Financial Statement January 1 to December 31 2021

25.3.2022

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.

Traumakine – Faron’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.

HAEMATOKINE – An 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 Protein‑1 (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

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

Faron Financial Statement Release January 1 to December 31, 2021

Half-Year Financials, January 1 – June 30 2021

26.8.2021

Faron Pharmaceuticals Oy

(“Faron”)

Faron Reports Half-Year Financials, January 1 – June 30, 2021

Significant progress made in H1 2021 including acceleration of most advanced pipeline assets – Bexmarilimab and Traumakine^Ò

August 26, 2021 at 7:00 am BST / 9:00 am EEST

January – June 2021 in short/ Summary of January – June 2021

Bexmarilimab shows compelling antitumor activity in multiple advanced solid tumor types as a monotherapy with strongest disease control rate, DCR (30.0% – 40.0%), observed in cutaneous melanoma, gastric cancer, cholangiocarcinoma and hepatocellular carcinoma patients
Median overall survival (OS) not yet reached in DCR patient group
Initiation of pivotal stage (Part III) of bexmarilimab’s MATINS study on track for Q4 2021 alongside clinical expansion into neoadjuvant setting, hematological malignancies and first line lung cancer in combination with anti-PD-1
Secured key US patents for both bexmarilimab and Traumakine^Ò
Received $6.1 million commitment from the US Department of Defense (DoD) to support the Traumakine HIBISCUS trial as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act
Balance sheet strengthened by successful share placing of €15 million gross 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 12:00 pm BST / 2:00 pm EEST / 7:00 am EDT

TURKU, FINLAND / BOSTON, MA – Faron Pharmaceuticals Oy (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 unaudited half-year financial results for January 1 to June 30, 2021 (the “period”) and provided an overview of recent corporate developments.

“I am extremely proud of the progress we made over the first half of 2021,” said Dr. Markku Jalkanen, Chief Executive Officer of Faron. “We progressed our most advanced pipeline assets with bexmarilimab showing compelling antitumor activity as a monotherapy in heavily pre-treated patients across multiple solid tumor types and the initiation of the HIBISCUS trial assessing Traumakine as a first-line treatment for hospitalized COVID-19 patients, which we believe will represent a significant step forward in the treatment of lung failure due to viral infections. We also strengthened our balance sheet, which will allow us to continue investing in our pipeline and further our goal of developing new treatments for patients battling life-threatening diseases.”

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, and hepatocellular carcinoma, with a 30.0% — 40.0% disease control rate across these tumor types. Additional MATINS data was accepted as a late-breaking abstract and will be presented at the European Society for Medical Oncology (ESMO) Congress 2021 in mid-September.
Further clinical trials are planned to start in Q4 2021 to investigate bexmarilimab’s potential in additional clinical settings, including in combination with standard of care as a first-line therapy in selected advanced solid tumors and as a monotherapy in hematological malignancies. Additionally, trials will also investigate bexmarilimab as a standalone neoadjuvant therapy for patients with early-stage colorectal cancer and renal cell carcinoma.
A key US patent with claims protecting the composition of matter of bexmarilimab was granted by the United States Patent and Trademark Office. The patent 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. This patent was also granted in Japan.
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.
Clinical Cancer Research, a journal of the American Association for Cancer Research, published research on the mode of action of bexmarilimab, exploring the systemic immune signatures induced by bexmarilimab in advanced cancer patients with solid tumors and providing a mechanistic understanding of how a macrophage-targeted approach can promote robust activation of T cells (Clin Cancer Res 2021: 27: 4205-20), and also highlighted by the Editors.
Companion diagnostic for Clever-1 detection in histological samples developed and validated with Laboratory Corporation of America (“Labcorp”). The staining antibody developed can be used by Labcorp and other diagnostic service providers across the globe and will allow for efficient analysis of tumor biopsies.

Traumakine^® – Faron’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. HIBISCUS will be conducted in approximately 10 – 15 study sites across the US, enrolling 140 patients who require low flow oxygen support, but not mechanical ventilation. 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.
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.

Corporate Highlights

Balance sheet was strengthened by raising EUR 15 million gross through a private placement of new ordinary shares. This placement encompassed existing and new investors, including the European Innovation Council Fund, a breakthrough initiative from the European Commission.
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. Prior to taking the role of Chairman at Aerami, Anne served as the Aerami’s Chief Executive Officer and a Director. 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.

Half-Year Financial Results

Cash balances of €7.0 million at 30 June 2021 (2020: €11.6 million).
Operating loss of €10.4 million for the six months ended 30 June 2021 (2020: €7.1 million).
Net assets of €2.8 million as at 30 June 2021 (2020: €7.3 million).
In February 2021, Faron raised €15 million gross (€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 1-6/2021 6 months	Unaudited 1-6/20 6 months	1-12/2020 12 months
Revenue	0	0	0
Other operating income	1,210	743	2,122
Research and Development expenses	(9,008)	(5,534)	(13,879)
General and Administrative expenses	(2,626)	(2,354)	(4,897)
Loss for the period	(10,560)	(7,343)	(16,946)

	Unaudited 1-6/2021 6 months	Unaudited 1-6/2020 6 months	1-12/2020 12 months

Loss per share EUR	(0.21)	(0.16)	(0.37)
Number of shares at end of period	50,457,874	46,799,747	46,896,747
Average number of shares	49,615,167	44,584,199	45,712,111

*€’000*	Unaudited 30 Jun 2021	Unaudited 30 Jun 2020	31 Dec 2020
Cash and cash equivalents	6,967	11,627	4,108
Equity	2,813	7,313	(1,849)
Balance sheet total	11,865	14,343	8,367

25 August 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 BST / 2:00 pm EEST / 8:00 am EDT on the day of results. A presentation, webcast details 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/9b3b55bd-b730-43bf-8509-c1ec3e510415

For more information please contact:

Media Contact

Faron Pharmaceuticals

Eric Van Zanten

Head of Communications

eric.vanzanten@faron.com

Investor.relations@faron.com

+1 (610) 529-6219

Investor Contact

Stern Investor Relations

Julie Seidel

julie.seidel@sternir.com

Phone: +1 (212) 362-1200

Cairn Financial Advisers LLP, Nomad

Sandy Jamieson, Jo Turner, Mark Rogers

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

Phone: +44 (0)20 3709 5700

E-mail: faron@consilium-comms.com

About Faron Pharmaceuticals Ltd

Forward Looking Statements

Chairman and Chief Executive Officer’s Review

Introduction

To date, 2021 has been a year of significant accomplishments for Faron; most notably, we have been able to accelerate our lead pipeline programs and secure further funding to allow continued execution of key priorities. The latest data signaling the ability of bexmarilimab to increase survival in cancer patients who have exhausted all treatment options is compelling and it clearly demonstrated the importance of targeting myeloid cell control in the development of next generation immunotherapies. Additionally, the potential of Traumakine, Faron’s intravenous interferon-beta 1a, to treat hospitalized COVID-19 patients, continued to be explored in the phase II/III HIBISCUS study, which is being co-funded by the US Department of Defense. We also conducted a successful fundraising round that raised EUR 15 million and included several new high-quality Continental European institutional investors. The largest of the new investors was the European Investment Council Fund (EIC) and their investment in Faron was the first time that the EIC invested in a publicly listed company. In this report we are pleased to provide further information on the progress we made in the first half of 2021 and insights into our plans for the second half of the year.

Bexmarilimab – Headline data from MATINS indicates compelling anti-tumor activity in multiple advanced solid tumors

Driving the clinical development of bexmarilimab continues to be Faron’s top priority and in the first six months of the year we made considerable progress, generating compelling clinical data and furthering our understanding of the science behind this novel asset. Bexmarilimab is our wholly-owned, novel precision cancer immunotherapy candidate, which causes conversion of the immune environment around a tumor from immune-suppressive to immune-stimulating, by targeting Clever-1, a receptor known to be expressed on immunosuppressive macrophages in the tumor microenvironment. Bexmarilimab is differentiated from other immunotherapies as it specifically targets M2 tumor-associated macrophages (TAMs), which facilitate tumor 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 tumors. 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.

The ongoing MATINS (Macrophage Antibody To INhibit immune Suppression) study, our first-in-human, open label phase I/II clinical trial with an adaptive design, is investigating the safety and efficacy of bexmarilimab monotherapy in selected metastatic or inoperable solid tumors. The completed Part I of the MATINS trial, primarily intended to investigate safety and tolerability, has shown that bexmarilimab promoted immune activation in all dosed patients and can downregulate 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.

Data continued to be generated in 2021 on the strength of bexmarilimab’s clinical efficacy across the ten different hard-to-treat solid tumor cohorts under investigation – cholangiocarcinoma, colorectal cancer, cutaneous melanoma, ER+ breast cancer, gastric cancer, hepatocellular carcinoma, ovarian cancer, uveal melanoma, pancreatic cancer and anaplastic thyroid carcinoma. Patients in the MATINS trial were all heavily pre-treated and their cancer at the time of treatment with bexmarilimab was significantly advanced.

To date, the strongest results have been observed in four tumor types, with a disease control rate, or DCR (partial response + stable disease rate), of 30.0% — 40.0% across the cutaneous melanoma, gastric cancer, cholangiocarcinoma and hepatocellular carcinoma cohorts. Our progress in the MATINS trial, generating clinical efficacy data, is helping us determine which patients may benefit most from treatment with bexmarilimab. The tumor types that yielded the best responses are now primary candidates to become expansion cohorts for Part III of the MATINS study. Together with the additional work underway investigating higher and more frequent dosing, biomarkers of efficacy and the potential for combinations in earlier lines of therapy, we are building a clear path towards the next, pivotal stage of our development program.

A striking scientific observation from the MATINS study was the discovery earlier this year of an abundant amount of free, soluble Clever-1 in the plasma of MATINS patients. Further experimental testing of isolated Clever-1 has indicated that this soluble form is a direct inhibitor of T cells and could be having an immunosuppressive effect in all locations of the body, therefore controlling the general immune capacity of patients. This would represent a broader immunosuppressive effect than previously expected. It follows that inactivation of Clever-1 with bexmarilimab has the potential to be more universally applicable, by improving patients’ immune response and therefore enabling them to benefit from immuno-oncology therapeutics which have previously been ineffective. Following this observation, we filed a new patent application seeking protection for these inventions and related applications.

Building a global intellectual property (IP) portfolio around Clever-1 is a key priority for Faron and important for the future commercialization of bexmarilimab. In June 2021, the United States Patent and Trademark Office granted a new US Patent, No. 11,046,761, with claims protecting the composition of matter of bexmarilimab through 2037. This patent is a welcome addition to our existing global IP portfolio for targeting Clever-1, covering bexmarilimab’s binding sequences and Clever-1’s corresponding epitope – specific elements of the antibody-antigen binding site. We were granted a similar patent in Japan.

Also in June, Clinical Cancer Research, a journal of the American Association for Cancer Research, published a paper analyzing the mode of action of bexmarilimab, both in vitro and in patients from Part I of the MATINS study. Authored by Dr. Maija Hollmén and colleagues at the University of Turku, Finland – part of Faron’s scientific network – and supported by investigators from the MATINS study, the paper explores the systemic immune signatures induced by bexmarilimab in advanced cancer patients with solid tumors and provides a mechanistic understanding of how a macrophage-targeted approach can promote robust activation of T cells.

The remainder of 2021 will be a critical time for bexmarilimab’s development program as we move towards the pivotal expansion stage (Part III) of the MATINS study and the presentation of additional data at the European Society for Medical Oncology (ESMO) Congress, which will take place September 16 – 21, 2021. Following confirmation of the cancer cohorts that we intend to take into Part III, along with recommendations on dosage and dose frequency, we intend to meet with the FDA ahead of patient recruitment, which is expected to begin in H1 2022. Clinical expansion of the program will also commence in H2 2021 investigating bexmarilimab’s potential in additional clinical settings – in combination with standard of care (SOC) as a first-line therapy in selected advanced solid tumors, as a standalone neoadjuvant therapy for patients with early-stage colorectal cancer and renal cell carcinoma, and as a potential treatment for patients with hematological malignancies.

Traumakine – Lung protection and anti-COVID-19 in one treatment under development

Faron continues to explore the potential of Traumakine, our investigational intravenous (IV) interferon (IFN) beta-1a therapy, as a treatment for acute respiratory distress syndrome (ARDS), acute kidney injury, cardiac protection, prevention of solid organ transplant failure and ischemia reperfusion injury. We believe intravenous IFN beta-1a has the potential to become a powerful treatment option for patients who are at risk of developing ARDS because of a viral infection, such as COVID-19.

Despite the progress that has been made with COVID vaccinations, there remains a critical need to identify effective treatment options for hospitalized COVID-19 patients. For over a decade, Faron has been engaged in research to identify new treatments for patients who are at risk of developing acute respiratory distress syndrome because of a viral infection. We are proud to add the weight of our experience to the ongoing global response to COVID-19 and feel strongly that Traumakine could play a significant role in the treatment of hospitalized COVID-19 patients.

One of the body’s main first lines of defense against viral infection is endogenous IFN-beta production, but recent findings have shown that seriously ill COVID-19 patients have compromised interferon responses. We believe Traumakine treatment can further strengthen the body’s natural defenses. 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 August, the Phase II/III HIBISCUS trial assessing Traumakine as a first-line treatment for hospitalized COVID-19 patients began in the US. The study is being conducted in approximately 10-15 study sites across the US and will enroll 140 patients who require low flow oxygen support, but not mechanical ventilation. The safety and efficacy of Traumakine will be compared to corticosteroid treatment with dexamethasone. Subject to data from HIBISCUS supporting Traumakine’s profile, we will work alongside regulatory authorities and other parties to identify the best path to ensure its future availability to patients.

As part of the HIBISCUS trial’s protocol, concomitant corticosteroid treatment is not possible but will be enabled in a sequenced manner following treatment with Traumakine. This approach reflects feedback from the FDA, together with learnings from the earlier development of Traumakine, that further studies with our IV IFN beta-1a should exclude the use of concomitant corticosteroids since they are likely to block its desired therapeutic effect. Faron believes the sequential use of Traumakine followed by corticosteroids could be the optimal approach to provide the best patient benefit from both therapies. In light of this, Faron applied for new patent protection relating to Traumakine’s induction of CD73 – the cell surface protein – for organ protection, followed by the use of corticosteroids for the treatment of systemic inflammation.

Financially, we have seen strong support for this program. In January 2021, 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. Faron has an existing working relationship with the DoD’s designated military unit, the 59^th Medical Wing of the US Air Force, and the US 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. The support for HIBISCUS from the DoD is further validation of the promise this potential therapy holds for severe COVID-19 patients.

Financial review

In February 2021, Faron raised EUR 15.0 million gross (EUR 14.4 million net) from new and existing shareholders through an issuance of 3,521,127 new ordinary shares. Several new high-quality Continental European institutional investors participated in the share placing, expanding our investor base, along with existing investors. The European Investment Council (EIC) Fund, a breakthrough initiative from the European Commission, was the largest of the new investors. Faron is the first publicly-listed company that the EIC Fund has invested in. We were delighted to receive this significant support from our existing and new investors, providing additional financial resources to allow the further acceleration of our development programs and significantly strengthening our balance sheet.

Statement of comprehensive income

The loss from operations for the six months ended 30 June 2021 was EUR 10.4 million (six months ended 30 June 2020: loss of EUR 7.1 million). No revenue was generated during the period or prior revenue. Research and development expenditure increased by EUR 3.5 million to EUR 9.0 million (2020: EUR 5.5 million). Administrative expenses increased by EUR 0.3 million to EUR 2.6 million (2020: EUR 2.4million).

The loss after tax for the period was EUR 10.6 million (2020: loss of EUR 7.3 million) and the basic loss per share was EUR 0.21 (2020: loss per share of EUR 0.16).

Statement of financial position and cash flows

As of June 30, 2021 net assets amounted to EUR 2.8 million (June 30, 2020: EUR 7.3 million). The net cash flow for the first six months in 2021 was EUR 2.9 million (2020: EUR 4.4 million). As of June 30, 2021 total cash and cash equivalents held were EUR 7.0 million (2020: EUR 11.6 million).

Corporate

Faron’s Annual General Meeting (AGM) was held on April 23, 2021. The AGM approved all the proposals of the Board of Directors and its committees set out in the notice of the AGM published March 25, 2021. The number of members of the Board was confirmed as seven. Frank Armstrong, Markku Jalkanen, Matti Manner, Leopoldo Zambeletti, Gregory Brown and John Poulos were re-elected to the Board and Anne Whitaker was elected as a new member to the Board for a term that ends at the end of the next AGM. Additionally, Faron announced on March 29, 2021 that Peel Hunt LLP had been appointed as their sole Broker.

In June, 2021 Faron opened both a new office in Cambridge, MA and employed our first US-based employee. We expect our presence in the US to grow in the second half of 2021 or early 2022 as we add additional resources to support the acceleration of the bexmarilimab development program.

Impact of COVID-19

During the pandemic our ability to secure funding and remote working operations to our portfolio companies is key to continued success. Even during exceptional circumstances, we were able to continue to operate our business almost normally and the development of our 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.

Legal proceedings

As previously announced, Faron has an ongoing arbitration against Rentschler Biopharma SE relating to an agreement concerning the Traumakine API manufacturing. The arbitration is funded by a third-party recovery services provider. The final arbitration decision is expected to be issued by the arbitration tribunal in autumn 2021.

Summary & outlook

Our focus for the remainder of 2021 is the acceleration of bexmarilimab’s clinical development. Preparations for the pivotal expansion stage (Part III) of the MATINS study, including confirmation of dosage and dose frequency, are priorities for us, ahead of patient recruitment, which is expected to begin in H1 2022 following an advice meeting with the US Food & Drug Administration. In H2 2021 we also expect trials to commence investigating the potential of bexmarilimab in combination with standard of care (SOC) as a first-line therapy in selected advanced solid tumors, as a standalone neoadjuvant therapy in multiple indications and as a potential monotherapy in patients with hematological malignancies. Alongside this activity, we will continue patient recruitment in the HIBISCUS trial, investigating the potential of Traumakine in hospitalized COVID-19 patients. On behalf of the Board, we would like to thank our shareholders, existing and new, for their support of Faron. We would also like to thank our employees for their continued commitment to our mission and the patients we serve. We look forward to updating the market on our progress throughout the course of the year.

Dr Markku Jalkanen

Chief Executive Officer

Dr Frank Armstrong

Chairman

Consolidated Income Statement, IFRS

€’000	Unaudited 1-6/2021 6 months	Unaudited 1-6/2020 6 months	1-12/2020 12 months
Revenue		0	0
Other operating income	1,210	743	2,122
Research and development expenses	(9,008)	(5,534)	(13,879)
General and administrative expenses	(2,626)	(2,354)	(4,897)
Operating loss	(10,424)	(7,145)	(16,654)
Financial expense	(191)	(230)	(389)
Financial income	61	31	107
Loss before tax	(10,554)	(7,343)	(16,936)
Tax expense	(6)	0	(10)
Loss for the period	(10,560)	(7,343)	(16,946)

Other comprehensive income
Total comprehensive loss for the period	(10,560)	(7,343)	(16,946)

Loss per ordinary share
Basic and diluted loss per share, EUR	(0.21)	(0.16)	(0.37)

Consolidated Balance Sheet, IFRS€’000	Unaudited30 June 2021	Unaudited30 June 2020	31 December 2020
Assets
*Non-current assets*
Machinery and equipment	19	13	14
Right-of-use-assets	273	456	361
Intangible assets	920	560	565
Prepayments and other receivables	53	80	56
Total non-current assets	1,265	1,109	996

*Current assets*
Prepayments and other receivables	3,634	1,607	3,263
Cash and cash equivalents	6,967	11,627	4,108
Total current assets	10,600	13,234	7,371

Total assets	11,865	14,343	8,367

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	106,396	91,960	92,015
Accumulated deficit	(106,274)	(87,339)	(96,557)
Translation difference	(1)	1	2
Total equity	2,813	7,313	(1,849)

*Non-current liabilities*
Borrowings	3,231	2,303	2,728
Lease liabilities	109	288	199
Other liabilities	146	0	786
Total non-current liabilities	3,486	2,591	3,713

*Current liabilities*
Borrowings	0	0	122
Lease liabilities	178	181	176
Trade payables	4,555	2,729	4,608
Other current liabilities	832	1,529	1,597
Total current liabilities	5,565	4,439	6,503

Total liabilities	9,052	7,030	10,216

Total equity and liabilities	11,865	14,343	8,367

Consolidated Statement of Changes in Equity, IFRS

€’000	Share capital	Reserve for invested unrestricted equity	Translation difference	Accumulated deficit	Total equity

Balance as at 1 January 2020	2,691	78,916		(79,997)	1,610

Comprehensive loss for the first six months 2020	–	–	1	(7,343)	(7,342)

Transactions with equity holders of the Company
Issue of ordinary shares, net of transaction costs EUR 952 thousand	–	13,044		–	13,044
Share-based compensation	–	–		–	–
	–	13,044		–	13,044

Balance as at 30 June 2020	2,691	91,960	1	(87,339)	7,313


Comprehensive loss for the last six months 2020	–	–	1	(9,603)	(9,602)

Transactions with equity holders of the Company
Issue of ordinary shares, net of transaction costs EUR 52 thousand	–	54		–	54
Share-based compensation	–	–		386	386
	–	54		386	440

Balance as at 31 December 2020	2,691	92,015	2	(96,557)	(1,849)


Comprehensive loss for the first six months 2021	–	–	(1)	(10,560)	(10,561)

Transactions with equity holders of the Company
Issue of ordinary shares, net of transaction costs EUR 662 thousand	–	14,381	–	–	14,381
Share-based compensation	–	–	–	843	843
		14,381		843	15,224

Balance as at 30 June 2021	2,691	106,396	(1)	(106,274)	2,813

Consolidated Cash Flow Statement, IFRS

€’000	Unaudited 1-6/2021 6 months	Unaudited 1-6/2020 6 months	1-12/2020 12 months
Cash flow from operating activities
Loss before tax	(10,554)	(7,343)	(16,936)
Adjustments for:
Received grant	(642)	0	(587)
Depreciation and amortisation	142	130	283
Interest expense	88	93	149
Tax expense	10	0	10
Unrealised foreign exchange loss (gain), net	(27)	(125)	117
Share-based compensation	843	0	386
Adjusted loss from operations before changes in working capital	(10,141)	(7,245)	(16,578)
Change in net working capital:
Prepayments and other receivables	(660)	534	(1,097)
Trade payables	(21)	(237)	1,641
Other liabilities	(337)	(1,333)	(1,416)
Cash used in operations	(11,158)	(8,281)	(17,450)
Taxes paid	(15)	0	(1)
Interest paid	(30)	(29)	(28)
Net cash used in operating activities	(11,204)	(8,310)	(17,479)

Cash flow from investing activities
Payments for intangible assets	(385)	(77)	(137)
Payments for equipment	(7)	(2)	(5)
Net cash used in investing activities	(392)	(79)	(142)

Cash flow from financing activities
Proceeds from issue of shares	15,044	13,997	14,103
Share issue transaction cost	(662)	(952)	(1,004)
Proceeds from borrowings	264	0	630
Repayment of borrowings	(122)	(122)	(122)
Proceed from grants	0	0	1,375
Payment of lease liabilities	(96)	(91)	(195)
Net cash from financing activities	14,427	12,832	14,787

Net increase (+) / decrease (-) in cash and cash equivalents	2,831	4,443	(2,834)
Effect of exchange rate changes on cash and cash equivalents	27	125	(117)

Cash and cash equivalents at 1 January	4,108	7,059	7,059
Cash and cash equivalents at the end of period	6,967	11,627	4,108

Notes to the financial statements

Corporate information

Faron Pharmaceuticals Ltd (the “Company”) is a clinical stage biopharmaceutical company incorporated and domiciled in Finland, with its headquarters at Joukahaisenkatu 6, 20520 Turku, Finland. The Company currently has a pipeline based on the endothelial receptors involved in regulation of immune response, in oncology and organ damage.

The Company has been listed on the London Stock Exchange’s AIM market since 17 November 2015, with a ticker FARN, and since 3 December 2019, the Company has been listed on the Nasdaq First North Growth Market list with a ticker FARON.

Summary of significant accounting policies

1. Basis of preparation

The unaudited H1 report has been prepared in accordance with the International Financial Reporting Standards of the International Accounting Standards Board (IASB) and as adopted by the European Union (IFRS) 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 principal accounting policies applied in the preparation of these interim financial statements are set out below. The Company has consistently applied these policies to all the periods presented, unless otherwise stated. The areas of the financial statements involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2.2.

The unaudited consolidated financial statements incorporate the parent company, Faron Pharmaceuticals Ltd, and all subsidiaries in which it holds over 50% of the voting rights (the “Group”).

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

1. Going concern

The Company has forecasted its estimated cash requirements over the next twelve months. In order to make these forecasts the Company has made a number of assumptions regarding the quantity and timing of future expenditure and income as well as other key factors. Though these estimates have been made with caution and care, they continue to contain a significant amount of uncertainty. Based on the forecast the Company believes that it has adequate financial resources to continue its operations into Q4 2021 and therefore these unaudited financial statements have been prepared on a going concern basis. In its meeting on 25 August 2021 the Board of Directors of the Company approved the publishing of these interim financial statements.

The Company has taken several acts to secure further financing during the rest of the year 2021. The Directors believe that the Company can gain access to further resources to sustain operations over the next 12 months. At this stage the Company cannot disclose any of these options.

Because the additional finance is not committed at the date of issuance of these H1 reports, these circumstances represent a material uncertainty that may cast significant doubt on the Company’s ability to continue as a 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.

Faron Reports Half-Year Financials January 1 – June 30 2021 260821

Faron´s Annual Report 2020 published

25.3.2021

Faron Pharmaceuticals Oy

(“Faron” or the “Company”)

Faron´s Annual Report 2020 published

Company announcement, 25 March 2021 at 9.15 AM (EET)

TURKU – FINLAND – Faron Pharmaceuticals Oy (AIM: FARN, First North: FARON), the clinical stage biopharmaceutical company, announces that its Annual Report for the year 2020 has been published today.

Faron Pharmaceuticals´ Annual Report 2020 and audited financial statements for the accounting period 1 January – 31 December 2020 have been published in English and its financial statements in Finnish, on the Company’s website https://www.faron.com/investors/results.

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: +44 207 213 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)50 553 8990

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, Naina Zaman

Phone: +1 212 362 1200

E-mail: faron@sternir.com

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.

Attachment:

Faron´s Annual Report 2020.pdf

Release

Financial statement January 1 to December 31 2020

25.3.2021

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 59^th 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-Ia Safety 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.

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

Release

Half-year Report

24.9.2020

Faron Pharmaceuticals Oy

(“Faron” or the “Company”)

Half-year report 1 January to 30 June 2020 (unaudited)

– Development of novel cancer immunotherapy Clevegen^® (bexmarilimab) continues in Phase I/II MATINS trial across 10 tumour types

– IV interferon beta-1a, Traumakine^®, being investigated as potential COVID-19 treatment in two ongoing global trials with preparations for US trial underway

– Successful €14 million placing in April strengthens Company’s balance sheet

– Additional grants of €3.3 million and €4.6 million loans awarded to drive R&D and CMC programmes

Half-year report, 24 September 2020 at 9.00 AM (EEST)

TURKU, FINLAND – Faron Pharmaceuticals Oy (AIM: FARN, First North: FARON), the clinical stage biopharmaceutical company, today announces its unaudited half-year report for 1 January to 30 June 2020 (the “period”).

HIGHLIGHTS

Operational (including post period):

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

Clinical Development Updates:

· Dosing of Part II of the ongoing MATINS trial commenced in February, with strong patient recruitment across 10 cancer types (ER-positive breast cancer, cholangiocarcinoma (bile duct cancer) and gall bladder cancer, colorectal cancer, gastric cancer, hepatocellular carcinoma, cutaneous melanoma, uveal melanoma, ovarian cancer, pancreatic ductal adenocarcinoma and anaplastic thyroid cancer). This basket trial also has three dosing levels for colorectal cancer (CRC) at 0.3, 1.0 and 3.0 mg/kg.

· A comprehensive review and analysis of data from the completed Part I (dose finding) stage of the trial was completed by the data monitoring committee (“DMC”) with a recommendation from the DMC to rapidly expand into additional tumour types. As of today, and based on early clinical benefits, four cancer types (colorectal, ovarian, cutaneous melanoma and uveal melanoma) have been selected as the candidate expansion cancer types for Part III.

· The World Health Organization (WHO) approved bexmarilimab as the International Nonproprietary Name (INN) for Clevegen.

· Further detail was provided on clinical expansion plans for bexmarilimab, which will include the investigation of alternative dosing cycles, as pharmacodynamic (PD) markers may indicate a need for shorter frequencies, as well as further studies in additional clinical settings – in combination with standard of care (SOC) as a first-line therapy in selected advanced solid tumours and as a standalone neoadjuvant therapy for patients with early stage colon cancer.

· The Company expects to announce topline data from its first expansion cohorts of the MATINS trial in the fourth quarter of 2020 and determine the final dosage, and dosing frequency for the expansion cohorts, in the first quarter of 2021.

Data Presentations:

· Previously announced safety and efficacy data from Part I of the MATINS trial were presented at the virtual American Society of Clinical Oncology (ASCO20) Annual Meeting, showing that bexmarilimab was well tolerated without dose-limiting toxicities; CLEVER-1 inhibition led to immune cell activation and downregulation of several checkpoint molecules; and interferon gamma and chemokine CXCL10 responses were associated with clinical responses observed in target or non-target lesions.

· Data from Part I of the trial were also presented at the European Society of Medical Oncology (ESMO) Virtual Congress 2020, including key pharmacokinetics and Clever-1 occupancy data, evidence of very good tolerability across all dosing levels, immune activation in all subjects, promising clinical anti-tumour activity and the conversion of immunologically non-inflamed (cold) tumours into inflamed (hot) tumours in patients traditionally not responsive to currently available checkpoint inhibitors.

Business Development and Manufacturing:

· AGC Biologics, a global contract development and manufacturing organization, was selected as the commercial scale manufacturer of bexmarilimab. The commercial scale manufacturing process established by AGC Biologics will also provide a dossier to support future regulatory filings in Europe and the US.

· A €2,500,000 grant from the European Innovation Council (EIC) Accelerator pilot scheme was awarded to the Company to progress the MATINS trial and related business activities. The EIC Accelerator pilot scheme supports top-class innovators, entrepreneurs, small companies and scientists with funding opportunities to support developing and bringing to the market new breakthrough products, services and business models that would become future drivers of economic growth for Europe.

· Faron joined the Finnish Cancer IO consortium, a new cancer immunotherapy-focused €10 million top-level collaborative research and innovation project within Business Finland’s Personalized Health Program, and was awarded a €800,000 grant from Business Finland to conduct a detailed, state-of-the-art characterization of the immunological responses seen in cancer patients in the MATINS trial. Bexmarilimab will be studied in experimental combinations with anti-cancer molecules from other consortium members.

Traumakine^® – in development for the treatment of organ failures

Clinical Development:

· Faron’s intravenous (IV) interferon (IFN) beta-1a, Traumakine, was selected to be part of the two global trials investigating potential treatments for COVID-19.

· WHO’s global Solidarity trial began in April 2020 investigating four treatment options against SOC to assess their relative effectiveness against COVID-19 – remdesivir; lopinavir/ritonavir; lopinavir/ritonavir with IFN beta-1a; and chloroquine or hydroxychloroquine. In July, WHO removed the hydroxychloroquine and lopinavir/ritonavir treatment arms from the trial due to insufficient evidence of benefit leaving IFN beta-1a and remdesivir as the only two drugs remaining in the trial, subject to WHO announcing further new compounds for inclusion. IFN beta-1a now remains as a monotherapy. The WHO expects to provide a readout from the SOLIDARITY trial in the fourth quarter of 2020.

· The global REMAP-CAP (Randomized, Embedded, Multifactorial Adaptive Platform Trial for Community-Acquired Pneumonia) investigating potential treatments for patients with community acquired pneumonia, including COVID-19 patients, introduced a new treatment arm to include Faron’s IV IFN beta-1a. The study is directly comparing the treatment effect of Traumakine, hydrocortisone treatments, and other study treatment options on the clinical outcomes of COVID-19 patients and those with other causes of pneumonia requiring intensive care unit (ICU) care.

· Faron announced that a third trial will investigate the potential of Traumakine to treat COVID-19. HIBISCUS (Human Interferon Beta In Severe CoronavirUS) will be an investigator-initiated study at the Harvard Medical School’s Beth Israel Deaconess Medical Center (BIDMC), focused on ICU patients with ARDS caused by viral infection (e.g. COVID-19, influenza). Commencement of the phase II/III pivotal, randomized, placebo controlled study, which aims to recruit 350 patients, remains subject to finalisation of funding arrangements and regulatory approval. Faron expects to initiate this study in the fourth quarter of 2020.

· Detailed analyses into the effects of glucocorticoids on IV IFN beta-1a activity, which arose following the INTEREST trial in 2018, were published in Intensive Care Medicine, a world leading journal in the field of critical care. 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 acute respiratory distress syndrome (ARDS) compared to patients administered with IV IFN beta-1a alone.

Business Development and Manufacturing:

· Faron announced plans to initiate a new state-of-the-art process for Traumakine manufacturing and was awarded a €2,100,000 low interest rate loan from Business Finland, the governmental innovation financing agency of Finland, which will be used to develop and select a new cell line that can be used for future commercial scale production of the Company’s IV IFN beta-1a. The Company subsequently received a loan guarantee from Finnvera (official Export Credit Agency of Finland) for €2,500,000 loan to expand the commercial scale manufacturing.

AOC3 Antagonist Platform Technology (Haematokine^TM)

· 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. The project is now named Haematokine^TM as the Company believes that the use of AOC3 inhibitors could regulate the expansion of hematopoietic stem cells and could become a life saving treatment for patients who have lost their bone morrow for various reasons such as hematological cancers. The Company is continuing IND-enabling studies for this program, however, the recent first review by the Finnish patent office has made the Company believe that global patent protection could be possible for the Haematokine^TM project.

Corporate

· Faron hosted a virtual R&D Day presenting the Company’s R&D strategy and insights into its two clinical stage programmes. In addition to Faron Management, three external experts provided additional perspectives on both programmes. Alongside 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.

· The Company’s Annual general meeting (AGM) was held on 18 May 2020. The AGM approved all the proposals of the board of directors and its committees set out in the notice of the AGM published on 14 April 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.

· Faron announced on 27 July 2020 that Cairn Financial Advisers LLP had been appointed as Nominated Adviser to the Company with immediate effect. Panmure Gordon (UK) Limited continues to act as the Company’s Broker.

Impact of COVID-19

Additionally, Faron closely followed and strictly complied to 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

· Cash balances of €11.6 million at 30 June 2020 (2019: €2.9 million).

· Operating loss of €7.1 million for the six months ended 30 June 2020 (2019: €6.3 million).

· Net assets of €7.3 million as at 30 June 2020 (2019: €-1.8 million).

· In April 2020 the Company raised a total of €14 million gross (€13 million net) in a share placing, effected via a private placement of new Ordinary Shares to a limited number of institutional investors in the Nordic region and a concurrent proposed private placement of new Ordinary Shares to UK institutional investors.

· Additional grants of €3.3 million, loan of €2.1 million and a loan guarantee for €2.5 million were awarded in H1 and partially post period. Those non-diluting funds (in total of €7.9 million) funds will be dispersed to the Company in H2 and thereafter, and thus are not included in H1 cash balances.

Consolidated key figures, IFRS

€’000	Unaudited 1-6/2020 6 months	Unaudited 1-6/2019 6 months	1-12/2019 12 months
Revenue	0	0	0
Research and Development expenses	(5,534)	(4,982)	(10,237)
General and Administrative expenses	(2,354)	(1,361)	(3,049)
Loss for the period	(7,343)	(6,412)	(13,262)

	Unaudited 1-6/2020 6 months	Unaudited 1-6/2019 6 months	1-12/2019 12 months

Loss per share EUR	(0.16)	(0.19*)	(0.36)
Number of shares at end of period	46,799,747	37,233,894	43,290,747
Average number of shares	44,584,199	33,819,699	36,850,577

€’000	Unaudited 30 Jun 2020	Unaudited 30 Jun 2019	31 Dec 2019
Cash and cash equivalents	11,627	2,892	7,059
Equity	7,313	(1,761)	1,610
Balance sheet total	14,343	5,103	10,209

*correction to interim results announced on 23 September 2019, the Loss per share is EUR 0.19 instead of EUR 0.17

Commenting on the results, Dr Markku Jalkanen, CEO of Faron, said: “I am delighted to report the significant progress we have made so far in 2020, advancing the Faron pipeline and investing to secure the future of our clinical programmes. Our novel precision cancer immunotherapy, bexmarilimab, continues to deliver very promising results in a development programme that has rapidly expanded this year and our confidence in this novel therapy has been strengthened by the MATINS Part I data, showing that bexmarilimab has led to CLEVER-1 inhibition with immune cell activation and downregulation of several checkpoint molecules. With the MATINS trial now advancing across ten cancer cohorts we stand to learn much more about the potential of this novel therapy in the coming months and we look forward to continuing our discussions with regulators about the future development plan of this program.

“As the scientific community has rallied in 2020 to identify therapies for COVID-19 patients, I am proud that Faron has been able to support two global initiatives and a planned US trial, to investigate the potential of Traumakine for the treatment of ARDS and COVID-19. We look forward to the upcoming WHO SOLIDARITY trial data in fourth quarter of this year and expect to initiate our HIBISCUS US study with Harvard University in the fourth quarter of this year.

“The Company’s successful fundraise in April and a number of additional non-dilutive funds put the Company in a strong financial position to progress our clinical programmes and I would like to thank all our shareholders for their continued support.”

September 24, 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 webcast and conference call for analysts to provide an update on the results, followed by a Q&A session, at 7.30am EST / 12:30pm BST / 2:30pm EEST. A presentation to accompany the call will be available on the Faron website (https://www.faron.com/investors/results) at 7.00am EST / 12.00pm BST / 2.00pm EEST

The webcast can be accessed here https://www.lsegissuerservices.com/spark/FaronPharmaceuticalsOy/events/f2025553-c840-4c5c-9f34-d6e3b6d58fa3

Dial-in details are:

UK: 0800 028 8438

Finland: 0931 583 827

US: (918) 922-6506
Conference ID: 5946048

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. +44 207 213 0880

Panmure Gordon (UK) Limited, Broker

Rupert Dearden

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

Stern Investor Relations, Inc.

Julie Seidel

Phone: +(1)212 362 1200

Email: Julie.Seidel@sternir.com

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 standard treatments including immune checkpoint molecules. 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

Chairman’s and Chief Executive Officer’s Review

Introduction

The first half of 2020 has continued to build further excitement around Faron’s pipeline, which we saw gain momentum in 2019. Clevegen^® (bexmarilimab), by providing significant immune activation for cancer patients, has delivered solid achievements against our objectives for the period. Traumakine^® (intravenous interferon-beta 1a) in turn has become a key candidate as a potential COVID-19 treatment due to its ability to act as an anti-viral and lung function supportive agent. We also announced a new pre-clinical project, now called Haematokine^TM, a treatment involving the regeneration of haematopoietic stem cells. Faron also attracted a total of €22 million in new funding, which includes a significant amount of non-dilutive funds (€7.9 million). In this report we are pleased to provide further information on our H1 2020 progress and also give insights into our plans and intended progress for the second half of the year.

Clevegen (bexmarilimab) – Commencement of Part II of MATINS study with strong patient recruitment and encouraging Part I results

Driving the clinical development of Clevegen has been Faron’s priority and in the first six months of the year we have delivered strong results, with the programme continuing apace. 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 immune suppressive 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.

The ongoing MATINS trial, our first-in-human open label phase I/II clinical trial with an adaptive design, is investigating 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 all dosed 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 when the MATINS trial’s data monitoring committee (DMC) approved the first expansion cohort for Part II of the trial in patients suffering from late-stage colorectal cancer (CRC). A second expansion cohort, in patients with ovarian cancer, quickly followed. Ovarian cancer is a tumour type known to host a significant number of Clever-1 positive TAMs and it presents a high unmet medical need with few available treatments for patients. As of today, additional clinical benefits have been observed in cutaneous melanoma and uveal melanoma. All these four cancer types are primary candidates to become expansion cohorts for the Part III of the MATINS study.

In March 2020, a comprehensive review and analysis of data from the completed Part I stage of the trial was undertaken by the DMC. Key findings presented to the committee included evidence of immune activation in all subjects (except those receiving the lowest 0.1 mg/kg dose) following treatment with bexmarilimab and emerging evidence of clinical responses. According to the RECIST response evaluation criteria, bexmarilimab treatment showed a clinical effect of two partial responses and seven cases of stable disease, which equated to a response rate in Part I of 36 per cent (9/25) among 0.3-10 mg/kg dose levels.

In light of these findings, the DMC recommended a rapid expansion of the study to include all cancer cohorts in the study protocol, beyond the CRC and ovarian cancer cohorts previously selected. The committee also recommended that patient recruitment for the expansion cohorts should follow standard of care for each cancer type and enable subjects with less compromised immune systems to be enrolled to the trial (i.e. earlier treatment lines whenever possible, according to the study protocol).

In total, bexmarilimab is now being investigated in ten cancer cohorts: ER-positive breast cancer, cholangiocarcinoma (bile duct cancer) and gall bladder cancer, colorectal cancer, gastric cancer, hepatocellular carcinoma, cutaneous melanoma, uveal melanoma, ovarian cancer, pancreatic ductal adenocarcinoma and anaplastic thyroid cancer.

At a time when health systems have been stretched to their limits by the ongoing global COVID-19 pandemic, we have been particularly pleased that patient recruitment into the MATINS trial has not been affected and we look forward to learning more about bexmarilimab’s potential as the trial progresses. Our confidence in bexmarilimab has only strengthened this year. Despite the MATINS trial patients’ very advanced stage of disease and several lines of previous therapies, including PD-1 and CTLA-4 inhibitors, we remain very encouraged by the evidence emerging of this candidate’s single agent efficacy. That is why we also announced this year that clinical expansion plans for bexmarilimab will include the investigation of alternative dosing cycles, as pharmacodynamics markers may indicate a need for shorter frequencies, as well as further studies in additional clinical settings. The Company also intends to investigate bexmarilimab in combination with standard of care, as a first-line therapy in selected advanced solid tumours, and as a standalone neoadjuvant therapy for patients with early stage colon cancer.

Patient recruitment for the several cohorts has already completed and the rest are expected to follow in the next few months. The data from these cohorts will allow the Company to obtain advice from regulatory authorities for the continuation into Part III of the study. Patient recruitment for a small number of additional cohorts is expected to complete around early Q4 2020 and discussions with the FDA likely to follow in early 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. This is a significant milestone in our bexmarilimab programme. AGC Biologics has decades of experience in manufacturing of biotechnological products, including commercial market supplies of FDA, PDMA and EMA approved products. The commercial scale manufacturing process it establishes for bexmarilimab will provide a dossier to support future regulatory filings in Europe and the US.

We have also continued our partnering discussions with third parties, including leading pharmaceutical companies, with the aim of supporting expansion of clinical development and exploring the potential of bexmarilimab in combination with existing immunotherapies and other cancer therapies. While these remain important to our strategy, Faron’s strong financial position does provide the Company with greater flexibility to independently advance this candidate further in its development programme.

Traumakine – Lung protection and anti-COVID-19 in one treatment under development

Traumakine is currently involved in three major clinical studies sponsored by the global scientific community in its search for therapies against COVID-19. These explore the potential of the Company’s intravenous (IV) interferon (IFN) beta-1a, Traumakine, to reduce intensive care need and mortality for COVID-19 patients but also as a future treatment for acute respiratory distress syndrome (ARDS) and one that could have significant impact on the intensive-care burden from COVID-19. This is well justified, and our greater understanding from previous trials on the interference from corticosteroids on the efficacy of our investigational IV IFN beta-1a has enabled us to refocus our efforts on this asset, which we continue to believe holds great potential as a future treatment for ARDS. Alongside the acceleration of bexmarilimab’s development programme, Faron began 2020 continuing to work with regulatory authorities to determine the next steps in Traumakine’s future development pathway. We were pleased therefore, when in March the U.S. Food and Drug Administration (FDA) accepted the Company’s proposed protocol design for the next Traumakine study in ARDS patients. That trial protocol reflected the feedback and conclusions from the FDA that further studies with our IV IFN beta-1a should exclude the use of concomitant glucocorticoids since they are likely to block its desired therapeutic effect, and may have a potentially deleterious impact on patient survival. Since March, the FDA has indicated that a separate arm in this study is required, to test a separate effect of a corticosteroid called dexamethasone. This study called HIBISCUS has now been designed together with Harvard University in the US. The Company expects approval of this study in due course and for recruitment to start during Q4 2020.

In April we joined two global initiatives investigating the potential of multiple therapies to treat COVID-19, by providing supplies of Traumakine to REMAP-CAP, the Randomized, Embedded, Multifactorial Adaptive Platform Trial for Community-Acquired Pneumonia program, and the World Health Organization’s (WHO’s) Solidarity trial.

One of the body’s main first lines of defence against viral infection is endogenous IFN-beta production, but recent findings have shown that seriously ill COVID-19 patients have compromised interferon responses. We believe Traumakine treatment can further strengthen the body’s natural defences. 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.

While both global initiatives are ongoing, Faron is also supporting a third trial to investigate the potential of the Company’s IV IFN beta-1a to treat COVID-19. HIBISCUS (Human Interferon Beta In Severe CoronavirUS), will be an investigator initiated study at Harvard Medical School’s Beth Israel Deaconess Medical Center (BIDMC), focused on ICU patients with ARDS caused by viral infection (e.g. COVID-19, influenza). Commencement of this Phase II/III pivotal, randomized, placebo-controlled study, remains subject to finalisation of funding arrangements and regulatory approval. The study will test Traumakine against both placebo and dexamethasone, which is now a part of the standard of care in the US.

As a sign of our continued commitment to the Traumakine programme and looking ahead to its future, the Company announced (August, post-period) that AGC Biologics, the commercial scale manufacturer of bexmarilimab, will be the new manufacturing house for the commercial scale production of Traumakine’s active pharmaceutical ingredient – interferon beta-1a.

Haematokine^TM – Hematopoietic stem cell expansion

In March the Company 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 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 reviving failing transplants are expensive and often unsuccessful. With Haematokine, the Company believes, we can expand stem cells by regulating AOC3 activity.

Financial review

In April the Company successfully raised approximately €14 million (£12.9 million) through a private placement of new ordinary shares to institutional investors in the UK and the Nordic region. The majority of these proceeds are being used to advance our bexmarilimab clinical programme and expand manufacturing, while also significantly strengthening the Company’s balance sheet to support other ongoing activities.

During the period the Company was awarded two grants to support its activities: An €0.8 million grant from Business Finland to conduct detailed, state-of-the-art characterization of the immunological responses seen in cancer patients in the bexmarilimab MATINS trial and a €2.5 million grant from the European Innovation Council (EIC) Accelerator pilot scheme to progress the MATINS trial and related business activities.

The Company was also awarded a €2.1 million low interest rate loan from Business Finland, which is being used to develop and select a new cell line for use in the future commercial scale production of Traumakine. Additionally, post period, the Company received a loan guarantee for a €2.5 million loan, which will be used to further expand that cell line. The Company has partnered with Danske Bank A/S Finland Branch for the loan arrangement.

These grants and loans, totalling €7.9 million, are non-dilutive. Proceeds of these grants and loans are not included in the H1 cash balances as the proceeds will be dispersed to the Company post period.

Statement of comprehensive income

The loss from operations for the six months ended 30 June 2020 was EUR 7.1 million (six months ended 30 June 2019: loss of EUR 6.3 million). No revenue was generated during the period or prior revenue. Research and development expenditure increased by EUR 0.5 million to EUR 5.5 million (2019: EUR 5.0 million). Administrative expenses increased by EUR 1.0 million to EUR 2.4 million (2019: EUR 1.4 million).

The loss after tax for the period was EUR 7.3 million (2019: loss of EUR 6.4 million) and the basic loss per share was EUR 0.16 (2019: loss per share of EUR 0.19).

Statement of financial position and cash flows

At 30 June 2020, net assets amounted to EUR 7.3 million (30 June 2019: EUR−1.8 million). The net cash flow for the first six months in 2020 was EUR 4.4 million (2019: EUR −1.1 million). As at 30 June 2020, total cash and cash equivalents held were EUR 11.6 million (2019: EUR 2.9 million).

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 was terminating the agreement concerning Traumakine API manufacturing. The Company considers that this statement is without merit and that Rentschler has breached the agreement. Faron has filed a request for arbitration to seek damages. The arbitration proceeding is ongoing and the final arbitration award is expected to be issued by the arbitration tribunal during mid year 2021. To fund the proceedings, the Company has entered into a litigation funding agreement with a third-party recovery services provider offering non-recourse financing services which, subject to final quantum, is expected to cover both the Company’s and the adverse party’s legal expenses and which, in the event of success, would receive a typical portion of any damages awarded.

Corporate

On 16 June 2020, the Company hosted a virtual R&D Day presenting its R&D strategy and insights into the Clevegen and Traumakine programmes. Faron management representatives were joined by Prof. Alberto Mantovani, Humanitas University, Milan, Italy; Ass. Prof. Maija Hollmén, MediCity, Turku University, Finland, and Dr. Petri Bono, Terveystalo, Helsinki, Finland, who provided additional perspectives on both programmes. The event, well attended, was an opportunity for the Company to showcase the strength of its clinical programmes and plans for the future.

The Company’s Annual general meeting (AGM), held on 18 May 2020, approved all the proposals of the board of directors and its committees set out in the notice of the AGM published on 14 April 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.

Summary & outlook

Our focus for H2 2020 will be the expedition of Clevegen’s clinical development through Parts II and III of the MATINS trial and to report these data to regulatory authorities. We will also continue to support the ongoing COVID-19 research initiatives investigating the potential of the Company’s IV IFN beta-1a, Traumakine. The successful financing undertaken in H1 and post period 2020 puts the Company in a strong financial position to progress both clinical programmes and related business activities, while partnering discussions continue.

On behalf of the Board we would like to thank the whole Faron team for their commitment, resilience and agility during the challenging times of 2020. Their response has enabled the Company to make significant achievements against its objectives and has secured a strong position for the second half of 2020.

We look forward to updating the market on our progress throughout the course of the year.

Consolidated Income Statement, IFRS

€’000	Unaudited 1-6/2020 6 months	Unaudited 1-6/2019 6 months	1-12/2019 12 months
Revenue	0	0	0
Other operating income	743	0	185
Research and development expenses	(5,534)	(4,982)	(10,237)
General and administrative expenses	(2,354)	(1,361)	(3,049)
Operating loss	(7,145)	(6,343)	(13,101)
Financial expense	(230)	(73)	(224)
Financial income	31	5	74
Loss before tax	(7,343)	(6,411)	(13,251)
Tax expense	0	(0)	(11)
Loss for the period	(7,343)	(6,412)	(13,262)

Other comprehensive income			–
Total comprehensive loss for the period	(7,343)	(6,412)	(13,262)

Loss per ordinary share
Basic and diluted loss per share, EUR	(0.16)	(0.19*)	(0.36)

Consolidated Balance Sheet, IFRS €’000	Unaudited 30 June 2020	Unaudited 30 June 2019	31 December 2019
Assets
Non-current assets
Machinery and equipment	13	14	13
Right-of-use-assets	456	0	386
Intangible assets	560	522	529
Prepayments and other receivables	80	595	77
Total non-current assets	1,109	1,131	1,005

Current assets
Prepayments and other receivables	1,607	1,080	2,145
Cash and cash equivalents	11,627	2,892	7,059
Total current assets	13,234	3,972	9,204

Total assets	14,343	5,103	10,209

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	91,960	68,695	78,916
Accumulated deficit	(87,339)	(73,146)	(79,997)
Translation difference	1	0	–
Total equity	7,313	(1,761)	1,610

Non-current liabilities
Borrowings	2,303	2,363	2,263
Lease liabilities	288	0	261
Total non-current liabilities	2,591	2,363	2,524

Current liabilities
Borrowings	0	0	163
Lease liabilities	181	0	135
Trade payables	2,729	2,868	2,967
Other current liabilities	1,529	1,633	2,810
Total current liabilities	4,439	4,501	6,075

Total liabilities	7,030	6,864	8,599

Total equity and liabilities	14,343	5,103	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 1 January 2019	2,691	64,464		(66,786)	369

Comprehensive loss for the first six months 2019	–	–		(6,412)	(6,412)

Transactions with equity holders of the Company
Issue of ordinary shares, net of transaction costs EUR 230 thousand	–	4,230		–	4,230
Share-based compensation	–	–		51	51
	–	4,230		51	4,281

Balance as at 30 June 2019	2,691	68,695		(73,146)	(1,761)


Comprehensive loss for the last six months 2019	–	–		(6,850)	(6,850)

Transactions with equity holders of the Company
Issue of ordinary shares, net of transaction costs EUR 919 thousand	–	10,222		–	10,222
Share-based compensation	–	–		–	–
	–	–		–	–

Balance as at 31 December 2019	2,691	78,916		(79,997)	1,610


Comprehensive loss for the first six months 2020	–	–	1	(7,343)	(7,342)

Transactions with equity holders of the Company					–
Issue of ordinary shares, net of transaction costs EUR 952 thousand	–	13,044		–	13,044
Share-based compensation	–	–		–	–
	–	13,044	0	–	13,044

Balance as at 30 June 2020	2,691	91,960	1	(87,339)	7,313

Consolidated Cash Flow Statement, IFRS

€’000	Unaudited 1-6/2020 6 months	Unaudited 1-6/2019 6 months	1-12/2019 12 months
Cash flow from operating activities
Loss before tax	(7,343)	(6,411)	(13,251)
Adjustments for:
Depreciation and amortisation	130	48	238
Interest expense	93	39	158
Tax expense	0		11
Unrealised foreign exchange loss (gain), net	(125)	29	(7)
Share-based compensation	0	51	51
Adjusted loss from operations before changes in working capital	(7,245)	(6,245)	(12,800)
Change in net working capital:
Prepayments and other receivables	534	1,679	1,173
Trade payables	(237)	(641)	(567)
Other liabilities	(1,333)	(334)	731
Cash used in operations	(8,281)	(5,541)	(11,463)
Taxes paid	0	0	(9)
Interest paid	(29)	(26)	(51)
Net cash used in operating activities	(8,310)	(5,567)	(11,523)

Cash flow from investing activities
Payments for intangible assets	(77)	(41)	(100)
Payments for equipment	(2)	(0)	–
Net cash used in investing activities	(79)	(41)	(100)

Cash flow from financing activities
Proceeds from issue of shares	13,997	4,461	15,627
Share issue transaction cost	(952)	(230)	(1,175)
Proceeds from borrowings	0	231	307
Repayment of borrowings	(122)	(0)	–
Payment of lease liabilities	(91)		(151)
Net cash from financing activities	12,832	4,461	14,608

Net increase (+) / decrease (-) in cash and cash equivalents	4,443	(1,147)	2,985
Effect of exchange rate changes on cash and cash equivalents	125	(29)	7

Cash and cash equivalents at 1 January	7,059	4,067	4,067
Cash and cash equivalents at the end of period	11,627	2,892	7,059

Notes to the financial statements

1. Corporate information

2. Summary of significant accounting policies

2.1. Basis of preparation

The unaudited H1 report have been prepared in accordance with the International Financial Reporting Standards of the International Accounting Standards Board (IASB) and as adopted by the European Union (IFRS) 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 H1 report has 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 unaudited consolidated financial statements incorporate the parent company, Faron Pharmaceuticals Ltd, and all subsidiaries in which it holds over 50% of the voting rights (the “Group”).

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

2.2. Going concern

The Company has forecasted its estimated cash requirements over the next twelve months. In order to make these forecasts the Company has made a number of assumptions regarding the quantity and timing of future expenditure and income as well as other key factors. Though these estimates have been made with caution and care, they continue to contain a significant amount of uncertainty. Based on the forecast the Company believes that it has adequate financial resources to continue its operations into Q1 2021 and therefore these unaudited financial statements have been prepared on a going concern basis. In its meeting on 23 September 2020 the Board of Directors of the Company approved the publishing of these interim financial statements.

Company has taken several acts to secure further financing during rest of the year 2020. The Directors believe that the Company can gain access to further resources to sustain operations over the next 12 months. At this stage the Company can not disclose any of these options.

Because the additional finance is not committed at the date of issuance of these H1 reports, 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.

AIM Rules for Companies disclosure

Frank Armstrong, Chairman of the Company, was Chairman of Redx Pharma plc from 1 September 2014 until his resignation on 20 April 2017. On 24 May 2017, Redx Pharma plc was put into administration by Liverpool City Council as a result of non-payment of an outstanding loan of £2 million and the ordinary shares in Redx Pharma plc were suspended from trading on AIM. On 3 November 2017, Redx Pharma plc exited administration with all creditors paid and trading in the shares of Redx Pharma plc resumed on AIM.

1310242

Correction to Faron´s Annual Report 2019

26.3.2020

Faron Pharmaceuticals Oy

(“Faron” or the “Company”)

Correction to Faron´s Annual Report 2019

Company announcement, 26 March 2020 at 12.00 PM (EET)

TURKU – FINLAND – Faron Pharmaceuticals Oy (AIM: FARN, First North: FARON), the clinical stage biopharmaceutical company, announces the correction to the Annual Report 2019 which has been published yesterday.

The correction is related to the average number of shares and EPS (loss per share). The correct average number of shares is 36,850,577 not 35,533,179 in 2019 as published earlier yesterday in the Annual Report 2019 and in the Financial statement release published on 20 March 2020. The resulting EPS is (0.36) for the full year 2019. Loss per share unaudited 7-12/2019 is (0.18) and unaudited 7-12/2018 is (0.20).

The corrected versions of Faron Pharmaceuticals´ Annual Report 2019 and financial statements for the accounting period 1 January – 31 December 2019 have been published in English and its financial statements in Finnish, on the Company’s website https://www.faron.com/investors/results.

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

About Faron Pharmaceuticals Ltd

Attachment:

Faron´s Annual Report 2019.pdf

http://www.rns-pdf.londonstockexchange.com/rns/6962H_1-2020-3-26.pdf

6962H_1-2020-3-26

Faron´s Annual Report 2019 published

25.3.2020

Faron Pharmaceuticals Oy

(“Faron” or the “Company”)

Faron´s Annual Report 2019 published

Company announcement, 25 March 2020 at 9.00 AM (EET)

TURKU – FINLAND – Faron Pharmaceuticals Oy (AIM: FARN, First North: FARON), the clinical stage biopharmaceutical company, announces that its Annual Report for the year 2019 has been published today.

Faron Pharmaceuticals´ Annual Report 2019 and financial statements for the accounting period 1 January – 31 December 2019 have been published in English and its financial statements in Finnish, on the Company’s website https://www.faron.com/investors/results.

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

About Faron Pharmaceuticals Ltd

Attachment:

http://www.rns-pdf.londonstockexchange.com/rns/5169H_1-2020-3-25.pdf

Faron´s Annual Report 2019.pdf

5169H_1-2020-3-25

Final Results for the year ended December 31, 2019

20.3.2020

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

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.

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

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 December 31, 2019

Interim results

23.9.2019

Faron Pharmaceuticals Ltd

(“Faron” or the “Company”)

Interim results for the six months ended 30 June 2019

TURKU – FINLAND, 23 September 2019 – Faron (AIM: FARN), the clinical stage biopharmaceutical company, today announces its unaudited interim results for the six months ended 30 June 2019 (the “Period”).

HIGHLIGHTS

Operational (including post Period-end):

Clevegen^® – wholly-owned novel cancer immunotherapy in clinical development

Dose escalation reached its planned maximum level of 10mg/kg in the open label phase I/II MATINS study and data from 11 subjects, dosed across three sites in Finland and the UK, indicated Clevegen’s potential early efficacy and good tolerability.
All subjects showed a switch in their immune cell profiles towards increased immune activation, demonstrating the biological effect of Clevegen.
The first partial responder observed among colorectal cancer (CRC) patients showed a continuation of lung and lymph node metastasis shrinkage. The subject’s tumour load biochemical marker, carcinoembryonic antigen (CEA), also normalised.
CRC was selected as a first expansion cohort for part II of the trial. Simon’s two-stage statistical design will be utilised during parts II and III to predict cohort sizes for efficacy and regulatory acceptance.
A pre-IND package was filed with the FDA, to be followed by the IND submission and to enable new trial site openings in the US. Planning commenced to include top clinical cancer research centres in France and Spain as the next European countries to join the trial.
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 was published in Clinical Cancer Research, a journal of the American Association for Cancer Research.
Data from the MATINS study was selected for a poster discussion presentation at the European Society of Medical Oncology (ESMO) 2019 Congress, taking place in Barcelona between 27 September and 1 October 2019.
Several new patent filings have been carried out during the period to further strengthen the existing IP around Clevegen use in conditions where harmful immune suppression causes serious diseases.
Manufacturing has been established to supply drug product for cohort expansions in part II of the MATINS study.
Partnering discussions continue with the aim of supporting expansion of clinical development and exploring the potential of Clevegen in combination with existing immunotherapies.

Traumakine^® – in development for the treatment of ARDS and organ failures without interfering corticosteoids

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 glucocorticoid 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 corticosteroid use interferes in the desired interferon-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 Ruptured Abdominal Aorta Aneurysm (RAAA) patients, showed biomarker (MxA and CD73) responses indicating a good interferon-beta response from Traumakine. A trend toward 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 has decided to close the INFORAAA trial, as unexpected high use of concomitant corticosteroids prevent the scientific implementation of the INFORAAA protocol.
Faron remains focused on designing a new global phase III trial for Traumakine treatment (CALIBER) for the treatment of ARDS taking into account the high levels of concomitant steroids used as a standard of care for ARDS and some RAAA patients, and is in the process of seeking scientific advice from regulatory authorities on the proposed new trial structure.
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 are currently explored.
The Company envisages that further Traumakine trials are likely to be funded through a third party.

Group financial

Raised EUR 4.5 million (net EUR 4.2 million) in aggregate through a placing and subscription in March and May 2019 at an issue price of Eur 0.76 (£0.65) per share.
Cash balances of EUR 2.9 million at 30 June 2019 (2018: EUR 11.2 million).
Operating loss of EUR 6.3 million for the six months ended 30 June 2019 (2018: EUR 14.0 million).
Net assets of EUR −1.8 million (2018: EUR 6.7 million) as at 30 June 2019.
Post the Period-end raised approximately EUR 2.5 million (before expenses) through an issue of equity consisting of subscriptions and an open offer at an issue price of EUR 1.19 (GBP 1.06) per share.
The net proceeds of the post-Period fundraise are expected to provide the Company with working capital into Q1 2020.

Commenting on the results, Dr Markku Jalkanen, CEO of Faron, said: “We have focused on two important matters during H1-2019, MATINS study progress and the re-design of Traumakine’s development pathway. I am delighted to report that both of these have advanced significantly. Our novel precision cancer immunotherapy, Clevegen, has been well tolerated in cancer patients with advanced solid tumours, all showing an immune switch that we predicted based on the preclinical data and expected mode of action of Clevegen. We have also observed a first partial responder showing a constant decline of tumour burden in tumour imaging and biochemical markers. The response in this patient, who suffers from colorectal cancer (MSI low type) and has failed on all previous treatments, is a promising indicator of Clevegen’s potential.

“It has become clear that Traumakine’s development requires a study design which would avoid concomitant corticosteroid use. Faron’s solution is a design which would allow corticosteroid use within the standard of care arm but never in combination with Traumakine. As soon as the Company receives feedback for this new design, we will finalise plans to allow us to progress third party funding discussions. The unmet medical need among these patients is significant and the widespread use of corticosteroids for ARDS and multi-organ failures requires serious re-consideration.

“I am pleased that, through the recent fundraise, the Company is in a more secure financial position while we explore partnering activities for Clevegen and funding opportunities for Traumakine. I would like to thank shareholders, both new and existing, for their support of Faron.”

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 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, David Daley, 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

Emma Earl, Freddy Crossley (Corporate Finance)

James Stearns (Corporate Broking)

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 based on the endothelial 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. 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.

Chairman’s and Chief Executive Officer’s Review

Introduction

Faron’s two projects Clevegen and Traumakine are based on long term research findings made by the Company’s scientific network. This network has shown again its vital role through our work to understand the unexpected results from the INTEREST study – the interfering role of corticosteroids on exogenous and endogenous action of interferon-beta. This analysis has penetrated to molecular signalling pathways and could have a significant impact on the wide use of corticosteroids in emergency conditions. Similarly, Clevegen’s mode of action has advanced the detailed understanding of how Clever-1 blockade results in an immune switch needed by cancer patients who are immune suppressed by their disease progress. Therefore, the Company believes that both projects are today on solid grounds to move forward and in this report we provide further information on their progress.

Clevegen – encouraging phase I/II MATINS data show potential of novel cancer immunotherapy

In the first half of 2019, the Company’s focus has been on progressing the MATINS study, the 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 tumour associated macrophages (TAM). 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”).

Clevegen dosing reached its planned maximum of 10mg/kg in mid-June, which has continued to be well tolerated. No dose limiting toxicity (DLT) nor maximally tolerated dose (MTD) has been observed so far. The trial includes an option to administer a 20mg/kg dose.

Of the 11 subjects dosed so far in the trial, across three clinical trial sites in Finland and the UK, two subjects have shown clinical anti-cancer responses. The first patient, a partial responder with colorectal cancer (CRC) whose initial treatment progress was announced on 11 April 2019, showed a continuation of lung metastasis shrinkage according to the latest tumour imaging report at the end of May. In July, we announced that the subject’s tumour load marker CEA (carcinogenic embryonal antigen), which measures tumour mass of CRC, had also normalised and that a second subject with CRC had shown an initial decrease in CEA (−40%) and tumour stabilization.

All study subjects dosed in the trial have experienced a switch in their immune cell profiles following treatment with Clevegen towards increased immune activation. Typically this has been observed by one or more of the following: increased CD8+ cells, an increase in the CD8+/CD4+ ratio, a decrease in regulatory T-cells (T-regs) and a substantial increase in mobile natural killer (NK) cells in the blood. These changes were measurable immediately post-dosing, indicating a dynamic response in the immunological switch to immune-activation after the immunotherapeutic blockade of Clever-1. Data indicate that dose escalation results in prolonged Clever-1 occupancy of the blood monocytes during the first two weeks of the three-week dosing cycle before a decrease to baseline levels prior to the next dosing cycle. Key data will be presented in a poster discussion session at the European Society of Medical Oncology (ESMO) meeting in Barcelona September 27 – October 1.

The majority of patients in the trial have received 5-7 different treatment lines prior to entering the MATINS study. Faron is investigating why the observed immune activation has not turned into anti-tumour activity in all study subjects but only in part. The Company believes the patient’s immune system receiving Clevegen as a last line of therapy could have been adversely affected by the underlying therapies they have received prior to taking part in the MATINS study, as previous chemotherapies can inactivate bone marrow, preventing revitalization of the immune system. It is also important to note that the partial responder patient with CRC (MSI low type) is resistant to PD-1 treatments, increasing the significance of this response.

The planned distinct cohort expansions during part II of the study will focus on identification of patients who show an increased number of Clever-1 positive circulating monocytes and the safety and efficacy of the treatment. The Company has announced that CRC has been selected as the first expansion cohort in part II and that initiation of this expansion is expected in Q4 2019. Faron also intends, subject to regulatory approval, to amend the MATINS trial to allow inclusion of hormone receptor-positive breast cancer, gastric cancer and uveal melanoma, based on striking translational data on Clever-1 positive cancer types and current poor survival rates and associated with high Clever-1 expression. Additionally, Faron has filed a pre-IND package to the FDA and intends to file a final IND package in early Q4-2019. If accepted, Faron plans to open new sites in the US and facilitate expansion of the CRC cohort as fast as possible. Similarly, Faron is planning to include top cancer centres in France and Spain as the next European countries to join the MATINS trial.

Traumakine – determining a path for future development

Following the detailed analyses undertaken by the Company and its scientific network during 2018 to understand the INTEREST trial results, in 2019 Faron has continued to further explore the potential causes and to determine a way forward for Traumakine’s continued development.

The final part of the pharmacokinetic/dynamic YODA study, examining the administration of concomitant steroids and Traumakine in healthy volunteers, confirmed earlier observations from parts I and II of the study that the INTEREST study drug produced the expected levels of bioactivity, suggesting drug formulation was not a factor in the outcome of the INTEREST trial. Results from YODA also showed that concomitant use of interferon-beta and the corticosteroid prednisolone reduced interferon-beta action, compared to subjects who did not receive steroids. This was evident through both clinical signs of the subjects and reduction of cluster of differentiation 73 (CD73) activity responses measured from blood samples of these subjects.

Results from the Japanese Traumakine phase III trial for ARDS, which included high levels of concomitant corticosteroid use, were in line with results from the INTEREST trial with the effect of corticosteroids showing similar trends to those observed from the INTEREST study.

Interim results of the Company’s phase II study examining the effect of Traumakine on mortality (predominantly MOF) and pharmacodynamic biomarkers of surgically operated RAAA patients (INFORAAA trial) also indicated corticosteroid interference with Traumakine action. Whilst biomarker (MxA and CD73) responses indicated a good interferon-beta response from Traumakine, unexpectedly, concomitant corticosterone was recorded both in the active and placebo treatment arms. The removal of corticosteroid-treated patients from statistical analysis reduced group sizes and made statistical interim mortality analysis meaningless; however, a trend toward reduction of mortality was seen in the Traumakine-treated patients who did not receive corticosteroids.

The Company has conducted a full review of all the Traumakine data with key opinion leaders in order to make decisions on Traumakine’s future development. This review has led to the decision to close the INFORAAA trial given unexpected levels of concomitant corticosteroid use seen in the trial to date which would prevent the scientific implementation of the INFORAAA protocol. The Company is designing a new global phase III trial for Traumakine treatment (CALIBER) for the treatment of ARDS taking into account the high levels of concomitant steroids used as a standard of care for ARDS and some RAAA patients, and is in the process of seeking regulatory feedback on the proposed trial. The Company envisages that further Traumakine trials are likely to be funded through a third party.

Financial review

During the Period, in March and May 2019, the Company successfully raised approximately EUR 4.5 million 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 global phase III CALIBER clinical trial and advance partnering discussions in respect of both Traumakine and Clevegen.

Statement of comprehensive income

The loss from operations for the six months ended 30 June 2019 was EUR 6.3 million (six months ended 30 June 2018: loss of EUR 14.0 million). No revenue was generated during the the period or prior revenue. Research and development expenditure decreased by EUR 6.7 million to EUR 5.0 million (2018: EUR 11.7 million). Administrative expenses decreased by EUR 1.0 million to EUR 1.4 million (2018: EUR 2.4 million). Both the research and development and the administrative expenses include the IFRS charge resulting from the options allocated by the Board to the personnel. This had no impact on the cash flow or the Company’s equity.

The loss after tax for the Period was EUR 6.4 million (2018: loss of EUR 14.1 million) and the basic loss per share was 0.17 (2018: loss per share of 0.45).

Statement of financial position and cash flows

At 30 June 2019, net assets amounted to EUR −1.8 million (30 June 2018: EUR 6.7 million). The net cash flow for the first six months in 2019 was EUR −1.1 million (2018: EUR 1.8 million positive). As at 30 June 2019, total cash and cash equivalents held were EUR 2.9 million (2018: EUR 11.2 million).

Events after the Period

In August 2019, the Company successfully raised approximatey EUR 2.5 million (before expenses) from existing Shareholders. The net proceeds are expected to provide the Company with working capital into early Q1 2020 to further the clinical development of Clevegen.

Corporate

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.

Toni Hänninen was appointed as Faron’s new CFO 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.

Summary & outlook

The successful financing undertaken in H1 2019 will allow us to further progress the clinical programme for Clevegen which, we continue to believe, offers significant potential as a novel immunotherapy for patients in need of new treatment options. Successful completion of part I of the MATINS study and initiation of the cohort expansion phase in colorectal cancer in Q4 2019 will provide important data to support our ongoing negotiations as we seek to enter a licensing agreement for Clevegen. We will also fund the commercialisation preparation of Traumakine by seeking scientific advice and regulatory approval for the CALIBER study in H2 2019.

On behalf of the Board, we would like to thank our new and existing shareholders for their continued support and belief in Faron. While work continues apace to progress development of our two clinical assets we will also continue to preserve cash in order to drive value for shareholders. We look forward to updating shareholders on the pathways for Clevegen and Traumakine over the coming months.

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 license 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.

Statement of comprehensive income
	Group			Parent
EUR ‘000	Unaudited six months ended 30 Jun 2019	Unaudited six months ended 30 Jun 2018	For the year ended 31 Dec 2018	Unaudited six months ended 30 Jun 2019	Unaudited six months ended 30 Jun 2018	For the year ended 31 Dec 2018
Revenue	–	20	19	–	20	19
Other operating income	–	14	205	–	14	205
Research and development expenses	(4,982)	(11,701)	(16,463)	(4,982)	(11,701)	(16,463)
General and administrative expenses	(1,361)	(2,372)	(3,750)	(1,334)	(2,368)	(3,740)
Operating loss	(6,343)	(14,038)	(19,989)	(6,316)	(14,034)	(19,979)
Financial expense	(73)	(327)	(397)	(73)	(327)	(397)
Financial income	5	305	302	5	305	302
Loss before tax	(6,411)	(14,060)	(20,084)	(6,384)	(14,055)	(20,074)
Tax expense	(0)	–	(2)	(0)	–	(2)
Loss for the period	(6,412)	(14,060)	(20,086)	(6,384)	(14,055)	(20,076)

Comprehensive loss for the period attributable to the equity holders of the Company	(6,412)	(14,060)	(20,086)	(6,384)	(14,055)	(20,076)

Loss per ordinary share
Basic and diluted loss per share, EUR	(0,17)	(0,45)	(0,65)	(0,17)	(0,45)	(0,65)

Interim results

Final Results for the year ended 31 December 2017

8.5.2018

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

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 for the year ended 31 December 2017