve as final adjustment for adequate statistical powering and sample size justification for the pivotal CALIBER study, subjected for FDA review. We expect that the sample size of the CALIBER study will not exceed 200 patients based on the post hoc analysis of the INTEREST trial data. We envisage that future Traumakine trials (including INTEGRITY and CALIBER) are likely to be funded through a third party or parties.

AOC3 Antagonist Platform Technology

In March 2020, Faron announced it had acquired rights for the potential new use of AOC3 inhibitors covered by a recently filed patent application. The AOC3 enzymatic domain, a semicarbazide-sensitive amine oxidase, is known to produce hydrogen peroxide, a potent inflammatory mediator. Being expressed by many inflamed vascular endothelial cells, the AOC3 overexpression has been connected with many vascular diseases.

Faron will be responsible for future development of the invention and for the management, prosecution and maintenance of any patent applications as well as for the filing of new patent applications for the AOC3 protein inhibitor. Pre-clinical studies with humanized AOC3 mice and with ex vivo human cells in relation to the Invention are currently ongoing and further information will be provided later in the year.

Corporate

On 3 December 2019, Faron started trading on Nasdaq First North Growth Market (“Nasdaq First North”), a multilateral trading facility operated by Nasdaq Helsinki Ltd. The ISIN code of Faron’s ordinary shares is FI4000153309 and the trading code on Nasdaq First North is FARON. This is in addition to Faron’s listing, since November 2015, on AIM.

In October 2019, Faron received a letter from Rentschler Biopharma SE (“Rentschler”) in which Rentschler stated that it was terminating the agreement concerning the API manufacturing for Traumakine. Following a detailed investigation by Faron into the circumstances around manufacturing arrangements, the Company has since concluded that, in its view, Rentschler was in breach of the underlying agreement between the parties. Faron has filed a request for arbitration, funded by a third party on a non-recourse basis, with the Arbitration Institute of the Stockholm Chamber of Commerce seeking damages.

In May 2019, Yrjö Wichmann left his role as the Company’s Chief Financial Officer to take up the new position of Vice President, Financing and Investor Relations. Mr Wichmann remains a member of the senior management team but stepped down from the Board with effect from 28 May 2019. We were delighted to welcome Mr Toni Hänninen as Faron’s new CFO, effective from 1 June 2019, being responsible for both internal and external reporting.

The Annual General Meeting held on 28 May 2019 resolved the number of members of the Board as six. Frank Armstrong, Markku Jalkanen, Matti Manner, Leopoldo Zambeletti, Gregory Brown and John Poulos were re-elected to the Board for a term that ends at the end of the next AGM.

Financial

During the period, the Company successfully raised approximately EUR 15.6 million (gross), EUR 14.5 million (net) from new and existing shareholders, employees and Company Directors. The majority of these proceeds are being used to advance Clevegen through the MATINS trial, further Traumakine development through the design and preparation of the next clinical trials and advance partnering discussions in respect of both Traumakine and Clevegen.

Outlook

Our focus for 2020 will be to continue to expedite Clevegen’s clinical development through part II and part III of the MATINS trial and to report these data to regulatory authorities. We will also continue to work in close collaboration with the regulatory authorities in order to progress the INTEGRITY and CALIBER clinical trials and secure Traumakine’s future development pathway. We are continuing to make progress with potential partners regarding both Clevegen and Traumakine, whilst also exploring funding opportunities to ensure we can continue to progress both products. I would like to thank our shareholders for their continued belief in the Company and the management team for their hard-work and dedication and look forward to updating the market on our progress throughout the course of the year.

The Board anticipates the following pipeline progress and catalysts during 2020:

Clevegen:

•        Completion of all biomarker analyses from MATINS Part I patients to guide Clevegen dosing

•        Initiation of the second expansion cohort, ovarian cancer, during H1-2020

•        Initial data from the first expansion cohort (CRC) expected in Q2-2020

•        Expansion of the MATINS trial to leading cancer centres in France and Spain in Q2-2020

•        Opening of US study sites to facilitate rapid expansion of the MATINS trial in Q2-2020

•        Partnering update during 2020

Traumakine:

•        Further updates in relation to INTEGRITY and CALIBER during 2020

•        Continuation plans to be announced in H2-2020

AOC3 Antagonist Platform Technology:

•        Additional information from pre-clinical studies with humanized AOC3 mice and with ex vivo human cells during 2020

Dr Markku Jalkanen

Chief Executive Officer

March 19, 2020

Financial review

Key Performance Indicator

As a clinical stage drug development company, Faron’s primary interconnected KPIs are cash burn and cash position. The Company conducted several successful fundraises during 2019. The Company’s net cash flow showed €3.0 million positive due to a reduction in expenses and said fundraises. The Board will consider the appropriateness of monitoring additional KPIs as the Company’s operations advance.

Revenue and Other Operating Income

The Company’s revenue was €0.0 million for the year ended 31 December 2019 (2018: €nil).

The Company recorded €0.2 million (2018: €0.2 million) of other operating income. This consisted of the reimbursement of already occurred legal expenses by the third-party recovery services provider as announced by the Company on 30 December 2019.

Research and development costs

The R&D costs decreased by €6.3 million from €16.5 million in 2018 to €10.2 million in 2019. The costs of outsourced clinical trial services were reduced by €3.4 million from €5.3 to €1.9 million. The cost of materials and services used in the R&D was reduced by €1.7 million from €7.3 to €5.6 million.

General and administration costs

Administrative expenses decreased by €0.8 million from €3.8 million in 2018 to €3.0 million in 2019. The decrease was mainly due to the €1.4 million decrease in external costs related to the development of internal financial and reporting processes during 2018, but this was partially offset by an increase of €0.7 million in the other administrative expenses.

Taxation

The Company’s tax credit for the fiscal year 2019 can be recorded only after the Finnish tax authorities have approved the tax report and confirmed the amount of tax-deductible. The total amount of cumulative tax losses carried forward approved by tax authorities on 31 December 2019 was €16.1 million (2018: €11.2 million). The Company estimates that it can utilise most of these during the years 2020 to 2028 by offsetting them against future profits. In addition, Faron has €58.6 million of R&D costs incurred in the financial years 2010 – 2019 that have not yet been deducted in its taxation. This amount can be deducted over an indefinite period at the Company’s discretion.

Losses

Loss before income tax was €13.3 million (2018: €20.1 million). Net loss for the year was €13.3 million (2018: €20.1 million), representing a loss of €0.31 per share (2018: €0.65 per share) (adjusted for the changes in number of issued shares).

Cash Flows

Net cash flow was €3.0 million positive for the year ended 31 December 2019 (2018: €5.3 million negative). Cash used for operating activities decreased by €9.0 million to €11.5 million for the year, compared to €20.5 million for the year ended 31 December 2018. This decrease was mostly driven by a decrease in R&D investments.

Net cash inflow from financing activities was €14.5 million (2018: €15.5 million) due to the successful equity placings completed in during 2019.

Fundraising

During the period, 1 January to 31 December 2019, the Company successfully raised a total of €15.6 million gross (€14.5 million net) across several fundraises from new and existing shareholders, employees and Company Directors. The majority of these proceeds are being used to advance Clevegen through the MATINS trial, further Traumakine development through the design and preparation of the next clinical trials and advance partnering discussions in respect of both Traumakine and Clevegen.

•        In March 2019, €3.1 million gross (€2.9 net) through issuance of new ordinary shares.

•        In May 2019, €1.3 million gross (€1.3 net) through issuance of new ordinary shares.

•        In August 2019, €2.5 gross (€2.2 net) million through issuance of new ordinary shares.

•        In November 2019, €8.7 million gross (€8.0 net) through issuance of new ordinary shares.

Financial Position 

As at 31 December 2019, total cash and cash equivalents held were €7.1 million (2018: €4.1 million). The Company continues to exercise tight cost control to keep the cash burn as low as possible for preservation of existing resources.

Going Concern

As part of their going concern review, the Directors have followed the Finnish Limited Liability Companies Act, the Finnish Accounting Act and the guidelines published by the Financial Reporting Council entitled “Guidance on the Going Concern Basis of Accounting and Reporting on Solvency and Liquidity Risks – Guidance for directors of companies that do not apply the UK Corporate Governance Code”. The Company and its subsidiaries (the “Group”) are subject to a number of risks similar to those of other development stage pharmaceutical companies. These risks include, amongst others, generation of revenues in due course from the development portfolio and risks associated with research, development, testing and obtaining related regulatory approvals of its pipeline products. Ultimately, the attainment of profitable operations is dependent on future uncertain events which include obtaining adequate financing to fulfil the Group’s commercial and development activities and generating a level of revenue adequate to support the Group’s cost structure.

The Group made a net loss of €13.3 million during the year ended 31 December 2019. It had total equity of €1.6 million including an accumulated deficit of €80.0 million. As at that date, the Group had cash and cash equivalents of €7.1 million.

The Directors have prepared detailed financial forecasts and cash flows looking beyond 12 months from the date of the approval of these financial statements. In developing these forecasts, the Directors have made assumptions based upon their view of the current and future economic conditions that are expected to prevail over the forecast period. The Directors estimate that the cash held by the Group together with known receivables will be sufficient to support the current level of activities into the fourth quarter of 2020. The Directors are continuing to explore sources of finance available to the Group and they believe they have a reasonable expectation that they will be able to secure sufficient cash inflows for the Group to continue its activities for not less than 12 months from the date of approval of these financial statements; they have therefore prepared the financial statements on a going concern basis.

Because the additional finance is not committed at the date of issuance of these financial statements, these circumstances represent a material uncertainty that may cast significant doubt on the Company’s ability to continue as going concern. Should the Group be unable to obtain further finance such that the going concern basis of preparation were no longer appropriate, adjustments would be required, including to reduce balance sheet values of assets to their recoverable amounts, to provide for further liabilities that might arise.

Headcount

Average headcount of the Company for the year was 24 (2018: 25).

Shares and Share Capital

During the period 1 January to 31 December 2019, the Company, using the share authorities granted at the Annual General Meetings held on 31 May 2018 and on 28 May 2019, as well as at an Extraordinary General Meeting held on 25 October 2019, issued a total of 12,262,853 new ordinary shares.

•    On 28 March 2019, 4,448,625 shares at an issuance price of € 0.7020 (£0.60) per share.

•    On 13 May 2019, 1,757,375 shares at an issuance price of € 0.7598 (£0.65) per share.

•    On 5 August 2019, 941,840 shares at an issuance price of € 1.1900 (£1.06) per share.

•    On 27 August 2019, 1,179,513 shares at an issuance price of € 1.1900 (£1.06) per share.

•    On 12 November 2019, 3,935,500 shares at an issuance price of €2.1980 (£1.90) per share.

The subscription price net of costs was credited in full to the Company’s reserve for invested unrestricted equity, and the share capital of the Company was not increased.

The Company has no shares in treasury; therefore at the end of 2019 the total number of voting rights was 43,290,747.

Legal proceedings

As announced by the Company on 2 October 2019 and 30 December 2019, the Company has received a letter from Rentschler Biopharma SE in which Rentschler stated that it terminates the agreement concerning the Traumakine API manufacturing. The Company considers that this statement is without merit and has filed a request for arbitration to seek damages. To fund the proceedings, the Company has entered into a litigation funding agreement with a third-party recovery services provider which, in the event of success, would receive a typical portion of any damages awarded.

Toni Hänninen

Chief Financial Officer

March 19, 2020

 

Consolidated Income Statement, IFRS

 €’000

Unaudited

7-12/2019
6 months

Unaudited

7-12/2018
6 months

1-12/2019
12 months

1-12/2018
12 months

Revenue

0

(1)

0

 19 

Other operating income

185

191

185

 205

Research and development expenses

(5,255)

(4,762)

(10,237)

(16,463)

General and administrative expenses

(1,688)

(1,378)

(3,049)

(3,750)

Operating loss

(6,758)

(5,951)

(13,101)

(19,989)

Financial expense

(151)

(70)

(224)

(397)

Financial income

69

(3)

74

302

Loss before tax

(6,840)

(6,024)

(13,251)

(20,084)

Tax expense

(10)

(2)

(11)

(2)

Loss for the period

(6,850)

(6,026)

(13,262)

(20,086)

Other comprehensive income

Total comprehensive loss for the period

(6,850)

(6,026)

(13,262)

(20,086)

Loss per ordinary share

Basic and diluted loss per share, EUR

(0.16)

(0.19)

(0.31)

(0.65)

Final Results for the year ended 31 December 2017

Faron Pharmaceuticals Ltd

(“Faron” or the “Company”)

Final Results for the year ended 31 December 2017

TURKU – FINLAND, 8 May 2018 Faron Pharmaceuticals Ltd (“Faron”) (AIM: FARN), the clinical stage biopharmaceutical company, today reports its full year audited results for the year ended 31 December 2017. Today, the Company also separately announced top line data from the Phase III INTEREST trial.

HIGHLIGHTS (including post period end)

OPERATIONAL:

Traumakine® 

·       INTEREST study did not meet the Day 28 primary composite endpoint with both Traumakine and placebo reporting similar all cause mortality rates. Further investigations are currently underway to provide additional information on the outcome of the current analysis.

·       Japanese partner Maruishi continued to progress their pivotal Phase III ARDS trial in Japan and has received two IDMC recommendations to continue the trial as planned. Maruishi anticipates completion of recruitment of this 120-patient study in mid 2018.

·       Faron received the first recommendation from the Independent Data Monitoring Committee (IDMC) in the Traumakine Phase II INFORAAA study for the treatment of Multi-Organ Failure (MOF) and mortality prevention of surgically operated Ruptured Abdominal Aorta Aneurysm (RAAA), to continue the trial as planned. Study currently on pause until INTEREST study analysis completes and Japanese Phase III ARDS trial is reported.

·       US Food and Drug Administration (FDA) proposed that Faron proceed directly to BLA submission for Traumakine in the US upon successful completion of the European and Japanese Phase III trials.  FDA Fast Track Designation was granted in January. Initiation of a collaboration with Syneos Health for Traumakine – a global biopharmaceutical solutions organization with end-to-end clinical development and commercialization capabilities.

·       Second independent manufacturing facility established for Traumakine.

·       Patent estate for Traumakine strengthened with a formulation patent granted in Finland and filed in the US and PCT for Faron’s IV dose form of interferon-beta, in addition to allowed patents in Europe and Japan for the use of certain biomarkers to measure the severity and treatment efficacy of patients with ARDS.

Clevegen®

·       Preclinical toxicity studies completed with no sign of serious adverse events indicated.

·       Successful production of technical batches of Clevegen by manufacturing partner Abzena.

·       Agreement signed with the University of Birmingham Medical School, UK, to initiate a liver cancer clinical trial program, focused on the protocol design for a Phase I/II trial, MATINS. Clinical trial application expected to be filed in H2 2018.

·        Filed advice package to the UK Regulatory Agency MHRA on the adaptive protocol design for the MATINS trial to include dose escalation and efficacy measures in four solid tumour cancers (liver, melanoma, pancreas and ovarian).

·       Patent granted by the European Patent Office for the use of Clever-1 antibodies, the mechanism behind Clevegen, for the treatment of cancer.

FINANCIAL

·       Raised £5.0 million (net €5.4 million) in March 2017 to fund preclinical and early clinical development of Clevegen. Raised £10 million (net €10.4 million) in October 2017 to support the Traumakine pre-launch activities.

·       In addition to the above the Company raised €0.4 million through the subscription of shares with warrants and options in April – May 2017.

·       Drew down €0.5 million of a €1.5 million R&D loan granted by Tekes in June 2017 to progress the Clevegen programme.

·       On 31 December 2017, the Company held cash balances of €9.3 million (2016: €11.5 million).  The cash position at end March 2018 was €18.7 million.

·       Operating loss for the financial year ended 31 December 2017 was €21.1 million (2016: €10.1 million loss).

·       Net assets on 31 December 2017 were €4.7 million (2016: €8.4 million)

·       Post accounting period raised £15.0 million (net €15.9 million) in February 2018 intended to support preparations for the commercialisation of Traumakine and to advance the clinical development of Clevegen in several indications.

·       The board will be focussing on reducing cash burn and preservation of existing resources until the full data analysis is complete and it is agreed how best to deliver value to shareholders.

CORPORATE

·       Dr Juhana Heinonen was appointed Chief Commercial Officer and Dr Juho Jalkanen was appointed Vice President of Business Development within the period.

·       Board strengthened by the appointments of Dr Gregory Brown and Mr John Poulos as Non-Executive Directors in May 2017.

·      During the first of quarter 2018, Faron Pharmaceuticals has registered subsidiaries in the United States of America and in Switzerland.

Commenting on the results, Dr Markku Jalkanen, CEO of Faron, said: “Although throughout 2017 we have made significant progress across all areas of the business, we are extremely disappointed with the Traumakine data announced today. We will now take some time to better understand the data and plan the next steps for Traumakine in ARDS, whilst remaining focused on rapidly progressing Clevegen. We remain focused on the development of drugs for life threatening conditions, and we have strong foundations in place, and I am really proud of the strong commitment and resilience of our staff and collaborators at this challenging time.”

The 2017 Annual Report and Accounts will be made available shortly, in digital form and on the Company’s website together with the invitation to the Annual General Meeting (AGM).

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014 (MAR).

For more information please contact:

Faron Pharmaceuticals Ltd

Dr Markku Jalkanen, Chief Executive Officer

investor.relations@faron.com 

Consilium Strategic Communications

Mary-Jane Elliott, Philippa Gardner, Matthew Neal, Lindsey Neville

Phone: +44 (0)20 3709 5700

E-mail: faron@consilium-comms.com

Westwicke Partners, IR (US)

Chris Brinzey

Phone: 01 339 970 2843

E-Mail: chris.brinzey@westwicke.com

Panmure Gordon (UK) Limited, Nomad and Broker

Freddy Crossley, Emma Earl, Ryan McCarthy

Phone: +44 207 886 2500

About Faron Pharmaceuticals Ltd

Faron (AIM:FARN) is a clinical stage biopharmaceutical company developing novel treatments for medical conditions with significant unmet needs. The Company currently has a pipeline focusing on acute organ traumas, vascular damage and cancer immunotherapy. The Company’s lead candidate Traumakine, to prevent vascular leakage and organ failures, has completed a Phase III clinical trial in Acute Respiratory Distress Syndrome (“ARDS”). An additional European Phase II Traumakine trial is underway for the Rupture of Abdominal Aorta Aneurysm (“RAAA”). Faron’s second candidate Clevegen is a ground breaking preclinical anti-Clever-1 antibody. Clevegen has the ability to switch immune suppression to immune activation in various conditions, with potential across oncology, infectious disease and vaccine development. This novel macrophage-directed immuno-oncology switch called Tumour Immunity Enabling Technology (“TIET”) may be used alone or in combination with other immune checkpoint molecules for the treatment of cancer patients. Faron is based in Turku, Finland. Further information is available at www.faron.com

Chairman’s Statement

During 2017 Faron continued to make progress across all areas of the business, with the highly experienced management team consistently delivering against all strategic objectives for the year. Progress was made with both Traumakine and Clevegen and the Company built out the underlying capabilities within the organisation.

Faron’s lead drug candidate, Traumakine, completed patient recruitment into the pivotal, pan-European Phase III INTEREST trial in ARDS according to schedule. We are incredibly disappointed to report that the trial has not met the primary endpoint, and we will now carefully review the data in order to plan the next steps for Traumakine in ARDS.

The Company continues to believe that Traumakine could have applications across other serious indications and in early 2017, recruited the first patient in a Phase II trial (INFORAAA) assessing Traumakine for the prevention of Multi Organ Failure (MOF) and patient mortality after surgical repair of the acute rupture of abdominal aorta (RAAA). RAAA is a medical emergency with no known treatment and an overall mortality of 30 to 50% for post-operative reperfusion injury for RAAA patients. The study is currently on pause until the INTEREST study analysis completes and the Japanese Phase III ARDS trial is reported.

Faron’s second product, Clevegen, is an immunotherapy candidate that causes conversion of the immune environment around a tumour from immune suppressive to immune stimulating by reducing the number of tumour-associated macrophages (TAMs). We continue to believe that Clevegen is well differentiated from other immunotherapies and following encouraging preclinical toxicity studies, we look forward to moving Clevegen into first clinical trials in H2 2018 to study its potential in multiple solid tumours through our partnership with the University of Birmingham Medical School, UK.

The Company remains well funded, having raised £15m gross proceeds during 2017, and a further £15m gross proceeds in February 2018 which provides us with a solid financial foundation.

During the course of the year we further strengthened the Board with the appointment of Dr Gregory Brown and Mr John Poulos in May 2017. Greg and John bring a wealth of global experience in the life sciences and investment community, particularly from a US and commercial angle and I was delighted to welcome them.

The Board’s key priority is to now assess the next steps for Traumakine in ARDS, once the data are fully analysed, and to progress our novel and unique immunotherapy agent Clevegen into first human trials. The board will be focussing on reducing cash burn and preservation of existing resources until the full data analysis is complete and it is agreed how best to deliver value to shareholders.

The Board would like to thank the management team, staff and key partners for continued delivery during 2017. The Board is also extremely grateful to the investigators and patients who are part of our clinical trials. We look forward to updating you on our plans in due course.

Dr Frank M Armstrong – Chairman

May 5, 2018

Chief Executive Officer’s Review

Overview

Faron is highly focused on developing novel treatments for life-threatening medical conditions with significant unmet need for both individuals and society. Whilst 2017 was a busy year for Faron in anticipation of Traumakine data, we have today reported that the trial did not meet the primary endpoint. We will now seek to analyse and understand, as quickly as possible, the implications and next steps for Traumakine in ARDS.

Traumakine Development

INTEREST trial

We have today reported in a separate announcement that the Traumakine INTEREST trial did not meet the primary endpoint in ARDS. This is despite many years of research suggesting a potential benefit in these very sick patients. We are conducting further investigations in order to provide additional information on the outcome of the current analysis.

Our partner Maruishi continues to progress its pivotal Phase III trial in Japan and two IDMC recommendations to continue the trial as planned have been received. Maruishi expects to complete recruitment in the second quarter of 2018.

Phase II INFORAAA

We continue to believe that Traumakine has the potential for application in additional disease areas. In February 2017, the first patient was enrolled in the Traumakine Phase II INFORAAA trial for the treatment of Multi-Organ Failure (MOF) and mortality prevention of surgically operated Ruptured Abdominal Aorta Aneurysm (RAAA).

RAAA is a surgical emergency with an overall mortality of 70 to 80% and requires immediate surgery and aortic repair. The main cause of death for these patients is multiple organ failure following a post-operative reperfusion injury of ischemic organs including kidneys, liver, brain and intestines. We believe that Traumakine has the potential to offer significantly improved outcomes for patients following surgery for RAAA. We also believe that the clinical data from the INFORAAA trial could provide us with valuable information on the recovery of ischemic single organ injuries and are planning further trials to treat these injuries.  The study is currently on pause until the INTEREST study analysis completes and the Japanese Phase III ARDS trial is reported.

The study currently has six open sites in Finland, two in Lithuania and one in Estonia. The INFORAAA study aims to treat a total of 160 post-operative RAAA patients. The study is currently on pause until the INTEREST study analysis completes and the Japanese Phase III ARDS trial is reported.

Clevegen Development

Faron’s second product, its preclinical immunotherapy candidate, Clevegen, causes conversion of the immune environment around a tumour from immune suppressive to immune stimulating by reducing the number and function of tumour-associated macrophages (TAMs). Recent developments in the exciting field of cancer immunotherapy have been well documented with a number of important indications of clinical success. We believe that Clevegen is differentiated from other immunotherapies through its specific targeting of M2 TAMs which facilitate tumour growth, while leaving intact the M1 TAMs that support immune activation against tumours.

Preclinical toxicity studies of Clevegen commenced as planned in 2017, following successful production of technical batches by our manufacturing partner Abzena and initial data indicate no signs of serious adverse events. In April 2017, the Company signed an agreement with the University of Birmingham Medical School, UK, to initiate a liver cancer clinical trial program, focused on the protocol design for a Phase I/II trial MATINS (Macrophage Antibody To INhibit immune Suppression), which was also reviewed by the UK regulatory authority (MHRA) and discussed at the January 2018 meeting. Based on the MHRA positive feedback the Company anticipates filing the clinical trial application (CTA) in H2 2018.

Faron also continues a close collaboration with the MediCity unit of Turku University Medical School, where Faron has sponsored a set of Clevegen related preclinical experiments. Data reported at the international Juselius Symposium (June 2017, Helsinki, Finland) demonstrated how genetic depletion of macrophage Clever-1 resulted in tumour growth resistance and prevented the spread of Lewis lung cancer in preclinical models. Furthermore, signs of strong immune activation were observed, as evidenced by CD8 positive T-cells at the tumour site, in line with the expected effect of Clevegen. Additional data were also outlined during Faron’s second R&D day in February 2018.

Corporate

In December 2017, Faron announced the appointment of Dr Juhana Heinonen as Chief Commercial Officer. Dr Heinonen joined Faron from AstraZeneca where he served as the Global Marketing Director for AstraZeneca/Medimmune’s Fasenra (benralizumab) for the treatment of asthma, the first biologic launched from the AstraZeneca respiratory unit. Dr Heinonen led the global market shaping and the patient and healthcare professional support strategy development for the new monoclonal antibody, which met the primary endpoints in two Phase III clinical trials in 2016. Prior to this, he held a variety of positions in sales and marketing at Roche between 2008 and 2015, successfully leading the launch and development of a global marketing strategy for the blockbuster treatment for rheumatoid arthritis, RoACTEMRA (tocilizumab).

Dr Juho Jalkanen was appointed as Vice President of Business Development in April 2017 and stepped down from the Board in May 2017, of which he had been a member since 2013. Dr Jalkanen has a Master’s degree in Economics and Business Administration from the Turku School of Economics, a Medical Doctor’s degree from the University of Turku and was a fully licensed General Practitioner and specialist in Vascular Surgery with expertise in organ protection during major cardiovascular surgery. I extend my gratitude to Juho for his contribution to the Board over the past four years and am pleased he will continue his input to the Company as a management team member.

Financial

The Company has adopted new and amended accounting standards and corrected certain prior period errors in accounting. The 2016 financial statements, as initially reported, have therefore been amended and restated.

Strengthened Board

Dr. Gregory B. Brown and Mr John Poulos were appointed as Non-Executive Directors to the Board in May 2017. Both bring a wealth of global experience in the life sciences and investment community to strengthen our Board, particularly from a US and commercial angle.

Dr. Gregory B. Brown has more than 35 years of experience in healthcare and investment. Most recently, Greg founded HealthCare Royalty Partners, a healthcare-focused private asset management firm investing in biopharmaceutical and medical products, where he currently serves as Vice Chairman. In addition, Greg is currently a director of Caladrius Biosciences Inc (NASDAQ) and Nuron Biotech Inc and previously acted as a director of Invuity Inc (NASDAQ) between October 2014 and December 2015. Prior to this, he was a General Partner at Paul Capital Partners in New York, Co-Head of Investment Banking at Adams, Harkness & Hill, and VP of Corporate Finance at Vector Securities International.

Mr John Poulos has a wealth of expertise in global corporate life sciences, having spent 38 years working for AbbVie and Abbott. Most recently, John served as Vice President, Head of Licensing and Acquisitions for AbbVie, and Group Vice President, Head of Pharmaceutical Licensing and Acquisitions for Abbott Pharmaceuticals. During his career, John was instrumental in the negotiation of numerous acquisitions, including Knoll/BASF Pharma in 2001 for $6.9 billion and Solvay in 2010 for $6.2 billion.

Outlook

Our immediate focus in 2018 will be on determining the next steps for Traumakine in ARDS once we have completed a comprehensive review of the INTEREST Phase III data to understand why Traumakine did not have any effect over placebo in the trial. We also plan to continue to progress our immuno-oncology candidate, Clevegen, into the clinic in H2 2018.

The Board anticipates the following pipeline progress and catalysts during 2018:

Traumakine:

·      Full data analysis from the Phase III INTEREST trial

·      Determine next steps for Traumakine in ARDS

·      The Company currently expects to announce top-line data from the Japanese Phase III pivotal study for the treatment of ARDS with Traumakine, run by its Japanese licensing partner Maruishi Pharmaceutical Co., in 2018.

Clevegen:

·      Faron expects preclinical toxicological studies for Clevegen to be completed in Q2 2018 

·      The Company expects to file the first CTA with the UK regulatory authorities (MHRA) in H2 2018 based on the preclinical safety data. The first, and primarily safety focused clinical trial is expected to be conducted with liver cancer patients at the Birmingham University Liver Cancer Centre and is expected to continue into a Phase II study via an adapted trial design for HCC patients to recognise early efficacy signals.

·      The second set of clinical cancer trials will be conducted in parallel with the HCC trial in Scandinavia with melanoma, pancreas and ovarian cancer patients.

·      Faron intends to expedite the expansion of its planned Clevegen clinical development program, the MATINS trial, in several solid tumours (liver, pancreas, ovarian and melanoma) in order to obtain accelerated safety and clinical data read-outs.

Dr Markku Jalkanen  – Chief Executive Officer

May 5, 2018

Financial Review

Restatement of previously issued financial statements

Subsequent to the original issuance of the Company’s financial statements for the year ended 31 December 2016, the Company has adopted new and amended accounting standards and corrected certain prior period errors in its accounting. The 2016 financial statements, as initially reported, have therefore been amended and restated. The total impact of the restatements on the pre-tax income for periods prior to 31 December 2016 was negative EUR 2.5 million. In total the restatements reduced the 31 December 2016 equity with negative EUR 2.5 million.

Further details of the restatement are set out in Note 1 to the accounts.

Key Performance Indicator

As a clinical stage drug development company, Faron’s primary interconnected KPI’s are cash burn and cash position. During 2017, the Company’s net cash flow decreased by only €1.7 million despite a significant increase in R&D spending. This was mainly due to two successful fundraisings during the year. The Board will consider the appropriateness of monitoring additional KPIs as the Company’s operations advance.

Revenue and Other Operating Income

The Company’s revenue was €0.0 million for the year ended 31 December 2017 (2016: €1.0 million). The revenue in 2016 included the €0.7 million licence agreement cash signing fee from Korean license partner PharmBio. The Company also recorded €1.5 million (2016: €1.0 million) of other operational income. This comprised of income recognised from the European Commission FP7 grant in support of the Traumakine programme as well as a grant component from public loans.

Research and development costs

The R&D costs more than doubled by €9.9 million (107%) from €9.2 million to €19.1 million. This was a result of very strong investment in the finalisation of INTEREST trial. The trial completed recruitment in early December 2017 with results reported today. The increased activity of Clevegen development also contributed to the increase in R&D investment. In September 2017, the Company received a positive recommendation from the FDA regarding the possibility to proceed directly to BLA filing in the US upon successful completion of the European and Japanese Phase III trials without the need to conduct clinical trials for Traumakine in the US. In view of this recommendation and in anticipation of a positive INTEREST trial the Company, the Company accelerated the preparatory work for eventual Traumakine launch, including increasing production of active pharmaceutical ingredient (API), with the majority of this work to be completed 2018.

Share-based Compensation

During the year, options over 500,000 ordinary shares (2016: 400,000) were awarded to Directors and key personnel. This had no cash impact on the results for the year, however, accounting standards require this share based compensation to be recognised in the Consolidated Statement of Comprehensive Income, resulting in a charge of €1.2 million (2016: €0.9 million).

Taxation

The Company’s tax credit for the fiscal year 2017 can be recorded only after the Finnish tax authorities have approved the tax report and confirmed the amount of tax-deductible losses for 2017. The total amount of cumulative tax losses carried forward approved by tax authorities on 31 December 2017 was €23.5 million (2016: €14.2 million). The Company estimates that it can utilise €23.3 million of these during the years 2019 to 2026 by offsetting them against future profits. In addition, Faron has €2.8 million of research and development costs incurred in the financial years 2010 and 2011 that have not yet been deducted in its taxation. This amount can be deducted over an indefinite period at the Company’s discretion.

Losses

Loss before income tax was €21.1 million (2016: €10.1 million). Net loss for the year was €21.1 million (2016: €10.1 million), representing a loss of €0.76 per share (2016: €0.42 per share) (adjusted for the changes in number of issued shares).

Cash Flows

Despite doubling its R&D expenses net cash outflow was only €2.2 million negative for the year ended 31 December 2017, compared to a positive net cash inflow of €0.4 million for the previous year. Cash used for operating activities increased by €9.0 million to €18.4 million for the year, compared to €9.4 million for the year ended 31 December 2016. This increase was mostly driven by a €9.9 million (107%) increase in R&D investment together with a €0.6 million (24%) increase in administrative costs.

Net cash inflow from financing activities was €16.6 million (2016: €9.3 million) due to the two successful equity placings completed during the year.

Fundraising

Faron raised £5million (net €5.4 million) via an oversubscribed financing round in February/March 2017 by issuing 1,422,340 new ordinary shares at a price of 350 pence per share. The proceeds are being used to fund preclinical and early clinical development of Clevegen. The Company also raised £10 million (net €10.4 million) via an oversubscribed financing round in October 2017 by issuing 1,250,000 new ordinary shares at a price of 800 pence per share. The proceeds are being used to support the pre-launch activities for Traumakine and to expedite Clevegen clinical program. Post the period end, Faron also raised £15.0 million (net €15.9 million) in February 2018 via an oversubscribed financing round by issuing 1,863,350 new ordinary shares at a price of 805 pence per share to support preparations for the commercialisation of Traumakine and to advance the clinical development of Clevegen in several indications. After this round, at the end of February 2018, the total number of outstanding shares was 31,027,894.

Financial Position

As at 31 December 2017, total cash and cash equivalents held were €9.3 million (2016: €11.5 million). This excludes the funds raised in the financing round announced on 21 February 2018.  The cash at end of March 2018 was €18.7 million. The board will be focussing on reducing cash burn and preservation of existing resources until the full data analysis is complete and it is agreed how best to deliver value to shareholders.

Headcount

Average headcount of the Company for the year was 17 (2016: 10). The increase in headcount is attributable to the expansion of the Traumakine and Clevegen programs, in addition to preparation for the commercialisation of Traumakine.

Shares and Share Capital

Using the share authorities granted at the Annual General Meetings held on 26 May 2016 and on 16 May 2017, in February 2017 the Company issued 1,422,340 new ordinary shares at a subscription price of £3.50 pursuant to a fundraising and in October 2017 issued 1,250,000 new ordinary shares at a price of £8.00 per share pursuant to a further fundraise. The subscription price was credited in full to the Company’s reserve for invested unrestricted equity, and the share capital of the Company was not increased.

Additionally during 2017, warrants over 109,800 ordinary shares in the Company were exercised at a price of €1.55 per share and further warrants over 41,600 ordinary shares in the Company were exercised at a price of €2.01 per share.

In May 2017 options over 15,000 ordinary shares in the Company were exercised at a price of €3.71 per share and options over a further 14,100 ordinary shares in the Company were exercised at a price of €2.90 per share.

The Company has no shares in treasury; therefore at the end of 2017 the total number of voting rights was 29,164,544.

Money Raised to Date

To date, the Company has been funded with a total of approximately €61 million, made up of a combination of equity, debt and grant funding, which has been used to develop the Company’s products and intellectual property. The Company has also generated cash revenues of €4.5 million to date through the receipt of milestone payments pursuant to certain of its licensing arrangements and the sale of surplus raw materials.

Yrjö E K Wichmann   – Chief Financial Officer

May 5, 2017

Statement of comprehensive income

For the year ended 31 December

2017

2016

€’000

(Restated)

Revenue

 – 

 952

Other operating income

 1,495

 1,025

Research and development expenses

(19,100)

(9,223)

General and administrative expenses

(3,054)

(2,457)

Operating loss

(20,659)

(9,703)

Financial expense

(408)

(360)

Financial income

7

Loss before tax

(21,060)

(10,063)

Tax expense

(1)

(75)

Loss for the period

(21,061)

(10,138)

Comprehensive loss for the period attributable to the equity holders of the Company

(21,061)

(10,138)

Loss per ordinary share

Basic and diluted loss per share, EUR

(0.76)

(0.42)

Balance sheet

As at 31 December

As at 1 January

2017

2016

2016

€’000

(Restated)

(Restated)

Assets

Non-current assets

Machinery and equipment

22

21

28

Intangible assets

325

304

283

Prepayments and other receivables

1,310

1,475

1,885

Total non-current assets

1,657

1,800

2,196

Current assets

Prepayments and other receivables

3,920

2,469

489

Cash and cash equivalents

9,310

11,478

11,068

Total current assets

13,230

13,947

11,557

Total assets

14,887

15,747

13,753

Equity and liabilities

Capital and reserves attributable to the equity holders of the Company

Share capital

2,691

2,691

2,691

Reserve for invested unrestricted equity

48,576

32,362

23,843

Accumulated deficit

(46,524)

(26,652)

(17,450)

Total equity

4,743

8,401

9,084

Non-current liabilities

Borrowings

2,088

2,083

1,446

Other liabilities

614

241

Total non-current liabilities

2,088

2,697

1,687

Current liabilities

Borrowings

338

93

245

Trade payables

3,196

2,021

620

Other current liabilities

4,522

2,535

2,117

Total current liabilities

8,056

4,649

2,982

Total liabilities

10,144

7,346

4,669

Total equity and liabilities

14,887

15,747

13,753

Statement of changes in equity

€’000

Share capital

Reserve for invested unrestricted equity

Accumulated deficit

Total equity

Balance as at 1 January 2016

2,691

24,533

(16,046)

11,178

Impact of restatements (net of tax)1.1. 2016

(690)

(1,404)

(2,094)

Balance as at 1 January 2016, restated

2,691

23,843

(17,450)

9,084

Comprehensive loss for the period

(10,138)

(10,138)

Transactions with equity holders of the Company

Issue of ordinary shares, net of transaction cost EUR 811 thousand

8,519

8,519

Share-based compensation

936

936

8,519

936

9,455

Balance as at 31 December 2016

2,691

32,362

(26,652)

8,401

Comprehensive loss for the period

(21,061)

(21,061)

Transactions with equity holders of the Company

Issue of ordinary shares, net of transaction costs EUR 1,149 thousand

15,863

15,863

Share options exercised

97

97

Warrants exercised

254

254

Share-based compensation

1,189

1,189

16,214

1,189

17,403

Balance as at 31 December 2017

2,691

48,576

(46,524)

4,743

Statement of cash flows

For the year ended 31 December

2017

2016

€’000

(Restated)

Cash flow from operating activities

Loss before tax

(21,060)

(10,063)

Adjustments for:

Depreciation and amortisation

 76

 78

Interest expense

 75

 24

Unrealised foreign exchange loss (gain), net

 290

 (627)

Share-based compensation

 1,189

 936

Adjusted loss from operations before changes in working capital

(19,430)

(9,652)

Change in net working capital:

Prepayments and other receivables

 (1,286)

(1,570)

Trade payables

1,175

1,402

Other liabilities

1,189

 480

Cash used in operations

(18,352)

(9,340)

Taxes paid

(1)

(75)

Interest paid

(10)

(4)

Net cash used in operating activities

(18,363)

(9,419)

Cash flow from investing activities

Payments for intangible assets

(90)

(92)

Payments for equipment

(8)

 – 

Net cash used in investing activities

(98)

(92)

Cash flow from financing activities

Proceeds from issue of shares

 17,362

 9,330

Share issue transaction cost

(1,148)

(811)

Proceeds from borrowings

453

 775

Repayment of borrowings

(84)

 – 

Net cash from financing activities

 16,583

 9,294

Net increase (+) / decrease (-) in cash and cash equivalents

(1,878)

 (217)

Effect of exchange rate changes on cash and cash equivalents

(290)

627

Cash and cash equivalents at 1 January

 11,478

 11,068

Cash and cash equivalents at 31 December

 9,310

 11,478

Note 1            Basis of preparation

The financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) of the International Accounting Standards Board (IASB) and the interpretations of the International Financial Reporting Standards Interpretations Committee (IFRS IC). The financial statements have been prepared on a historical cost basis, unless otherwise stated.

The financial statements have been prepared on the basis of a full retrospective application of IFRS 15, Revenue from Contracts with Customers, with the adoption date as of 1 January 2017.

The principal accounting policies applied in the preparation of these financial statements are set out below. The Company has consistently applied these policies to all the periods presented, unless otherwise stated.

All amounts are presented in thousands of euros, unless otherwise indicated, rounded to the nearest euro thousand.

Restatements of previously issued financial statements

Subsequent to the original issuance of the Company’s financial statements for the year ended 31 December 2016, the Company has adopted new and amended accounting standards and corrected certain prior period errors in its accounting. The 2016 financial statements, as initially reported, have therefore been amended and restated as follows:

1)   In the process of adopting IFRS 15 Revenue from contracts with customers the Company identified errors in the application of IAS 18, which resulted in corrections to the previously issued 2016 financial statements.

2)   The Company has corrected amounts in its previous years’ accounting for government grants received in the form of direct funding from the European Commission and in the form of indirect government assistance through the below-market rate government loans.

3)   The Company has incorrectly capitalised in-process research and development expenditures which had not met the capitalisation criteria in IAS 38. 

4)   In the balance sheet, prepayments to a third party Contract Research Organisations and rental deposits have been reclassified from current prepayments and other receivables to non-current prepayments and receivables as at 1 January 2016 due to the long-term nature of the items.

5)   The Company has revised its previous balance sheet classification of inventories and re-classified the balances previously presented as inventory prepayments and finished goods to prepayments and other receivables as such goods are not held for sale in the Company’s ordinary course of business, but will be used in the Company’s research and development activities.

6)   The Company has corrected the effects of certain prior period cut-off errors related to charges by vendors and their sub-contractors in its restated financial statements. 

7)   The Company’s expense for the effects of the Option Plan 2015, accounted for as an equity-settled plan, has been misstated. The misstatements relate to the valuation to the Option Plan and to errors in accruing for the share-based compensation expense and determination of the grant and service inception date.

8)   The Company has corrected the proceeds from borrowings in the statement of cash flow for the financial year ended 31 December 2016 to reflect gross proceeds received. The cash flows for the withdrawal of the borrowings in the form of R&D loans were previously presented net of grant benefit. In addition, the Company has revised the presentation of the statement of cash flows for the financial year ended 31 December 2016 relating to unrealised foreign exchange gains, interest expense and the interest paid, previously presented on a combined basis as financial items.

The total impact of the restatements on the pre-tax income for periods prior to 31 December 2016 was negative EUR 2.5 million. In total the restatements reduced the 31 December 2016 equity with negative EUR 2.5 million.

Accordingly, these restated financial statements as of 31 December 2017 and for the year ended 31 December 2016 have been approved and authorized for issue by the Company’s Board of Directors on [5] May, 2018. The Company’s previously issued financial statements were approved and authorized for issue by the Board of Directors on 28 March 2017.

Going concern

The Company has incurred net losses since its inception and for the years ended 31 December 2017 and 2016, the Company reported losses of EUR 21,061 thousand and EUR 10,138 thousand, respectively.

The Company has primarily relied upon financing its development operations with funds that the Company has raised from share issues. In September 2016, the Company raised a total of EUR 8,519 thousand and during 2017, the Company had two separate issues raising a total of EUR 16,214 thousand. In addition to equity financing, the Company has obtained funding from license agreements and public R&D loans and grants.  

The financial information in these financial statements has been prepared on a going concern basis, which assumes that the Company will continue in operational existence for the foreseeable future.  After review of the future operating costs of the Company in conjunction with the cash held at 31 December 2017 and the net proceeds of approximately EUR 15,863 thousand received following the completion of a fundraising in February 2018, management believes the Company has sufficient funds to continue as a going concern for the foreseeable future. 

Critical accounting estimates and significant management judgements in applying accounting policies

Revenue recognition

The Company early adopted IFRS 15 on 1 January 2017 with full retrospective application. In determining the amounts to be recognised as revenue, the Company uses its judgement in the following main issues:

·      Identifying the performance obligations in the license agreements and determining whether the license provided is distinct – based on the Company’s analysis, the license is distinct as the licensee is able to benefit from the license on its own at its current stage and the licensee has the responsibility for the development in that territory. The management has determined that the provision of data and information generated by the Company in connection with its own development activities to facilitate the licensees’ territory-specific development efforts is immaterial (perfunctory) to the grant of the license to the IP and does not constitute a separate performance obligation.

·      Management has concluded that the license meets the criteria to be classified as a right to use, as the license granted provides at the outset of the contract all necessary documents and knowhow to utilize the license. The contract does not define activities that would significantly affect the intellectual property to which the licensee has rights after the date of granting.

Share-based compensation

The Company recognises expenses for share-based compensation. For share options and warrants management estimates certain factors used in the option pricing model, including volatility, vesting date of options and number of options and warrants likely to vest. If these estimates vary from actual occurrence, this will impact the value of the share-based compensation.

Clinical trial accruals

Quantification of the accruals related the clinical trials require significant management judgement. The services invoiced by Contract Research Organisations consist of contributions of various independent subcontractors and the actual tasks completed may be reported with significant delays. Also the clinical study sites, which are mainly public sector hospitals, may invoice their costs with long delays. These factors combined result in a complicated task of defining on which period the cost belongs to and requires management to make assumptions when defining the right timing of the delivered services. 

Foreign currency transactions and balance

Functional and presentation currency

The financial statements are presented in euro, which is the Company’s functional and presentation currency.

Transaction currency

Transactions in foreign currencies are translated at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates ruling at the reporting date. Foreign exchange differences arising on translation are recognised in the statement of comprehensive income, within financial income and expenses. Non-monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction.

Revenue recognition

The Company’s revenue for the periods presented in these financial statements consists mainly of upfront payments from a license agreement with Pharmbio. The Company adopted IFRS 15 Revenue from Contracts with Customers effective 1 January 2017 and has applied the single, principles based five-step model to all contracts with customers provided by IFRS 15 as follows: 

1.   Identify the contract with a customer

2.   Identify the performance obligations in the contract

3.   Determine the transaction price

4.   Allocate the transaction price to the performance obligations in the contract

5.   Recognise revenue when (or as) the entity satisfies a performance obligation (over time or at a point in time).

Revenue from licensing agreements

According to IFRS 15, performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services. Goods and services that are not distinct are bundled with other goods or services in the contract until a bundle of goods or services that is distinct is created. A good or service promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.

The Company’s existing license agreements with Maruishi in Japan, with A&B in Greater China and with Pharmbio in Republic of Korea each include only one performance obligation, which is the grant of the license to use of its intellectual property (“IP”). After the Company has granted the license, it does not have an obligation to participate or provide additional services to its customers. The transaction price for the grant of the license to use the Company’s IP comprises of fixed and variable payment streams and the grant of the license is considered to be a right to use IP. Upfront fees earned, are recognised as revenue at a point in time, upon transfer of control over the license to the licensee. Revenue from variable consideration, which are contingent on achievements of future milestones or future sales of the products by the licensees, are recognised as revenue when it is highly probable the revenue will not reverse, that is when the underlying contingencies have been resolved. For future royalty payments, the Company applies exception for sales-based royalties and recognises the revenue only when the subsequent sale occurs.

In addition, there is a potential performance obligation regarding future manufacturing. The Company has tentatively agreed on supply and manufacture of the drug product to its licensees. The terms including quantities and commercial terms for the future supply will be subject to separate negotiations.

Recognition of government grants

The direct government grants are recognised as other operating income at the same time as the underlying expenditure is incurred, provided that there is reasonable assurance that the Company will receive the grant and complies with the conditions of such grant. Direct grant payments received in advance of the incurrence of the expenditure that the grant is intended to compensate are deferred at the reporting date and presented under advances received on the balance sheet.

The indirect government assistance in the form of below-market interest government loans is recognised as grant income and recorded as other operating income in the same period in which the company recognises the expenses for which the benefit is intended to compensate. Grant income is measured as the difference between the initial carrying value of the loan and the proceeds received.

Note 2            Other operating income

Year ended 31 December

2017

2016

€’000

(Restated)

Grants from the European Union

1,063

873

Grant component of government loans

432

148

Other income

4

Total operating income

1,495

1,025

Grants from the European Union comprise of direct funding from the European Commission under the Seventh Framework Programme for Research and Technological Development to support the Traumakine clinical program. The grant component of government loans comprises of indirect financial benefit from the below-market interest of a loan from the Finnish Funding Agency for Technology and Innovation (“Tekes”, currently “Business Finland”), which has been granted to finance the Clevegen clinical development program.

Note 3            Research and development expenses

Research and development costs are expensed as incurred and presented under research and development expenses in the statement of comprehensive income. Research and development expenses include costs for outsourced clinical trial services, materials and services, employee benefits and other expenditure directly attributable to the Company’s research and development activities. The Company’s research and development expenses are directly related to the Company’s development projects and may therefore fluctuate strongly from year to year.

Capitalization of expenditure on the development of the Company’s products commences from the point at which technical and commercial feasibility of the product can be demonstrated and it is probable that future economic benefits will result from the product once completed. As at 31 December 2017, considering the development stage of the Company’s drug candidates, no internally developed assets related to Company’s development activities had met these criteria and had therefore not been recognised. 

Year ended 31 December

€’000

2017

2016

(Restated)

Outsourced clinical trials services

(9,392)

(5,218)

Materials and services

(4,727)

(1,594)

Employee benefits

(2,704)

(1,475)

Other R&D costs

(1,315)

(865)

Inventory write-down

(893)

Depreciation and amortization

(69)

(71)

Total research and development expenses

(19,100)

(9,223)

Note 4            Share-based compensation

The options and warrants granted under share-based incentive programs are measured at fair value at earlier of the grant date or the service commencement date, using the Black-Scholes valuation model. The options, for which the option exercise price is determined later, right before the vesting, an estimate is used to determine the fair value at service commencement date and the estimate is subsequently revised until the options become granted.


The share-based compensation expense is recognised on a straight-line basis over the vesting period together with a corresponding increase in equity, based on the Company’s estimate of equity instruments that will eventually vest. At each reporting date, the Company revises its estimate of the number of equity instruments that are expected to vest and its estimate of the grant date fair value for the options with earlier service commencement date. The exercise price paid by the option or warrant holder to subscribe the Company’s shares is recognised in the reserve for invested unrestricted equity.

Option Plan 2015

The Option Plan 2015 was approved at the Company’s extraordinary shareholders’ meeting on 15 September 2015 as part of the Company’s incentive scheme determined by the Board of Directors. The share options are granted to the members of the Board of Directors and the management team and other management and employees for no consideration. The annual general meeting on 10 May 2017 resolved to amend, due to the increase in the number of employees in the Company and the increase in the number of members of the Board of Directors, the Option Plan so that a maximum total of 500,000 C options and a maximum total of 500,000 D options may be offered under initial Option Plan terms and conditions. The share options have a service condition and are forfeited in case the employee leaves the Company before the share options vest, unless the Board of Directors approves otherwise. After the beginning of the share subscription period, the vested options may be freely transferred or exercised. The fair value of the options was determined at the grant date or estimated at earlier service commencement date by using the Black & Scholes option valuation model and expensed over the vesting period. Grant dates for the share options may vary depending on the date when the Company and the employees agree to the key terms and conditions of the Option Plan. The maximum number of share options that can be awarded under the Option Plan is 1.800.000 in four different tranches designated as A options, B options, C options and D options. Each share option entitles the holder of the option to subscribe for one ordinary share in the Company.

The exercise price for ordinary shares based on A options is euro equivalent of the Company’s share subscription price in the Company’s initial public offering on the AIM market place of the London Stock Exchange on 17 November 2015. The exercise price for ordinary shares based on B options, C options and D options is euro equivalent of the exercise price determined based on the Company’s average share price on the AIM market place during 1 July – 30 September 2016, 2017 and 2018, respectively.

Key characteristics and terms of the option plan are listed in the table below.

2015 Option Plan

A options

B options

C options

D options

Maximum number of share options

400,000

400,000

500,000

500,000

Exercise price, EUR

3.71

2.90

8.39

(*)

Dividend adjustment

No

No

No

No

Beginning of subscription period

2 November 2015

8 October 2016

8 October 2017

8 October 2018

End of subscription period

20 September 2021

20 September 2021

20 September 2021

20 September 2021

Vesting conditions

Service until the beginning of the subscription period

(*) Exercise price will be determined based on euro equivalent of the Company’s average share price on the AIM market place during 1 July – 30 September 2018.

For the year ended 31 December 2017

For the year ended 31 December 2016

2015 Option Plan

2015 Option Plan

Number of share options

A

B

C

D

A

B

C

D

Outstanding at 1 January

400,000

400,000

250,000

250,000

250,000

250,000

250,000

250,000

Granted

250,000

20,000

150,000

150,000

Forfeited

Exercised

(15,000)

(14,100)

Outstanding at 31 December

385,000

385,900

500,000

270,000

400,000

400,000

250,000

250,000

Exercisable at 31 December

385,000

385,900

500,000

400,000

400,000

The weighted average fair value of the share options granted, EUR

3.23

0.53

1.27

1.43

The weighted average share price at the date of exercise, EUR

8.83

8.83

2017

2016

2015 Option Plan

2015 Option Plan

Determination of the fair value for the share options granted

C

D

A

B

Share price at grant date, EUR

4.51-9.39

9.21

2.69-3.38

2.96-4.10

Subscription price, EUR

4.51-8.39

9.21

3.71

2.90-4.10

Volatility, % (*)

42.59-52.57

42.59

50.03-52.57

50.03-52.57

Interest free rate, %

0.01

0.01

0.01

0.01

Expected dividends yield, %

0

0

0

0

Option fair value, EUR

1.42-4.01

2.87

1.00-1.54

1.32-1.57

Effect on earnings 2016, EUR thousand (**)

43

191

188

Effect on earnings 2017, EUR thousand (**)

758

25

(*) Expected volatility was determined as the average volatility of a peer group consisting of ten comparable biotechnology companies listed on London Stock Exchange AIM list.

(**) Effect of share options granted on earnings is calculated based on earlier of the grant date or the service commencement date.

The share-based compensation expense for the Option Plan 2015, was EUR 1,189 thousand in 2017 (EUR 936 thousand in 2016).

Warrants

Based on authorization given by the Company’s extraordinary shareholders’ meeting on September 15, 2015, the Board of Directors approved on 16 September 2015, the issuance of 151,400 warrants that entitled the holder to subscribe for a maximum number of 151,400 ordinary shares in the Company. The warrants were issued in exchange for services received from a Company’s external advisor. The warrants were granted in two tranches designated as Warrants A and Warrants B and each warrant entitles the holder of the warrant to subscribe for one ordinary share in the Company. After the beginning of the share subscription period, the vested warrants may be freely transferred or exercised. The fair value of the warrants was determined at the grant date or by using the Black & Scholes valuation model and expensed over the vesting period during 2015.

Tranche

Number of warrants

Share subscription period

Exercise price, EUR

Warrants A

109,800

2 November 2015 – 7 May 2018

1.55

Warrants B

41,600

2 November 2015 – 28 February 2018

2.01

2017

2016

Number of warrants

Warrants A

Warrants B

Warrants A

Warrants B

Outstanding at 1 January

109,800

41,600

109,800

41,600

Granted

0

0

0

0

Forfeited

0

0

0

0

Exercised

(109,800)

(41,600)

0

0

Outstanding at 31 December

0

0

109,800

41,600

Exercisable at 31 December

0

0

109,800

41,600

The weighted average share price at the date of exercise, EUR

8.72

8.72

All of the warrants the Company had issued in 2015, were exercised during 2017.

Note 5            Financial income and expenses

Year ended 31 December

€’000

2017

2016

Financial income

Interest income

0

Gains from foreign exchange

7

0

Total financial income

7

0

Financial expenses

Interest expenses

(75)

(24)

Losses from foreign exchange

(332)

(333)

Other financial expenses

(1)

(3)

Total financial expenses

(408)

(360)

Total financial income and expenses, net

(401)

(360)

Interest expenses consist of paid and accrued interest expenses. The accrued interest expense relates mainly to the government loans.

The foreign exchange losses relate to euro value changes of cash balances nominated in Pound Sterling.

Unrealised foreign exchange loss is EUR 290 thousand and gain is EUR 627 thousand for the years ended 31 December 2017 and 2016, respectively.

Note 6            Tax expense

Income tax expense for the period consists of current and deferred taxes. Tax is recognised in the statement of comprehensive income, except for the income tax effects of items recognised in other comprehensive income or directly in equity, which is similarly recognised in other comprehensive income or equity.

Deferred taxes are recognised using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred taxes are determined using tax rates enacted or substantively enacted by the balance sheet date in the respective countries and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred income tax assets are recognised only to the extent that it is probable that future taxable income will be available against which the temporary differences can be utilized.

Year ended 31 December

€’000

2017

2016

Tax expense

(1)

(75)

Total tax expense

(1)

(75)

During the financial year ended 31 December 2016, income tax consists of foreign withholding tax on upfront fee received.

The difference between income taxes at the statutory tax rate in Finland (20%) and income taxes recognised in the statement of comprehensive income is reconciled as follows:

Year ended 31 December

2017

2016

€’000

(Restated)

Loss before tax

(21,060)

(10,063)

Income tax calculated at Finnish tax rate 20%

4,212

2,013

Tax losses and temporary differences for which no deferred tax asset is recognised

(3,974)

(1,937)

Non-deductible expenses and tax exempt income

(238)

(1)

Non-credited foreign withholding taxes

(1)

(75)

Taxes in the statement of comprehensive income

(1)

(75)

Tax losses and deductible temporary differences for which no deferred assets have been recognised, are as follows:

Year ended 31 December

2017

2016

€’000

(Restated)

R&D expenses not yet deducted in taxation (1)

16,893

47

Tax losses carried forward (2)

25,862

23,527

Deferred tax depreciation on fixed assets

1,628

1,012

Total

44,383

24,586

1) The Company has incurred research and development costs, mostly during the year ended 31 December 2017, that have not yet been deducted in its taxation. The amount deferred for tax purposes can be deducted over an indefinite period.

2) Tax losses carried forward expire over the period of 10 years. The tax losses will expire as follows:

€’000

2017

2016

Expiry within five years

3,164

1,565

Expiry within 6-10 years

22,698

21,962

Total

25,862

23,527

The related deferred tax assets have not been recognised in the balance sheet due to the uncertainty as to whether they can be utilized. The Company has a loss history, which is considered a significant factor in the consideration of not recognising deferred tax assets. The total tax value of unrecognised deferred tax assets is EUR 8,877 thousand (2016: EUR 4,917 thousand).

The Company does not have any other deductible or taxable temporary differences. Therefore, no deferred tax assets or liabilities have been recognised in the balance sheet and thus the itemisation of deferred taxes is not provided.

Note 7            Loss per share

Basic loss per share is calculated by dividing the loss for the period with the weighted average number of ordinary shares during the year.

Year ended 31 December

2017

2016

Loss for the period

(21,061)

(10,138)

Weighted average number of ordinary shares in issue

27,887,901

23,979,650

Basic and dilutive loss per share (in €)

(0.76)

(0.42)

As of 31 December 2016, the Company had two potentially dilutive instruments comprising of share options and warrants.

As of 31 December 2017, the Company had only share options outstanding as the warrants were exercised during the period. Number of potentially dilutive instruments currently outstanding totalled 1,540,900 as of 31 December 2017 (31 December 2016: 1,451,500). Since the Company has reported a net loss, the share options and warrants would have an anti-dilutive effect and are therefore not taken into account in diluted loss per share -calculation. As such, there is no difference between basic and diluted loss per share.

Note 8            Intangible assets and machinery and equipment

The Company’s intangible assets comprise of capitalized patent costs arising in connection with the preparation, filing and obtaining of patents. Patent cost are amortised on a straight-line basis over the useful lives of the patents of ten years.

The Company’s machinery and equipment comprise of office furniture and equipment, which is stated at historical cost less depreciation and any impairment losses. The historical cost includes expenditure that is directly attributable to the acquisition of the machinery and equipment.

Depreciation is calculated using the straight-line method over the asset’s estimated useful life of four years. Depreciation is recorded to the costs of the asset function

€’000

Intangible assets

Machinery and equipment

Book value 1 January 2016 (restated)

Acquisition cost (restated)

348

32

Accumulated depreciation/amortisation

(65)

(4)

Book value 1 January 2016 (restated)

283

28

Additions

92

0

Depreciation/amortisation (restated)

(71)

(7)

Book value 31 December 2016 (restated)

304

21

As at 31 December 2016 (restated)

Acquisition cost

440

28

Accumulated depreciation/amortisation

(136)

(7)

Book value 31 December 2016 (restated)

304

21

Book value on 1 January 2017

304

21

Additions

90

8

Depreciation/amortisation

(69)

(7)

Book value 31 December 2017

325

22

As at 31 December 2017

Acquisition cost

530

36

Accumulated depreciation/amortisation

(205)

(14)

Book value 31 December 2017

325

22

Note 9            Non-current prepayments and other receivables

As at 31 December

€’000

2017

2016

(Restated)

Prepayments for API

1,192

1,451

Production supplies

86

Other receivables

                      32

24

Total non-current prepayments and other receivables

1,310

1,475

Prepayments for API consist of payments remitted to manufacturer for API to be consumed in the Company’s development activities. Other receivables consist of restricted cash in the form of security deposits for rental agreements.

Note 10          Inventories

Inventories are stated at the lower of cost and net realizable value. The cost includes all costs of direct materials and external services associated with the process of manufacturing of the goods sellable upon obtaining the regulatory marketing approval. The cost of inventories is fully written down, with a corresponding charge recognised in research and development expenses until such approval has been obtained. When marketing approval from the relevant regulatory authority is received, the write-down is reversed to net realisable value, which may not exceed the original cost.

As at 31 December

2017

2016

€’000

(Restated)

Work in process

893

Write-down of inventory

(893)

Total inventories

Inventories purchased prior to regulatory marketing approval are recognised as inventory but are subject to full write-down. Write-downs of inventories to net realisable value amounted to EUR 893 thousand (2016 nil). These were recognised as research and development expenses. The Company has not reversed any previous inventory write-downs.

Note 11          Current prepayments and other receivables

As at 31 December

€’000

2017

2016

(Restated)

Prepayments

1,594

1,200

Grant receivable

1,063

160

Receivable for production defects

434

VAT receivable

404

342

Receivable for joint purchase agreement

474

Other receivables

                      425

293

Total current prepayments and other receivables

3,920

2,469

The majority of prepayments consist of the Clinical Service Agreements with Contract Research Organisations, which are or were current service providers in different clinical trials. Grant receivable consist of the grant income from the European Union for which the grant payment has not been received.

Note 12          Shareholders’ equity

Movements in number of shares, share capital and reserve for invested unrestricted equity were as follows.

€’000

Total registered shares (pcs)

Share capital

Reserve for unrestricted equity

1 January 2016

23,111,704

2,691

23,843

Issue of new shares, net of transaction costs

3,200,000

8,519

31 December 2016

26,311,704

2,691

32,362

1 January 2017

26,311,704

2,691

32,362

Issue of new shares, net of transaction costs

2,672,340

15,863

Exercise of warrants

151,400

254

Exercise of options

29,100

97

31 December 2017

29,164,544

2,691

48,576

On 23 September 2016, the number of shares was increased to 26,311,704 following the issue of 3,200,000 new shares. On 1 March 2017, the number of shares was increased to 27,734,044 following the issue of 1,422,340 new shares. On 27 April 2017, the number of shares was increased to 27,787,034 following the issue of 52,990 new shares due to exercise of warrants. On 31 May 2017, the number of shares was increased to 27,914,544 following the issue of 127,510 new shares due to exercise of warrants and options and on 11 October 2017, the number of shares was increased to 29,164,544 following the issue of 1,250,000 new shares.

The Company has one class of ordinary shares. The shares have no par value. Each share entitles the holder to one vote at the Annual General Meeting and equal dividend. All shares are fully paid.

The subscription price for the shares is recorded to the share capital, unless the Board has made a resolution to record the subscription price in the reserve for invested unrestricted equity. Reserve of invested unrestricted equity includes, under the Finnish Limited Liability Companies Act, the exercise value of shareholders’ investment comprising share subscription prices and exercise prices of share options and warrants.

Note 13          Financial assets and liabilities

The Company’s financial assets comprise of other receivables and cash and cash equivalents, which are all classified to the category “loans and receivables”. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the reporting date, which are classified as non-current assets.

Other receivables consist mainly of the deferred grant income from the European Union for which the grant payment has not been received, carried at the amount expected to be received according to the terms and conditions of the grant.

Cash and cash equivalents comprise cash on hand and at banks.

The Company’s financial liabilities comprise of interest bearing borrowings, trade payables, other non-current and current liabilities.

Borrowings are initially recognised at fair value, less any directly attributable transaction costs. Subsequently borrowings are carried at amortised cost using the effective interest method. Borrowings are presented as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period. Borrowings are not derecognised until the liability has ceased to exist, that is, when the obligation identified in a contract has been fulfilled or cancelled or is no longer effective.

Borrowings comprise of three government loans with a below-market rate of interest from The Finnish Funding Agency for Technology and Innovation (“Tekes”, currently “Business Finland”), of which two have been fully drawn down before the Company’s date to transition to IFRS. Accordingly, the Company has utilized the IFRS 1 exemption and not accounted for the below-market grant separately for these two loans, which are carried at amortised cost.

The government loan originated after the date of transition to IFRS was initially recognised and measured at fair value and subsequently at amortised cost over the loan period by using the effective interest method. The grant component of the loan, which is the benefit of the below-market interest rate, is measured as the difference between the initial fair value of the loan and the proceeds received.

Trade payables and other liabilities are classified as current liabilities, unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period, in which case they are classified as non-current liabilities. The carrying amount of trade payables and other current liabilities are considered to be the same as their fair values, due to their short-term nature. Non-current liabilities are initially measured at fair value and subsequently at amortised cost.

As at 31 December

2017

2016

€’000

(Restated)

Loans and receivables

Other receivables (*)

1,497

634

Cash and cash equivalents

9,310

11,478

Total loans and receivables

10,807

12,112

Financial liabilities measured at amortised cost

Trade payables

3,196

2,021

Borrowings in form of Tekes R&D loans

2,426

2,176

Total financial liabilities measured at amortised cost

5,622

4,197

*Prepayments are excluded as they are not considered to be financial instruments.

Due to the short-term nature of the other receivables, their carrying amount is considered to equal their fair values.

Borrowings in the form of Tekes R&D loans

Fair value for the Tekes R&D loans is calculated by discounting estimated future cash flows for the loans using appropriate interest rates at the reporting date. The discount rate considers the risk-free interest rate and estimated margin for the Company’s own credit risk. Discounted future cash flows are derived from the terms containing the repayment amounts and repayment dates for the principal and the cash payments for interest. Given that some of the inputs to the valuation technique rely on unobservable market data, loan fair values are classified in Level 3.

The fair value of all the Tekes loans was EUR 2,139 thousand (2016 EUR 2,035 thousand).

Tekes R&D loans are granted to a defined product development project and cover a contractually defined portion of the underlying development projects’ R&D expenses. The below-market interest rate for these loans is the base rate set by the Ministry of Finance minus three (3) percentage points, subject to a minimum rate of 1%. Repayment of these loans shall be initiated after 5 years, thereafter loan principals shall be paid back in equal instalments over a 5-year period, unless otherwise agreed with Tekes. The accrued interest on Tekes R&D loans amounted to EUR 65 thousand (2016 EUR 20 thousand). Grant payments received in advance of the incurrence of the costs the grant is intended to compensate are deferred at the reporting date and presented under advances received on the balance sheet.

Analysis of net debt and the movements in net debt (calculated as cash and cash equivalents less borrowings) for each of the periods presented.

As at 31 December

2017

2016

€’000

(Restated)

Net debt

Cash and cash equivalents

9,310

11,478

Tekes R&D loans- repayable within one year

(338)

(93)

Tekes R&D loans- repayable after one year

(2,088)

(2,083)

Net debt

6,884

9,302

€’000

Cash and cash equivalents

Borrowings

Total

Net debt as at 1 January 2016

11,068

(1,691)

9,377

Cash flows

(217)

(775)

(992)

Foreign exchange adjustments

627

627

Other non-cash movements

290

290

Net debt as at 31 December 2016

11,478

(2,176)

9,302

Cash flows

(1,878)

(369)

(2,247)

Foreign exchange adjustments

(290)

(290)

Other non-cash movements

119

119

Net debt as at 31 December 2017

9,310

(2,426)

6,884

Note 14          Trade payables and other current liabilities

As at 31 December

2017

2016

€’000

(Restated)

Trade payables

3,196

2,021

Clinical trial hospital fees

1,241

245

Advances received

976

1,021

Accrued payroll

969

599

Accrued milestone payment

600

600

Accrued research costs

350

Other accruals

84

5

Other liabilities

301

65

Total

7,718

4,556

Advances received comprise mainly received grant payments from European Union for which the related grant income has not yet been recognised or which have not been forwarded to the other participants of the grant consortium.

Accrued expenses comprise mainly accrued clinical trial fees EUR 1,241 thousand (31 December 2016: EUR 245 thousand), salary accruals EUR 969 thousand (31 December 2016: EUR 599 thousand) and milestone payment EUR 600 thousand (31 December 2016: EUR 600 thousand).

Note 15          Contingencies and commitments

Operating lease – Faron as a lessee

The future aggregate minimum lease payments under non-cancellable operating leases are as follows

Year ended 31 December

€’000

2017

2016

No later than 1 year

172

144

Later than 1 year and no later than 5 years

231

261

Later than 5 years

The Company’s operating lease commitments comprise of rent commitments for leasehold properties and lease commitments for cars, machines and equipment with leases of 3 to 4 years. The Company’s operating leases are non-cancellable and they do not include redemption or extension options.

Contractual contingencies

In addition to the accrued milestone payment to a subcontractor of Traumakine of EUR 600 thousand, the Company has contingent milestone payments of EUR 1,400 thousand to the same party that will become payable only upon the Company achieving certain milestones it its clinical development and obtaining the regulatory approval for Traumakine.

The Company has a contingent contractual liability to a development party for pre-clinical product candidate Clevegen to pay milestone payments. First milestone payment of EUR 427 thousand is contingent to production system reaching certain material yield threshold and the remaining ones upon the Company achieving subsequent regulatory filings and approvals for Clevegen. The milestone payments related to subsequent regulatory filings and approvals for Clevegen are considered to be remote. At the date of these financial statements there is no certainty that the yield threshold will be reached

Note 16          Related party transactions

The Company identifies the following related parties:

•      A&B (HK) Company Limited, an investment company existing under the laws of Hong Kong having significant influence in Faron Pharmaceuticals Oy, given its shareholding of 11.69% and membership on the Board of Directors.

•      Members of the Board of Director, and their close family members; and

•      Company’s Key Management team and their close family members

Faron has not had interests in other entities as at and for the years ended December 31, 2016 and 2017.

Key management personnel

The Company’s key management personnel consist of the following:

•      Members of the Board of Directors

•      Management team, including CEO

Year ended 31 December

€’000

2017

2016

Compensation of key management personnel*

Salaries and other short-term employee benefits

1,668

832

Post-employment benefits

220

159

Share-based payments

883

785

Total

2,551

1,617

The Management team was awarded 249,850 share options during 2017 (2016: 303,600 share options). At the end of the 2017, the number of outstanding options and share granted to the Management team amounted to 663,450 share options (at the end of 2016: 413,600 share options).

Non-executive Directors were awarded 40,000 share options during 2017 (2016: 0 share options). At the end of 2017, the number of outstanding options and share options granted to the non-executive directors amounted to 600,000 share options (at the end of 2016: 560,000 share options).

Management and Board shareholding

Management* shareholding, 31 December 2017

Number of shares (pcs)

4,047,740

Shareholding, percentage

13.9 %

Board** shareholding, 31 December 2017

(excluding the shareholding of CEO and CFO)

Number of shares (pcs)

626,169

Shareholding, percentage

2.1 %

Total number of shares outstanding at 31 December 2017 (pcs)

29,164,544

*Presented information for the Management Includes the executive directors of the Board

**Presented information for the Board includes only non-executive directors.

Transactions with related parties

There are no additional related party transactions during 2017 and 2016 than already disclosed.

Final Results 2016

Faron Pharmaceuticals Ltd

(“Faron” or the “Company”)

Final Results for the year ended 31 December 2016

TURKU – FINLAND, 29 March 2017 Faron Pharmaceuticals Ltd (“Faron”) (LON: FARN), the clinical stage biopharmaceutical company, today reports its full year audited results for the year ended 31 December 2016.

The 2016 Annual Report and Accounts become available in mid-April in digital form on the Company’s website together with the invitation to the Annual General Meeting (AGM).

HIGHLIGHTS

OPERATIONAL:                  

Traumakine®

·      Pivotal, pan-European, Phase III INTEREST trial for the treatment of Acute Respiratory Distress Syndrome (“ARDS”), has continued to progress as planned.

·      Maruishi, Faron’s Japanese licensing Partner, reported top line results from its Phase II safety study which indicated there were no safety concerns and, similarly to Faron’s phase I/II UK study, also showed reduction of 28-day mortality.

·      Initiation of Maruishi’s own pivotal Phase III study in Japan which aims to recruit 120 severe and moderate ARDS patients split between treatment and placebo arms.

·      Initiated filing of a clinical trial application (CTA) for the use of Traumakine in a second indication for the prevention of mortality among operated RAAA (Rupture of Abdominal Aorta Aneurysm) patients.

·      Filed patent application in Finland for the intravenous formulation of interferon-beta and received a first allowance letter from the Finnish Patent Authorities indicating potential success in Europe and USA.

·      Entered into licensing agreement with Pharmbio Koreo Inc (Pharmbio) for the commercialisation of Traumakine in Korea and received a signing fee of €750,000.

Clevegen®

·      Established production clones for the humanised, and de-immunised, monoclonal antibody FP-1305 with Faron’s technology partner, Selexis.

·      Entered into a collaboration agreement with Abzena Corp (LSE: ABZA) to establish large scale GMP manufacturing for Clevegen.

·      Filed two new patent applications to seek further protection for Clevegen. If successful, Clevegen will be protected for the next 20 years.

·      Expansion of Clevegen’s use to include removal of local immune suppression around tumors (TIET), chronic infections (CIRT) and vaccination sites (VRET).

FINANCIAL

·      Raised total equity of €9.3 million (net €8.5 million) by issuing 3,200,000 new ordinary shares at a price of 250 pence per share. The proceeds are being used to fund Traumakine US safety trials (INTRUST), Clevegen pre-clinical and clinical development to Phase I/II for lead indication of hepatocellular carcinoma (HCC) and the RAAA European clinical development to Phase II (INFORAAA trial), as well as further R&D and operational expenses.

·      Generated €1.2 million (2015: €0.5 million) revenues mainly from sales of active pharmaceutical ingredient (API) and sales of medical products for trials. The €0.7 million licence agreement cash signing fee from Pharmbio was recorded as advance payment. In addition, the Company recorded grant income of €1.7 million (2015: €0.7 million) from the EU FP7 grant.

·      Drew down €0.6 million of a €1.5 million R&D loan granted by Tekes in 2015 to progress the Clevegen programme.

·      On 31 December 2016, the Company held cash balances of €11.5 million (2015: €11.1million).

·      Operating loss for the financial year ended 31 December 2016 was €9.3 million (2015: €6.2 million loss).

·      Net assets on 31 December 2016 were €10.9 million (2015: €11.2 million).

POST-PERIOD END HIGHLIGHTS

·      On 9 February 2017, announced a third IDMC recommendation to continue the Phase III INTEREST trial as planned and also confirmed the expected read-out from the trial to be in H2 2017.

·      On 20 February 2017, announced recruitment of the first patient in the Traumakine INFORAAA trial for the prevention of multi-organ failure and patient mortality after surgical repair of a RAAA.

·      On 1 March 2017, announced the successful raise of approximately €5.8 million before expenses from the placing of 1,422,340 ordinary shares at a price of 350 pence per share.

Commenting on the results, Dr Markku Jalkanen, CEO of Faron, said:

“Faron’s mission is to develop new treatments in genuine areas of unmet medical need. 2016 was an important year of progress for Faron, during which we sucessfully achieved all of the major goals set out at the time of our IPO in 2015, with a lower cash burn than anticipated. This was due, in part, to our effective use of grant funding (being non-dilutive financing) to continue our exciting development programmes. 2017 will be a pivotal year for Faron as we await results from our Phase III INTEREST trial, which if favourable, will pave the way for the launch of our first commercial product Traumakine, for the treatment of ARDS. We also look forward to making significant progress with our exciting immune switch candidate, Clevegen,  which we hope to see move into the clinic during 2017. None of this would be possible without the support of our highly motivated and skilled staff, and supportive shareholders, who I would like to thank on the behalf of the management team and Board.”

For more information, please contact:

Faron Pharmaceuticals Oy

Dr Markku Jalkanen, Chief Executive Officer

investor.relations@faronpharmaceuticals.com 

Consilium Strategic Communications

Mary-Jane Elliott, Chris Welsh, Lindsey Neville

Phone: +44 (0)20 3709 5700

E-mail: faron@consilium-comms.com

Westwicke Partners, IR (US)

Chris Brinzey

Phone: 01 339 970 2843

E-Mail: chris.brinzey@westwicke.com

Cairn Financial Advisers LLP, Nominated Adviser

Emma Earl, Tony Rawlinson, Rebecca Anderson

Phone: +44 207 213 0880

Panmure Gordon (UK) Limited, Joint Broker

Freddy Crossley, Duncan Monteith (Corporate Finance)

Tom Salvesen (Corporate Broking)

Phone: +44 207 886 2500

Whitman Howard Limited, Nominated Broker (UK)

Ranald McGregor-Smith, Francis North

Phone: +44 207 659 1234

About Faron Pharmaceuticals Ltd

Faron (AIM:FARN) is a clinical stage biopharmaceutical company developing novel treatments for medical conditions with significant unmet needs. The Company currently has a pipeline focusing on acute organ traumas, vascular damage and cancer immunotherapy. The Company’s lead candidate Traumakine, to prevent vascular leakage and organ failures, is currently the only treatment for Acute Respiratory Distress Syndrome (ARDS) undergoing Phase III clinical trials.  There is currently no approved pharmaceutical treatment for ARDS. An additional European Phase II Traumakine trial is underway for the Rupture of Abdominal Aorta Aneurysm (“RAAA”). Faron’s second candidate Clevegen® is a ground breaking pre-clinical anti-Clever-1 antibody. Clevegen has the ability to switch immune suppression to immune activation in various conditions, with potential across oncology, infectious disease and vaccine development. This novel macrophage-directed immuno-oncology switch called Tumour Immunity Enabling Technology (“TIET”) may be used alone or in combination with other immune checkpoint molecules for the treatment of cancer patients. Faron is based in Turku, Finland. Further information is available at  www.faronpharmaceuticals.com

Annual Results Statement

Introduction

Overview of the Company

Faron is a clinical stage biopharmaceutical company developing novel treatments for medical conditions with significant unmet needs. The Company currently has a pipeline focusing on acute organ traumas, vascular damage and cancer immunotherapy. 

Strategy

Faron’s strategy is to maximise the potential of its pipeline of drug candidates and to progress the development of its lead product Traumakine. Faron targets several endothelial molecules involved in the maintenance of the endothelial barrier which is a thin layer or membrane of cells that lines blood and lymphatic vessels to separate blood content from tissues. The Company believes that the control of these molecules provides a unique way to treat many life-threatening conditions with high unmet medical needs. Faron collaborates with its strategic partners in research, manufacturing and drug development to bring new pharmaceutical products to market in a timely and cost-effective manner and has formed a core team of leading scientists in capillary biology and diseases arising from vascular leakage. The Company has established links with leading laboratories and clinics based at Turku University in Finland, University College London and other institutions.

To date, Faron has operated on a relatively low cost basis by employing only key members of staff and outsourcing where possible. Typically, all development work up to the proof-of-concept stage of drug development is carried out in the innovators’ laboratories.  The Company outsources all of its manufacturing activities in relation to its products to third parties and collaborates with Contract Research Organisations (CROs) to carry out the clinical development programmes. Faron monitors and evaluates potential commercial opportunities for its established drug candidates, such as Traumakine and Clevegen and its technologies, as and when they arise and will consider how best to crystallise as much value as possible for Shareholders, which may include holding rights in main territories for as long as it is feasible, or, in certain circumstances, up to the marketing stage.

Chairman’s Statement

2016 was an important year for Faron. The highly experienced management team has made significant progress with Traumakine and Clevegen during its first full financial year following the successful AIM listing on the London Stock Exchange in November 2015.

The Company’s novel therapies, Traumakine and Clevegen, have been developed from a thorough and deep scientific knowledge and understanding of endothelial barrier function and control, and both products are delivering exciting data.

Faron’s lead drug candidate, Traumakine, continues to recruit patients into the pivotal, pan-European Phase III INTEREST trial, which is due to report the critical end points (e.g. mortality difference between placebo and active treatment) in the second half of 2017. We believe that Traumakine, as the only product in late stage clinical development for the treatment of ARDS, represents a significant opportunity to treat patients with this serious condition.

The Company also believes that Traumakine could have applications across other serious indications and in early 2017, recruited the first patient in a phase II trial (INFORAAA) assessing Traumakine for the prevention of Multi-Organ Failure (MOF) and patient mortality after surgical repair of a RAAA. RAAA is a medical emergency with no known treatment and an overall mortality of 30 to 50% for post-operative refusion injury for RAAA patients.

Faron’s second product, its pre-clinical immunotherapy candidate, Clevegen, causes conversion of the immune environment around a tumour from immune suppressive to immune stimulating by reducing the number of tumour-associated macrophages (TAMs). Recent developments in the exciting field of cancer immunotherapy have been well documented with a number of important indications of clinical success. We believe that Clevegen is well differentiated from other immunotherapies through its specific targeting of M2 TAMs which facilitate tumour growth, while leaving intact the M1 TAMs that support immune activation against tumours. In July, we were pleased to enter an agreement with Abzena for the manufacture of Clevegen for use in primate toxicity and Phase I/II clinical studies.

The Company is well funded, having secured €9.3 million in a private placing in September 2016 and a further €5.8 million in February 2017. Both placements were executed at a premium to the Company’s share price, which indicates the level of confidence our investors, both new and established, have in our products, our strategy and the ability of our management to deliver.

Faron’s key focus for 2017 will be to prepare the business for the anticipated commercial launch of Traumakine in the event of a positive European Phase III data readout and prepare for the commencement of a Phase II safety trial in the US, whilst also continuing the pre-clinical and planned early-stage clinical development of Clevegen.

As ever the Board will continue to look for opportunities to deliver and enhance value to our Shareholders as well as patients who will benefit from the new drugs Faron is developing.

The Board recognises the efforts of the management team to deliver the successes achieved in 2016 and is grateful to the investigators and patients who are part of our clinical trials.

We look forward to an exciting 2017 with continued support from shareholders as we progress our exciting products, Traumakine and Clevegen.

Dr Frank M Armstrong – Chairman

March 28, 2017

Chief Executive Officer’s Review and Operational Review

When Faron listed on the London Stock Exchange’s AIM in November 2015, the Company had ambitions to deliver on its promises and exceed expectations. Faron has so far achieved its stated goals and with a lower than anticipated cash burn.  We expect this momentum to continue into the coming year and our focus remains stronger than ever.

We have complemented our funds raised at IPO with additional successful equity finance rounds (September 2016 and February 2017) in order to expand our pipeline development to new indications and territories, as well as broadening our institutional shareholder base.

Traumakine Development

Our lead drug, Traumakine, progressed as planned to the full scale Phase III trial (INTEREST) during 2016 for the treatment of ARDS. ARDS is a severe, life-threatening medical condition characterised by widespread capillary leakage and inflammation in the lungs, most often as a result of sepsis, pneumonia or significant trauma. Currently there are no pharmacological treatments for ARDS, an orphan disease with a 30-45% mortality rate. Traumakine has been granted Orphan Drug Designation in Europe which allows a period of 10 years of market exclusivity following marketing approval by the European Medicines Agency. The Phase III INTEREST trial is being led by Professor Geoff Bellingan from University College London Hospital and Professor Marco Ranieri from the University of Rome. Subject to the successful completion of the Phase III INTEREST trial in the second half of 2017 and achievement of regulatory approvals, Traumakine will potentially be the first effective, mechanistically-targeted, disease-specific pharmacotherapy for ARDS patients and has the potential to revolutionalise intensive care practices.

To date, Faron has entered into agreements with three pharmaceutical companies to carry out the clinical development and commercialisation of Traumakine in Japan, Greater China and Korea. Faron owns the intellectual property and marketing rights in respect of Traumakine in all other territories.

Our Japanese licensing partner, Maruishi Pharmaceutical Co., Ltd announced similar positive results from its Phase II Japanese study for Traumakine. Based on these results Maruishi is now conducting a pivotal phase III trial in Japan according to the advice from the Japanese FDA (PMDA).

Faron continued out-licensing of Traumakine in Asia signing a profit sharing agreement with PharmBio, a Korean pharmaceutical company, on rights to develop and commercialise Traumakine in Korea. Faron received a signing fee of €750,000, with additional milestones and royalty payments agreed.

Parallel to completion of the European Phase III study, Faron plans to commence a Phase II US safety study (INTRUST) with Traumakine in H2 2017, which is expected to take 12 months to complete. The timing of this planned trial remains subject to regulatory approvals, with a pre-IND FDA meeting targeted to occur in mid 2017. Faron is currently in the process of establishing the trial structure and is recruiting PI’s, IDMC, sites and CROs in the US.

Clevegen Development

One of Faron’s key areas of focus is to develop a cancer treatment that supports the hosts’ immune defences against tumours, as these are often suppressed in cancer patients. Faron’s second most advanced drug development project, Clevegen, revolves around Clever-1, a cell surface molecule involved in cancer growth and spread. The active pharmaceutical ingredient of Clevegen is a humanised anti-Clever-1 antibody.

Faron has an agreement with Geneva based Selexis to prepare high yield production clones for Clevegen (FP-1305) which was successfully completed in mid 2016. In order to obtain GMP grade antibodies, Faron contracted Abzena to build a manufacturing process for Clevegen, allowing Faron to design a final primate tox study and plan human clinical studies in several cancer groups. Abzena informed the Company at the end of 2016 that the selected clones produce more than 5 g/l, which is widely considered a commercially feasible level.

During 2016, Faron has utilised €0.8 million of the €1.5 million loan funding from Tekes, the Finnish Funding Agency for Innovation, to progress the preclinical development of Clevegen. The funding is a government loan which covers 50% of the budgeted cost of the preclinical development of Clevegen.

Upcoming Newsflow

The Board anticipates the following pipeline progress during 2017:

Traumakine:

·      Read-out for the pan-European phase III trial (INTEREST) results (all-cause mortality at day 28) during H2 2017.

·      Advanced advice from IDMC (Independent Data Monitoring Committee) on the INTEREST study is expected in May 2017. Faron recently received the third recommendation from IDMC for the trial to continue without any modifications.

·      The Company has established a manufacturing plan to build its stocks of Traumakine. Subject to a positive outcome of the INTEREST study, having manufacturing in place should facilitate the application process for market approval of Traumakine.

·      The Company plans to commence a Phase II US safety study (INTRUST) with Traumakine in H2 2017. It is expected that the full study will take 12-15 months to get to D28 and D90 all cause mortality data. Timing remains subject to regulatory approvals with a pre-IND FDA meeting targeted to occur in mid 2017.

·      The Company currently expects recruitment in the Japanese Phase III pivotal study for the treatment of ARDS with Traumakine, run by its Japanese licensing partner Maruishi Pharmaceutical Co., to progress towards completion during 2017.

·      Interim results from the 160 patient Traumakine clinical study (INFORAAA) for the treatment of patients with rupture of acute abdominal aorta (RAAA), which began recruiting in February 2017, is expected in 12 to 18 months. The aim of this trial is to reduce mortality in operated RAAA patients, which normally varies from 30 to 50% of all patients surgically operated on. The INFORAAA study will also assist in the design of Traumakine trials for single organ failures.

Clevegen:

·      Subject to access of Clevegen’s active pharmaceutical incredient (FP-1305), Faron has contracted a toxicological pre-clinical study for Clevegen to start in mid 2017.

·      The Company expects to file the first CTA with the UK regulatory authorities (MHRA) in late 2017 / early 2018 and this study is expected to provide enough safety data for acceptance of the CTA. The first, and primarily safety focused clinical trial is expected to be conducted with liver cancer patients at the Birmingham University Liver Cancer Centre and is expected to continue into a Phase II study via an adapted trial design for HCC patients to recognise early efficacy signals.

·      The second set of clinical cancer trials will be conducted in parallel with the HCC trial in Scandinavia with melanoma, pancreas and ovarian cancer patients.

Commerical:

·      Faron is exploring various commercial opportunities while continuing to develop the pipeline with the existing resources.

Financial Review

Key Performance Indicator

Faron is a late clinical stage drug development company with limited recurring sales and thus the primary Key Performance Indicators (KPIs) followed by the Board focus on cash balances and other related information. During 2016, the Company had a net increase in cash flow of €0.4 million despite significant investments in R&D. This was mainly due to successful fundraising and stronger than expected revenues and other operating income. The Board will consider the appropriateness of monitoring additional KPIs as the Company’s operations advance.

Revenue and Other Operating Income

The Company’s revenue was €1.2 million for the year ended 31 December 2016 (2015: €0.5 million), which comprised of sale of excess API material and sales of IMP -material. The €0.7 million licence agreement cash signing fee from Korean license partner PharmBio was recorded as advance payment. The Company also recorded €1.7 million (2015: €0.7 million) of other operational income. This comprised of income recognised from the European Commission FP7 grant in support of the Traumakine programme as well as a grant component from public loans.

Research and development costs

The R&D costs  increased by €5.6 million (141%) ftom €4.0 million to €9.6 million. This was mainly due to the INTEREST -trial which recruited its first patient very late 2015 and was in full capacity during 2016. Also Clevegen development entered into a more active phase. The third contributer to the R&D cost increase was preparatory work for eventual Traumakine launch including ramp-up of production of API.   

Share-based Compensation

As part of the IPO process, a number of options were awarded to Directors and key personnel. This had no cash impact on the results for the year, however, accounting standards require this share based compensation to be recognised in the Consolidated Statement of Comprehensive Income, resulting in a charge of €0.5million (2015: €0.5 million).

Taxation

The Company’s tax credit for the fiscal year 2016 can be recorded only after the Finnish tax authorities have approved the tax report and confirmed the amount of tax-deductible losses for 2016. The total amount of cumulative tax losses carried forward approved by tax authorities on 31 December 2016 was €13.9 million (2014: €5.7 million). These losses can be utilised during the years 2019 to 2025 by offsetting them against profits. In addition, Faron has €2.8 million research and development costs incurred in the financial years 2010 and 2011 that have not yet been deducted in its taxation. This amount can be deducted over an indefinite period at the Company’s discretion.

Losses

Loss before income tax was €9.3 million (2015: €6.2 million). Net loss for the year was €9.2 million (2015: €6.2 million), representing a loss of €0.39 per share (2015: €0.30 per share) (adjusted for the changes in share capital).

Cash Flows

The Company was able to maintain a positive net cash inflow of €0.4 million for the year ended 31 December 2016, compared to a positive net cash inflow of €10.8 million for the previous year. Cash used for operating activities increased by €1.3 million to €8.5 million for the year, compared to €7.1 million for the year ended 31 December 2015. This increase was driven by a €5.6 million (142%) increase in research and development investments, and was offset by a €1.7 million (142%) increase in income and a €0.9 million (29%) reduction in administrative costs.

Net cash inflow from financing activities €9.0 million (2015: €18.1 million) mainly due to the receipt of net proceeds of €8.5 million from an equity placing completed in September 2016.

Financial Position

As at 31 December 2016, total cash and cash equivalents held were €11.5 million (2015: €11.1 million). This excludes the funds raised in the financing round announced on 1 March 2017.

Headcount

Average headcount of the Company for the year was 10 (2015: 6). The increase in headcount is attributable to the commencement of the Phase III INTEREST trial.

Shares and Share Capital

Using the authorisations granted at the Annual General Meeting held on 26 May 2016, on 23 September 2016, the number of ordinary shares in issue increased to 26,311,704 following the issue of 3,200,000 new ordinary shares at a subscription price of £2.50 per share. The subscription price was credited in full to the Company’s reserve for invested unrestricted equity, and the share capital of the Company was not increased.

Based on a resolution of the Extraordinary General Meeting held on 15 September 2015, the Company adopted the 2015 Share Option Plan. On 21 November 2016 the Company announced that the Board of Directors had granted 400,000 options under the plan to directors, management and employees of the Company. The directors options are detailed in Directors´ Remuneration Report set out in the Annual Report and Accounts.

Money Raised to Date

To date, the Company has been funded with a total of approximately €44 million, made up of a combination of equity, debt and grant funding, which has been used to develop the Company’s products and intellectual property. The Company has also generated cash revenues of €4.5 million to date through the receipt of milestone payments pursuant to certain of its licensing arrangements and the sale of surplus raw materials.


Summary and Outlook

2016 was an important year of progress for Faron during which we sucessfully achieved all of the major goals set out at the time of our IPO in 2015 with less cash burn than anticipated.

2017 will be a pivotal year for Faron as we await results from our Phase III INTEREST trial, which if favourable will pave the way for the launch of our first commercial product Traumakine, for the treatment of acute organ failures. We also look forward to making significant progress with our exciting immuno-oncology candidate, Clevegen, which we intend to progress into the clinic during 2017-18. The Board looks forward to the coming period with great confidence. 

ANNUAL RESULTS

Statement of comprehensive income

Year ended

31 Dec
2016

Year ended

31 Dec
2015

€’000

€’000

Stated in Euro

Revenue

 1 153

 520

Cost of sales

 – 

(25)

Gross profit

 1 153

 496

Other operating income

 1 742

 701

Administrative expenses

(2 161)

(3 061)

Research and development expenses

(9 592)

(3 971)

Operating result

(8 858)

(5 835)

Financial income

 0

 0

Financial expenses

(361)

(311)

Net financial costs

(361)

(311)

Loss before income taxes

(9 219)

(6 146)

Income tax expense

(75)

(42)

Total comprehensive income
for the financial year

(9 294)

(6 188)

Total comprehensive income,
attributable to:

Equity holders of the Company

(9 294)

(6 188)

Loss per share attributable to
equity holders of the Company

Basic and diluted loss per share, euro

(0,39)

(0,30)

Balance sheet

31 Dec
2016

€’000

31 Dec
2015

€’000

Stated in Euro

Assets

Non-current assets

Property, plant and equipment

 21

 28

Intangible assets

 933

 1 001

 954

 1 029

Current assets

Inventories

 1 451

 649

Trade and other receivables

 3 404

 2 074

Cash and cash equivalents

 11 478

 11 068

 16 333

 13 791

Total assets

 17 287

 14 821

Equity and liabilities

Capital and reserves attributable to equity holders of the Company

Share capital

 2 691

 2 691

Unregistered share capital

 – 

 – 

Reserve for invested non-restricted equity

 34 006

 24 533

Retained earnings

(25 814)

(16 046)

Total equity

 10 884

 11 178

Non-current liabilities

Interest-bearing financial liabilities

 2 033

 1 446

 2 033

 1 446

Current liabilities

Interest-bearing financial liabilities

 93

245 

Non-interest-bearing financial liabilities

 1 874

436

Other current liabilities

 2 403

 1 517

 4 371

 2 197

Total liabilities

 6 404

 3 643

Total equity and liabilities

 17 287

 14 821

Statements of cash flows

Year Ended

 31 Dec
2016

€’000

Year Ended

 31 Dec
2015

€’000

Stated in Euro

Cash flow from operating activities

Loss(-) / profit(+) attributable to equity holders
of the Company

(9 294)

(6 188)

Adjustments for

Depreciation and amortisation

 168

 184

Financial items

 361

 298

Income taxes

 75

 42

Non-cash items (write-off R&D)

 – 

 78

Non-cash items (options granted)

 480

 474

Change in net working capital:

Trade and other receivables

(1 330)

(2 035)

Inventories

(802)

 50

Trade and other current liabilities

 2 325

 278

Interest and other financial costs paid

(361)

(285)

Interest and other financial income received

 0

 0

Income taxes paid

(75)

(42)

Net cash used in / from operating activities  (A)

(8 452)

(7 146)

Cash flow from investment activities

Investments in machinery and equipment and intangible assets

(92)

(107)

Net cash from/used in investing activities (B)

(92)

(107)

Cash flow from financing activities

Proceeds from issue of share capital/issue

 8 519

 18 080

Proceeds from issue of convertible notes

Proceeds from current borrowings

(151)

 – 

Proceeds from non-current borrowings

 587

 – 

Repayment of current borrowings

 – 

 – 

Net cash used in financing activities (C)

 8 955

 18 080

Net increase(+) / decrease (-) in cash and cash equivalents (A+B+C)

 410

 10 827

Cash and cash equivalents at 1 January

 11 068

 242

Cash and cash equivalents at 31 December

 11 478

 11 068

Statement of changes in equity

In thousands of euro

Share capital

Un-registered share capital

Reserve for invested non-restricted equity

Retained earnings

Total equity

Balance at 31 December 2014

 2 691

 – 

 6 453

(10 332)

(1 188)

Total comprehensive income
for the financial year 2015

(6 188)

(6 188)

 – 

Transactions with equity holders of
the Company

 – 

    Share base payment

 474

 474

Increase of share capital

 – 

 19 261

 – 

 19 261

Transaction costs on share capital issued

(1 181)

(1 181)

Conversion of convertible notes

 – 

 – 

 – 

 – 

 – 

 18 080

(5 714)

 12 366

Balance at 31 December 2015

 2 691

 – 

 24 533

(16 046)

 11 178

Total comprehensive income
for the financial year 2016

(9 294)

(9 294)

 – 

Transactions with equity holders of
the Company

 – 

    Share base payment

 480

 480

Increase of share capital

 – 

 9 330

 – 

 9 330

Transaction costs on share capital issued

(811)

(811)

Conversion of convertible notes

 – 

 – 

 – 

 – 

 – 

 8 519

(8 814)

 (295)

Balance at 31 December 2016

 2 691

 – 

 33 052

(24 860)

 10 884

NOTES TO THE ANNUAL RESULTS

For the year ended 31 December 2016

Note 1            Basis of preparation

The audited financial information set out herein does not constitute statutory accounts as defined in Finnish Accounting Act. The financial information presented here for the year ended 31 December 2016 has been extracted from the Group’s audited financial statements which were approved by the Board of Directors on 28 March 2017 and which are available on the Company’s website.

These are Faron’s third full year financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (and as published by the International Accounting Standards Board (IASB) and in force as at 31 December 2016. In the EU IFRS are standards and their interpretations adopted in accordance with the procedure laid down in regulation (EC) No 1606/2002 of the European Parliament and of the Council. Faron has consistently applied these policies to all the years presented, unless otherwise stated. The Company has not applied any standard, interpretation or amendment thereto before its effective date.

Faron’s date of transition to IFRS is 1 January 2014. The Company has applied IFRS 1 First-time Adoption of International Financial Reporting Standards in preparing these financial statements. Until 31 December 2013 Faron’s separate financial statements have been prepared in accordance with Finnish Accounting Standards (FAS).

The financial statements are prepared under the historical cost convention, except as disclosed in the accounting policies below.

The financial year of Faron is the calendar year ending 31 December. The figures in the financial statements are presented in thousands of euro unless otherwise stated. All figures presented have been rounded, and consequently the sum of individual figures may deviate from the presented aggregate figure.

The Company has not had any other comprehensive income in those years presented in these financial statements.

Faron’s financial statements are prepared on a going concern basis. It is the intention of the Company to continue the development of the products to the point where they can be either licensed at attractive terms to internationally active pharmaceutical companies who have the means to further develop these products, or to develop the products in-house until receipt of marketing approval from the relevant regulatory agencies. After such approval, Faron would either seek to form partnerships with global, regional or local pharmaceutical companies that have the necessary marketing and distribution capabilities and resources or take the approved product to the markets itself. In the case of partnership, Faron would typically grant geographically limited licenses to products in exchange for contractually agreed payments, license fees and royalties on future product sales. In some cases, one element of such agreements may include a collaboration in which Faron will also receive funding for R&D services provided at a cost plus basis. In case of choosing to market the product itself, Faron would need to secure necessary funding to cover the costs of taking the product through the approval, pricing and regional registering process in addition to required marketing costs. In absence of collaboration agreement such funding would mainly come in form of equity funding.

In addition to its normal R&D and corporate activities, Faron seeks, as a clinical stage drug discovery and development company, to advance the development of its lead compounds through clinical trials. The Company conducts these either together with development partners or by itself. In both cases these activities require substantial amounts of funds. Faron primarily relies upon financing its activities through equity financing, license agreements, and public R&D loans and grants.

The preparation of financial statements under IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the end of the reporting period as well as the reported amounts of income and expenses during the reporting period. These estimates and assumptions are based on historical experience and other justified assumptions that are believed to be reasonable under the circumstances at the end of the reporting period and the time when they were made. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates. The estimates and underlying assumptions are reviewed on an on-going basis and when preparing financial statements. Changes in accounting estimates may be necessary if there are changes in the circumstances on which the estimate was based, or as a result of new information or more experience. Such changes are recognised in the period in which the estimate is revised.

Note 2            Share Based Payments

Share-based incentive programmes under which board members and employees have the option to purchase shares in the Company (equity-settled share-based payment arrangements) are measured at the equity instrument’s fair value at the grant date.

The cost of equity-settled transactions is determined by the fair value at the date of grant using the Black-Scholes valuation model. The cost is recognised together with a corresponding increase in equity over the period in which the performance and service conditions are fulfilled, the vesting period. The fair value determined at the grant date of the equity-settled share-based payment is expensed on a straight line basis. No expense is recognised for grants that do not ultimately vest.

See Note 13 for more details.

Note 3            Intangible assets

Faron’s intangible assets include patents and internally developed intellectual property (“documentation-related assets”). An intangible asset is recognised only if it is probable that the future economic benefits attributable to the asset will flow to Faron and the cost of the asset can be measured reliably. All other expenditure is expensed as incurred. These intangible assets are initially recognised at cost. Cost comprises the purchase price and all costs directly attributable to bringing the asset ready for its intended use. Subsequently intangible assets are carried at cost less amortisation and any accumulated impairment losses.

Internally generated intangible assets arising from development are recognised if, and only if, all the criteria for recognition are fulfilled:

it is technically feasible to complete the intangible asset so that it will be available for use;

there is an ability to use or sell the intangible asset;

it can be demonstrated how the intangible asset will generate probable future economic benefits,adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available; and

the expenditure attributable to the intangible asset during its development can be reliably measured.

The internally developed documentation asset is related to the re-development of the active pharmaceutical ingredient, (“API”) (“API documentation”). The development activities and documentation relate to stability testing of a drug substance, that is sellable as such, but the usage value of which improves as the prolonged stability is proven and documented. In addition to its own use, Faron may also, for a fee, license the documentation to companies that can utilise documentation in their own drug candidate approval and registration documentation. Provision of such access does in no way limit Faron’s ability to use the documentation in its own application processes or ability to give such access to additional users.

Intangible assets are amortised over their expected or known useful lives on a straight-line basis beginning from the point they are available for use. The estimated useful life is the lower of the legal duration and the economic useful life. The estimated useful lives of intangible assets are regularly reviewed. The estimated useful life for intangible assets is currently 10 years. The effect of any adjustment to useful lives is recognised prospectively as a change of accounting estimate. Intellectual property-related costs for patents are part of the expenditure for the research and development projects.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each financial year.

Internal research costs are those costs incurred for the purpose of gaining new scientific or technical knowledge and understanding. Such costs are always expensed as incurred. Internal development costs are those costs incurred for the application of research findings or other knowledge to plan and develop new products for commercial production. As the drug product development projects undertaken by Faron are subject to technical feasibility, regulatory approval and other uncertainties, these criteria are considered to be met only after Faron has filed its submission to the regulatory authority for final approval after which all subsequent development costs will be capitalised. Before this trigger point all drug product related development costs are typically expensed as incurred. Faron has not capitalised any drug product related development expenditure as the related criteria have not been met yet. Development costs expensed in prior financial years are not capitalised at a later date.

Note 4            Government grants

Faron has received government grants from the EU (Commission’s FP7 programme). Grants from governments or similar organisations to support certain projects are accounted for as grants related to income. They are initially recognised at their fair value. Those grants are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate, when management has reasonable assurance that the grant will be received and Faron will comply with the conditions attached to that grant. Such grants are presented as other operating income.

If, at the balance sheet date, grant conditions are believed to be fulfilled and the related grant payments are outstanding, grant receivables are shown in the balance sheet.

Note 5            Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument, e.g. a trade receivable, will fluctuate because of changes in foreign exchange rates.

Faron’s functional currency is the euro and Faron is exposed to foreign exchange risk arising from currency exposure, currently mainly with respect to the Japanese Yen and pound sterling. The Company receives foreign currency payments from one of its licence partners Maruishi (based in Japan) in Japanese Yen. However, the impact of the foreign exchange risk arising from the Yen exposure is not considered significant in average.

Due to the commencement of the Phase III clinical trials with a UK based Clinical Research Organisation as main service provider, the Company’s’ pound denominated expenses and trade payables have become significant. The Company converts most of the pound denominated equity funding proceeds into euros immediately after such funding, but holds a sizeable amount of pounds on its pound sterling bank accounts. This forms a natural hedge against Euro-pound sterling exchange rate changes, as the funds held in pounds roughly match with the estimated pound expenses during 2017. As a result of the sizeable pound sterling holdings, the depreciation of pound sterling against Euro had a negative effect on the financial statements. As the exchange rate may move also to other direction during 2017, the management believes that natural hedge strategy best protects the Company from adverse exchange rate changes and this protection overweighs short term currency rate losses.

2016

2015

€ ‘000

€ ‘000

Note 6  Other operating income

Grants from EU

Grant component of government loans

1 502

237

701

Other items

4

 –

Total other operating income

 1 742

 701

In 2012 the European Commission awarded a €5,963 thousand grant to the Faron network (“Consortium”) to support the FP-1201-lyo clinical phase III programme (“Traumakine”). The Consortium consists of the European Commission as a granting agency, Faron as a coordinator and three other participating partners of the Traumakine programme; University College London Hospital (UCLH), University Sapienza Roma and University of Turku. The first pre-payment for the Consortium under the grant was received in 2013, amounted to €2,299 thousand, and Faron recognised €660 thousand as other operating income. The second Consortium pre-payment, €1,018 thousand was received at the end of 2014 and Faron recognised €111 thousand as other operating income. In 2015, Faron recognised €701 thousand as other operating income.The third pre-payment, €1,781 thousand was received in 2016, and Faron recognised €1,502 thousand as other operating income. In conjunction to each pre-payment Faron has forwarded each Consortium member their respective shares of pre-payments.

Faron draw down first instalments of its third Tekes loan during 2016. As this occured after the date to transition to IFRS (i.e. after 1 January 2014) and therefore it is treated according to IAS 20 and IAS 39.  The benefit of a government loan with a below market rate interest is treated as a government grant and accounted for in accordance with IAS 20. The loan component is recognised and measured in accordance with IAS 39 initially at fair value and subsequently at amortised cost over the loan period by using the effective interest method. The benefit of the below market rate is measured as the difference between the initial carrying value of the loan, i.e. the fair value, and the proceeds received from the government. Government grants are recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs for which the grants are intended to compensate. Thus the grant component of €237 thousand is recorded in 2016 in Other operating income.

The Other items are €4 thousand legal costs returned to the Company.

Note 7  Financial income and expenses

Faron has received three goverment loans for research and development purposes with below-market interest rate from Tekes (The Finnish Funding Agency for Technology and Innovation). Two of theses loans were drawn down before the date to transition to IFRS (i.e. prior to 1 January 2014). Thus, based on the exemption under IFRS 1, Faron has measured the government loans using the previous FAS carrying amount as the carrying amount of the loan. Subsequently, both loans are carried at amortised cost using the effective interest rate. The total loan periods are 10 years from the draw-down. The interest rate for these loans is the base rate set by the Finnish Ministry of Finance less 1%, however, the interest rate will not fall below a 1% minimum. Repayment of these loans shall be initiated after 5 years, thereafter loan principals shall be paid back in equal installments over the remaining loan period. In certain circumstances Tekes may, at its own discretion, extend the loan terms, convert the loans into capital loans or exempt the Company from repayment following the general terms of the loans. The loans do not include any covenants. The Company has negotiated with Tekes four years extension to the first loan and an equal postponement of the installments and a years extension to the first loan and an equal postponement of the installments. Therefore the first instalment of the first loan is due in April 2018 and for the second loan in February 2019.

Other significant financial expense items are the exchange rate losses when transfering GBP to Euro, when issuing the new shares entering London stock exchange, expenses on loan guarantees, interest on convertible loans and credit limit interest from bank.  

Financial income

2016

     (€,000)

2015

(€ ,000)

     Interest from bank balances

0

0

Interest from account receivables

 0

 0

Total financial income

 0

 0

Financial expenses

Interest on government loans (Tekes)

(19)

(18)

Interest on bank loans

(5)

(19)

Interest on accounts payables

(1)

(1)

Exchange rate losses

(333)

(247)

Bank guarentee costs and provisions

(2)

(9)

Other financial expenses

(1)

(17)

Total financial expenses

(361)

(311)

Total financial income and expenses

(361)

(311)

Note 8    Income taxes

Withholding tax

(75)

(42)

Total income taxes

(75)

(42)

Taxes paid in the year ended 31 December 2015 and 2016 relate to milestone payment from Maruishi and signing fee from PharmBio.

Reconciliation of effective tax rate

The Finnish corporate tax rate applied was 20%.

Loss before income tax

(9 294)

(6 188)

Tax using Faron’s domestic corporate tax rate

 1 859

 1 238

Current-year losses for which no deferred tax asset
is recognised

(1 859)

(1 238)

Taxes in the income statement

 – 

 – 

Items for which Faron has not recognised a deferred tax asset

R&D expenses not yet deducted in taxation1

   2 816

 2 816

The tax losses carried forward approved by tax authorities2

 13 928

5 434

Deductible temporary differences for which
no deferred asset have been recognised

16 744

 8 250

1) Faron has incurred research and development costs in the financial years ended 31 December 2010 and 2011 that have not yet been deducted in its taxation. The amount can be deducted over an indefinite period with amounts that the Company may freely decide.

2) These losses expire over the years 2019 to 2025. The amount presented for the year ended 31 December 2016 does not include the deductible temporary difference arisen from the net loss for the financial year 2016 as the related loss has not yet been approved by tax authorities by the time of preparation of these financial statements.

The related deferred tax assets have not been recognised in the balance sheet due to the uncertainty as to whether they can be utilised.

Note 9   Loss per share

Basic

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

Loss attributable to equity holders of the Company
(€ ,000)

        (9 294)

(6 188)

Weighted average number of ordinary shares in issue

 23 979 650

20 686 854

Basic (and dilutive) loss per share, €

          (0,39)

(0,30)

Weighted-average number of ordinary shares

Issued ordinary shares at 1 January

 23 111 704

15 456 250

Effect of shares issued

      867 945

  5 230 604

Weighted-average number of ordinary shares at 31 December

 23 979 650

20 686 854

Diluted

Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.

Loss attributable to equity holders of the Company
(€ ,000)

          (9 294)

(6 188)

Interest adjustment

 –       9 

9 

Convertible loan interest adjusted loss attrib to equity holders (€ ,000)

      (9 294)

(6 179)

Diluted weighted average number of ordinary shares in issue

      23 979 650

20 686 854

Basic loss per share, €

            (0,39)

(0,30)

Weighted-average number of ordinary shares

Issued ordinary shares at 1 January

 23 111 704

15 456 250

Effect of shares issued

      867 945

5 230 604

Weighted-average number of ordinary shares at 31 December

 23 979 650

20 686 854

Dilution effect of convertible loans’

                 – 

Diluted weighted-average number of ord. shares at 31 December

 23 979 650

20 686 854

2016

2015

€ ‘000

€ ‘000

Note 10 Equity and reserves

Number of shares (pcs)

Share capital  (1,000 €)

Reserve for invested non-restricted equity (1,000 €)

Total  (1,000 €)

In issue at 1 January 2013

1 453 380

1 296

5 328

6 624

Conversion of convertible notes to shares

3 688

120

0

120

Issued for merger consideration

1 000 000

0

0

0

Cancelled in merger

-1 000 000

0

0

0

31 December 2013

1 457 068

1 416

5 328

6 744

Share issues,
issued for cash

35 424

1 275

0

1 275

Issue of convertible equity instrument

0

0

1 126

1 126

Warrants issue

53 133

0

0

0

 31 December 2014

1 545 625

2 691

6 453

9 144

Share base payments

0

0

0

Convertible issue

78 166

0

Share issues for cash

302 764

5 050

5 050

Total

1 926 555

0

Split 1:10

19 265 550

0

Emission of new shares

3 846 154

13 030

13 030

 31 December 2015

23 111 704

2 691

24 533

27 224

Share base payments

0

0

0

Emission of new shares

3 200 000

8 519

8 519

 31 December 2015

26 311 704

2 691

33 052

35 743

Faron Pharmaceuticals Ltd. has one class of shares. The shares amounted to 23,111,704 at 1 January 2016. The following increases were made during 2016:

a) by a resolution of a Board Meeting held on 21 September 2016 made pursuant to an authority granted to the Board of Directors at the Annual General Meeting held on 26 May 2016, the Company resolved to issue a total of 3,200,000 Ordinary Shares.


The company was listed on the London Stock Exchange in November 2015. The share has no nominal value. Each share entitles the holder to one vote at the Annual General Meeting. All shares entitle holders to an equal dividend.

At the 31 December 2016 Faron’s share capital, entered in the Finnish trade register, amounted to € 2,691 thousand. The number of Ordinary Shares at 31 December 2016 was 26,311,704.

Details on the management shareholding are disclosed in Note 13. Transactions with Related Parties. 

Nature and purpose of reserves

Share capital

The subscription price of a share received by the company in connection with share issues is recorded to the share capital, unless it is provided in the share issue decision that a part of the subscription price is to be recorded in the fund for invested non-restricted equity. The proceeds received by Faron from the conversion of the convertible bonds have been credited to share capital.

Fund for invested non-restricted equity

The fund for invested non-restricted equity includes other equity investments, for which part of the subscription price of the shares according to the related decision is not to be credited to the share capital and issuance of convertible capital loans.


Faron has not paid any dividends over the years.

Note 11   Current receivables

(€,000)

2016

2015

Trade receivables

 579

 37

Prepayments

 1 250

 1 248

Accrued items

134

 17

Other receivables

 1 441

 772

Total trade and other receivables

 3 404

 2 074

The majority of prepayments relate to the Clinical Service Agreement with the clinical research organisation (CRO), which is the main service provider for the INTEREST -study. The other receivables consist mainly of the EU FP7 grant income as described in Note 4.

Note 12  Financial liabilities and other liabilities

(€ ,000)

Non-current financial liabilities and other liabilities

Interest-bearing financial liabilities

Tekes loan

2 033

1 446

Convertible notes

Total non-current financial liabilities

2 033

1 446

Other non-current liability

Total other non-current liabilities

Total non-current liabilities

2 033

1 446

Current financial liabilities and other liabilities

Interest-bearing financial liabilities

  Convertible notes

Goverment loans (current portion)

93

245

Bank overdraft facility

 93

 245 

Non-interest-bearing financial liabilities

Trade payables

 1 874

 436

 1 874

 436

Other liabilities

Prepayments

 1 718

 973

Accrued expenses

 620

 515

Other liabilities

 65

 29

 2 403

 1 517

Total current financial liabilities and other liabilities

 4 371

 2 197

The item “Prepayments” above comprises portions of the awarded EU grant, received in 2013 and 2014. For further information, see Note 6. Other operating income.

For the years 2015 and 2016 the major item under “Accrued expenses” are personnel related (short-term employee benefits).

2016

2015

Note 13   Transactions with related parties

Related parties of the Company

Faron’s related party comprise of the following:

Ÿ A&B (HK) Company Limited, an investment company existing under the laws of Hong Kong having significant influence in Faron Pharmaceuticals Oy, given their shareholding of 12.9%, as at 31 December 2016.

Ÿ Marko Salmi, a private person having significant influence over Faron Pharmaceuticals Oy, given his shareholding of 12.9%, as at 31 December 2016.

Ÿ Board of Directors; and

Ÿ the Company’s key management personnel (see below)

Faron had no interests in other entities at the end of the reporting periods presented in these financial statements.

Transactions with related parties

Faron has not carried out any transactions with related parties in the financial years presented in these financial statements, except that the former parent company of Faron Pharmaceuticals Ltd., Faron Holding Ltd., merged into its subsidiary Faron Pharmaceuticals Ltd. on 31 December 2013.

Key management personnel

The Company’s key management personnel consist of the following:

members of the Board of Directors

Management Team comprising: CEO Markku Jalkanen, PhD; VP Ilse Piippo, MD, MSc (Pharm), Operations director. Mikael Maksimow, PhD, Medical director Matti Karvonen, MD, PhD and CFO Yrjö Wichmann, MSc (Econ)

Remuneration of key management personnel*

Salaries and other short-term employee benefits

 832

 769

Share based payment

 274

 33

Post-employment benefits
(defined contribution plans)

 – 

Total

 1 106

 802

Remuneration to the Board of Directors **

Salaries and other short-term benefits

 258

 124

Share based payment

 38

 155

Total

 296

 279

*Presented information for the Management Includes the executive directors of the Board

**Presented information for the Board includes only non-executive directors.

Management and Board shareholding

Management* shareholding, 31 December 2016

Number of shares (pcs)

2,965,170

Shareholding, percentage

11.3 %

Board** shareholding, 31 December 2016

(excluding the shareholding of CEO and CFO)

Number of shares (pcs)

1,607,489

Shareholding, percentage

6.1 %

Total number of shares outstanding
at 31 December 2016 (pcs)

26,311,704

*Presented information for the Management Includes the executive directors of the Board

**Presented information for the Board includes only non-executive directors.

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