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					                                       Bilancio al
                                  financial report
                         Interim 31 dicembre 2008
                        as of 30 September 2010




Interim
Financial Report

as of September 30, 2010
English translation for convenience




          Pagina 1/32
MolMed S.p.A. is a biotechnology company focused on
research, development and clinical validation of novel
anticancer therapies.

MolMed’s pipeline includes two novel therapeutics in clinical
development: TK, a cell-based therapy enabling bone marrow
transplants from partially compatible donors, in Phase III for
high-risk leukaemias, and NGR-hTNF, a novel vascular
targeting agent (VTA), in Phase III for malignant pleural
mesothelioma and in Phase II in five more types of solid
tumours: colorectal, small-cell lung, non-small-cell lung, liver
and ovarian cancer.

MolMed is headquartered at the San Raffaele Biomedical
Science Park in Milan, Italy. The company’s shares
(Milan:MLM) are listed on the Milan Stock Exchange (Standard
segment, class I) of the MTA managed by Borsa Italiana.
                                                                                                             Bilancio al
                                                                                         Interim Financial Report
                                                                                                 31 dicembre 2008
                                                                                        as of September 30, 2010




Table of contents
General Company Information ....................................................................................... 2 

Board of Directors and Control Bodies .............................................................................. 3 

Interim report .......................................................................................................... 4 
         1.        Highlights ............................................................................................ 4 
         2.        Corporate information ............................................................................. 6 
         3.        Fighting cancer ..................................................................................... 7 
                   3.1      A global challenge ........................................................................ 7 
                   3.2      Investigational therapies developed by MolMed address severe
                            oncology indications with high unmet medical need ............................... 8 
         4.        Product pipeline .................................................................................. 10 
                   4.1      TK - A cell-based therapy for the treatment of leukaemia ...................... 10 
                   4.2      NGR-hTNF - A biological drug targeting tumour blood vessels for the
                            treatment of solid tumours ........................................................... 12 
                   4.3      Research activities: Vascular/tumour targeting programme .................... 15 
         5.        Development and GMP production activities................................................. 16 
                   5.1      Development ............................................................................ 16 
                   5.2      GMP production ......................................................................... 16 
         6.        Research and developmet grants & other financial support............................... 17 
         7.        Key highlights of first nine months of 2010 .................................................. 18 
         8.        Highlights .......................................................................................... 22 
                   8.1      Financial statements ................................................................... 22 
                   8.2      Notes ..................................................................................... 24 
         9.        Significant events after the reporting period and business outlook ...................... 29 
         10.       Certification pursuant to the provisions of Article 154-bis, paragraph 2, of
                   Italian Legislative Decree 58/1958 ............................................................ 29 




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General Company Information


Registered office:                           Via Olgettina, 58 – 20132 MILANO (Italy)
Tax Number:                                  11887610159
VAT Number:                                  IT 11887610159
Milan Company Register:                      n.11887610159
REA:                                         1506630
Share capital:                               € 43,582,874.14 - fully paid


Borsa Italiana Code:                         MLM
ISIN:                                        IT0001080248
Ticker Reuters:                              MLMD.MI
Ticker Bloomberg:                            MLM IM
Circulating shares:                          210,415,616
                                             (100% ordinary shares with no par value)




Disclaimer
This financial report may contain certain forward-looking statements. Although the company
believes its expectations are based on reasonable assumptions, these forward-looking statements
are subject to numerous risks and uncertainties, including scientific, business, economic and
financial factors, which could cause actual results to differ materially from those anticipated in the
forward-looking statements. The company assumes no responsibility to update forward-looking
statements or adapt them to future events or developments.
This document does not constitute an offer or invitation to subscribe or purchase any securities of
MolMed S.p.A.




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Board of Directors and Control Bodies

Board of Directors

Chairman and Chief Executive Officer               Claudio Bordignon
Directors                                          Luigi Berlusconi
                                                   Silvio Bianchi Martini (independent)
                                                   Renato Botti
                                                   Maurizio Carfagna
                                                   Paolo M. Castelli
                                                   Riccardo Cortese (independent)
                                                   Marina Del Bue
                                                   Alessandro De Nicola (independent)
                                                   Massimiliano Frank
                                                   Sabina Grossi
                                                   Alfredo Messina
                                                   Maurizio Tassi
The Board of Directors, appointed by the Shareholders’ Meeting held on April 26, 2010, will remain in charge
until the date of the Shareholders’ Meeting convened to approve the Financial Statements as of December 31,
2012.
On April 26, 2010, following the Shareholders’ Meeting, the Board of Directors held its first meeting and
confirmed Claudio Bordignon as Chief Executive Officer. Silvio Bianchi Martini was confirmed as Lead
Indipendent Director.


Board of Statutory Auditors
Chairman                                           Fabio Scoyni

Statutory Auditors                                 Antonio Marchesi
                                                   Enrico Scio
Substitute Statutory Auditors                      Alberto Gallo
                                                   Francesca Meneghel
The Board of Statutory Auditors, appointed by the Shareholders’ Meeting held on April 26, 2010, will remain in
charge until the date of the Shareholders’ Meeting convened to approve the Financial Statements as of
December 31, 2012.


Internal Control Committee
Chairman                                           Silvio Bianchi Martini (independent Director)
Members                                            Alessandro De Nicola (independent Director)
                                                   Maurizio Tassi (Director)


Remuneration Committee
Chairman                                           Alessandro De Nicola (independent Director)
Members                                            Riccardo Cortese (independent Director)
                                                   Sabina Grossi (Director)


External Auditors
Deloitte & Touche S.p.A.




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Interim report

1.      HIGHLIGHTS

Income results


(amounts in thousands of Euro)   3rd quarter     3rd quarter     1.1.2010 -          1.1.2009 -
                                                                                                      Change
                                       2010             2009     30.9.2010           30.9.2009
                                                                        (a)                 (b)     (a-b)      %
Operating revenues                      420             1.001           1.598            3.880 (2.282) (58,8%)
Operating costs                      (5.038)           (6.001)       (14.722)          (17.055)    2.333 (13,7%)
Operating profit (loss)              (4.618)           (5.000)       (13.124)          (13.175)       51    (0,4%)
Net financial income (charges)          264               115            127               502      (375) (74,7%)
Profit (loss) for the period         (4.354)           (4.885)       (12.997)          (12.673)     (324)     2,6%


Investments


(amounts in thousands of Euro)                                                                       Change
                                                       1.1-30.9.2010         1.1-30.9.2009
                                                                                                 absolute      %

Investments                                                      269                     613        (344) (56,1%)


Net financial position


(amounts in thousands of Euro)            September 30,          June 30,       December 31,
                                                                                                      Change
                                                       2010            2010               2009
                                                         (a)            (b)                         (a-b)      %

Net financial position                             63.800           12.259              19.567    51.541 420,4%


Number of employees


                                               September 30, 2010       June 30, 2010          December 31, 2009


Number of employees                                     86                      85                     84




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Scientific Advisory Board

MolMed’s Scientific Advisory Board (SAB), chaired by Professor Claudio Bordignon, is an independent
advisory body, peculiar of Companies where the quality of projects is determined by the value of
their scientific contents. The SAB contributes significantly to MolMed’s decisions on its R&D pipeline
by providing guidance on novel therapeutic strategies, as well as external assessment of results
obtained.
MolMed’s Scientific Advisory Board combines the knowledge and experience of leading international
scientific experts. Its membership includes:
• Claudio Bordignon, Chairman - Member of the Scientific Council of the European Research
  Council, and full Professor of haematology at the University Vita-Salute San Raffaele in Milan
  (Italy)
• Carl-Henrik Heldin - Branch Director of the Ludwig Institute for Cancer Research Research in
  Uppsala (Sweden), and Professor of Molecular and Cell Biology at Uppsala University
• Robert Kerbel - Senior Scientist in the Molecular and Cellular Biology Research Program at the
  Sunnybrook Health Sciences Centre in Toronto (Canada), Professor in the Departments of Medical
  Biophysic and of Laboratory Medicine & Pathobiology at the University of Toronto, and Canada
  Research Chair in Tumour Biology, Angiogenesis and Antiangiogenic Therapy
• Alberto Sobrero - Head of the Medical Oncology Unit at the clinical centre Ospedale San Martino
  in Genova (Italy), and member of the Protocol Review Committee of the European Organisation
  for Research and Treatment of Cancer (EORTC)
• Didier Trono - Deputy Director of the Swiss National Science Foundation’s “Frontiers in Genetics”
  area, and Professor and Dean of the School of Life Sciences at the Ecóle Polytechnique Fédérale in
  Lausanne (Switzerland)

The professional profiles of the members of the Scientific Advisory Board are available on the
Company website (www.molmed.com, section “About MolMed/SAB”).




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2.      CORPORATE INFORMATION

MolMed is a medical biotechnology company established in 1996, focused on research, development
and clinical validation of innovative therapies to cure cancer. Since March 2008, MolMed is a public
company listed on the Milan Stock Exchange - Standard segment, class I - of the MTA managed by
Borsa Italiana.
MolMed was born as a spin-off of the San Raffaele Institute, based on its core knowledge in the field
of gene and cell therapy applied to rare genetic diseases and to haematological malignancies, with
the first clinical trials on patients suffering from leukaemia. From year 2000, it started its evolution
from service to product company, with a primary focus on novel anticancer therapies. Today, MolMed
is an established business, with the capability to cover all functions of a biotech product company,
from basic research to production, up to the carrying out of proof-of-concept clinical trials of its
investigational therapies.
Molmed’s approach to cancer therapy is characterised by an integrated strategy, aimed on one side
at identification and development of bio-pharmaceuticals reducing the tumour mass and slowing
down its growth, and on the other side at the development of highly selective therapies to eliminate
residual tumour tissue.
MolMed has a unique pipeline in terms of novelty, diversification of therapeutic approaches and
technological peculiarity. Its investigational therapies are new, completely original, first-in-class
candidate products building up new therapeutic classes.
MolMed is based in Milan, within the San Raffaele Biomedical Science Park. This location offers
important advantages, allowing MolMed to integrate its own R&D capabilities with the cutting-edge
scientific, technological and clinical resources of its host institution. In particular, MolMed holds an
option right on research projects run by the San Raffaele Scientific Institute in the field of gene and
molecular therapy of cancer and AIDS.
At international level, since 2003 MolMed has entered into a strategic alliance with Takara Bio, an
important Japanese biotechnology company listed on the Tokyo Stock Exchange, through a co-
development and out-licensing agreement for MolMed’s cell-based therapies in major Asian markets.
MolMed’s mission is to concentrate commitment and resources on the development of new cures for
cancer, by exploiting the strenght of its double vocation: the quality of its science and research
basis, combined with a high efficiency of the business management, focused on a clear industrial
project. The reliability of this project is witnessed by MolMed’s decision to become a public
company, by getting listed on the Milan Stock Exchange.




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3.        FIGHTING CANCER

3.1       A global challenge
MolMed activities are focused on medical oncology, the therapeutic area devoted to cancer
treatment. Cancer (i.e. tumour, or neoplastic disease) is any type of malignant cell growth caused by
abnormal and uncontrolled local cell proliferation that can have origin in different tissues, and its
spread to other organs through the lymphatic system or the blood stream, giving origin to
metastases.
In fact, cancer is actually a wide and heterogeneous group of diseases, made up of over 200 different
types of tumour, commonly divided into two broad categories: solid tumours, and blood tumours (or
haematological malignancies).
Conventional treatment options available for solid tumours are surgery, radiotherapy and
pharmacotherapy (or chemotherapy). Early surgical removal is potentially curative for some tumour
types. But sometimes surgical treatment proves not to be sufficient, and the surgical option is
unavailable for patients with advanced and/or metastatic disease. In this case, available options are
only radio- and pharmacotherapy, often used in sequential combination. For haematological
malignancies (e.g. leukaemias and lymphomas), radio- and pharmacotherapy are often followed by
transplants of haematopoietic stem cells.
Among pharmacotherapies, the most commonly used regimens are based on cytotoxic agents, known
as chemotherapies and characterised by high toxicity, lack of specificity and loss of efficacy over
time, leading patients to undergo a particular line of treatment until they become refractory or
reach the maximum tolerated cumulative toxicity, and then having to switch to another line of
treatment (when available).
Clinical benefits limited over time and high levels of toxicity of current standard treatments translate
into a significant level of unmet medical need in oncology, making it an area of high intensity in
terms of research and development investments, with high potential for new therapies based on a
better understanding of the mechanisms implied in tumour genesis and growth, and thus able to
provide increased selectivity, reduced toxicity, enhanced therapeutic efficacy and improved survival
of patients.
Currently, oncology is the largest segment of the global pharmaceutical market, and it is also the one
with the fastest growth1. In Europe, the US and Japan, cancer is the second most common cause of
death, and recently a rise in incidence has been observed. This phenomenon is due to a combination
of several factors, first of all to the ageing of the population worldwide: this leads per se to an
increased incidence of cancer, as the risk of all tumours increases with age. Moreover, as treatments
for cancer become more effective at prolonging patient survival, the number of patients living with
the disease expands.
In oncology, the very high level of unmet medical need, particularly for some types of tumour, has
driven the emergence of the so-called innovative therapies, either biological or biotechnology-
derived. Such innovative therapies have as a common trait the fact of being specific and/or targeted,
i.e. directed at specific molecular targets involved in tumour genesis and/or tumour growth, and
thanks to their targeted action they have a remarkably lower systemic toxicity as compared to
conventional regimens.
The molecular targets of novel therapeutics may be tumour type-specific, or common to different
tumour types, or else they can be specific to the blood vessels feeding the tumour mass or to the
factors supporting their formation and growth: in the second and third case, they offer the potential
for application of a therapy in several different oncology indications.
Finally, novel targeted therapies often can act both as single-agent alternatives, and as enhancers of
or in synergy with exisiting treatments. The current focus in tumour therapy improvement is to use a
combination of different classes of agents rather than a single therapeutic approach: in perspective,




1
    Source: “IMS Health Top 15 Global Therapeutic Classes 2008”, IMS Health, 2009.
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the introduction of next generation biotechnology-derived innovative therapies, forecasted after
2010, is expected to enable further extension of patients’ survival and improvement of their quality
of life, eventually reducing tumours from rapidly progressing and life-threatening diseases to well-
managed chronic pathologies.
The investigational products and therapeutic strategies developed by MolMed belong to the context
of novel anti-tumour biologicals.


3.2                              Investigational therapies developed by MolMed address severe oncology
                                 indications with high unmet medical need
MolMed’s activities are primarily focused on identification, characterisation, and preclinical, clinical
and pharmaceutical development of novel therapies for tumours with very different patterns and
very different levels of incidence: however, they all share the common traits of severity and actual
need of new therapeutic options.

                                700.000
                                                   Colon-rectum
                                600.000
 Europe, Japan and Australia)
  Incidence (North America,




                                500.000                                              Lung
                                                                                    (NSCLC)
                                                                                                       No or few treatment options
                                400.000                    NGR-hTNF
                                                           NGR-hTNF                                    approved or in develoment in:
                                                                                                           First/second line
                                300.000
                                                                                                           Third/fourth line
                                                                                     Lung
                                200.000                                             (SCLC)
                                                                       Leukaemia             Liver
                                100.000
                                                               Ovary
                                                           Sarcomas1                          Mesothelioma1
                                     0                                         TK
                                                                               TK
                                          0,00     0,33                 0,67                    1,00
                                                  Mortality / incidence ratio
                                                 Unmet medical need

         Figure 1. Indications addressed by of MolMed’s investigational therapies in ongoing (full lines) or planned
         (dotted line) clinical trials
         Sources: Globocan Database 2002; 1MolMed esitmate
On one hand, MolMed is addressing tumours considered to be uncommon - although with ever-growing
incidence because of exposure to environmental conditions that contribute to disease onset - that
have no or very few therapeutic options available, such as high-risk leukaemias, malignant pleural
mesothelioma, primary liver cancer, small-cell lung cancer (SCLC) and soft-tissue sarcomas.
On the other hand, clinical investigation of Molmed therapies includes much more widespread
indications, thus having indeed a much wider range of treatments available or in development - such
as colorectal, ovarian and non-small cell lung cancer (NSCLC) - but with many patients becoming
either intolerant (because reaching cumulative toxicity) or refractory (because of loss of disease
control over time) to all possible treatment lines. For these heavily pre-treated patients with no
efficacious treatment lines left, MolMed devotes its efforts to offer a new therapeutic option.
To succesfully address the cure of each of these tumours, MolMed is developing two dinstinct
investigational therapies. Both are new, entirely original and giving origin to novel therapeutic
classes, but each of them is relying on a different technological approach:
• a cell therapy product for blood tumours: this approach is aimed at making available to all
  patients the curative potential of transplants of haematopoietic stem cells derived from the bone
  marrow of a healthy donor, that is currently feasible in a safe and effective way only if the donor

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   is fully compatible with the patient, a condition that can be satisfied only for approximately 50%
   of candidates to the transplant;
• a biological drug targeting blood vessels for solid tumours: this approach is based on the use of
  a particular kind of drug, a selective vascular targeting agent whose molecular target is a
  structure which is only present on blood vessels that feed the tumour mass. The antivascular
  effect of the drug cuts off supplies of oxygen and nutrients to the tumour, thus blocking its
  growth.




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4.        PRODUCT PIPELINE

MolMed’s product pipeline is headed by the two investigational anticancer therapies TK and NGR-
hTNF, whose clinical and pharmaceutical development has been the chief focus of activities carried
out by the Company functions in the first nine months of 2010.
 Product           Indication                       Trial code          Phase I      Phase II    Phase III
                   High-risk leukaemia               TK007, TK008
TK
                   Leukaemia (Japan/Takara Bio)
NGR-hTNF           Solid tumours     MTD            EORTC 16041
                   Solid tumours – low dose         NGR002
                   Solid tumours – high dose        NGR013
Monotherapy        Colorectal cancer                NGR006
                   Liver cancer                     NGR008
                   Mesothelioma                     NGR010, NGR015
                   Solid tumours                    NGR003

+ doxorubicin      Lung cancer/SCLC                 NGR007
                   Ovarian cancer                   NGR012
                   Soft tissue sarcomas             NGR016
+ Xelox            Colorectal cancer                NGR005

                   Solid tumours                    NGR004
+ cisplatin
                   Lung cancer/NSCLC                NGR014 randomised

 Legend for clinical trials:       planned       ongoing          completed

     Figure 2. MolMed pipeline as of 30 September, 2010


4.1       TK - A cell-based therapy for the treatment of leukaemia
TK is an investigational cell therapy product based on genetically engineered cells, allowing more
safe and effective transplant of haematopoietic stem cells (HSCT) even from a partially compatible
donor, thus opening to all patients the door of this practice, which is the only potentially curative
treatment available, especially for high-risk leukaemias.
HSCT allows to regenerate the haematopoietic and immune system of a leukamic patient, which is
severely compromised by the disease and by the radio- and pharmaco-therapies endured before the
transplant; but it needs time - several months - in order to give origin to the mature cells
characterising a fully functional immune system. In the meantime, the patient lacks any defence
against both infections and possible disease relapse, so it is in absolute need of a vicarious
protection: when the donor is fully compatible, this can be provided by donor T cells, thanks to their
ability to fight infections and to detect and eliminate residual leukaemic cells. But, at present, donor
T cells cannot be used as vicarious protection when the donor is only partially compatible with the
patient, because in this case they become a double-edged sword: on one hand, they provide an
effective immunotherapeutic benefit against infections and relapse, but on the other hand they carry
a very high risk of eliciting an aggression to the normal tissues of the patient, known as graft-versus-
host disease (GvHD), that can produce very serious damage. This risk has so far prevented the use of
donor T cells as add-backs to HSCT in all cases of partial incompatibility between donor and
recipient, thus making the transplant option unavailable for approximately the half of leukaemia
patients.




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                                                       Hospital                            Protection from infections,
                                                                                TK cells     with promotion of HSC
                    Haematopoietic                                                                engraftment
                      stem cells
                              HSC
                                                                                                  Protection from
                                       Transplant of             Infusion of                     leukaemia relapse
                                        stem cells                  T cells
                                          (day 0)             transduced with
                                                                   TK gene
      Partially compatible                                        (day 21)                  Graft versus host
              donor                                                                          disease (GvHD)
     (from bone marrow or                       MolMed – GMP facility
        peripheral blood)
                                             Transduction with TK gene,
                                             selection and expansion of                      If GvHD occurrs,
                                                    donor T cells                          ready abrogation by
                             T cells                                                        administration of
                                                                                                ganciclovir

                             T cells
                                                         TK



    Figure 3. Synthesis of the TK procedure in haematopoietic cell transplant from a partially compatible donor

TK therapy was designed in order to allow to keep the protective action of donor T cells, which is
vital for the transplant to be really successful, even in the case of partial incompatibility between
donor and recipient. This is achieved by the genetic engineering of donor T cells, in order to endow
them with a selective elimination system acting only on the cells actively involved in a GvHD
reaction. To this end, donor T cells are transduced with a gene (TK) making them sensitive to a
common antiviral drug. In the case of GvHD onset, T cells involved in the aggression can be promptly
eliminated by administering the drug at the very first symptoms. Thus, TK allows to take advantage
of the vicarious protection of a fully functional immune system provided by donor T cells, while the
new immune system entirely reconstitutes from the transplanted haematopoietic stem cells, and
therefore it opens the door of HSCT to all patients, since a partially compatible family donor is
available for nearly every candidate to the transplant.
TK was granted Orphan Drug designation both in the European Union and in the United States.
Following the results of a Phase I/II trial (TK007), published in May 2009 by the prestigious medical
journal The Lancet Oncology2, demonstrating that the introduction of TK therapy allows to achieve a
rapid and efficient immune-reconstitution, abating transplant-related mortality and permitting long-
term survival a Phase III trial of TK (TK008) i in Italy for high-risk leukaemia patients undergoing HSCT
from partially compatible donors. TK008 is a large-scale, randomised comparative trial, aimed at
assessing efficacy and sustainability of TK in its final formulation, in compliance with regulatory
requirements in view of registration and market launch. TK is the first cell therapy using genetically
engineered cells to get the authorisation to Phase III in Italy.
In order to strengthen the clinical and statistical relevance of the trial and gain international
recognition with key opinion leaders, MolMed decided to ensure the expansion of the trial to include
10-15 key European centres. In December 2009, the Italian Drug Agency (AIFA) has approved an
amendment to the clinical protocol of trial TK008, now involving a study population of 152 patients,
with a randomisation ratio (TK versus no TK) of 3:1. The key objectives of the trial are overall
survival and reduction of transplant-related mortality associated with the practice of haplo-
transplants. First safety data are expected by the end of 2010. Currently, expansion of trial TK008
with the amended protocol to international clinical centres is underway: in the first nine months of




2
    Ciceri, Bonini et al, “Infusion of suicide-gene-engineered donor lymphocytes after family haploidentical
    haemopoietic stem-cell transplantation for leukaemia (the TK007 trial): a non-randomised phase I-II study”,
    Lancet Oncol. 2009 May 1;10:489-500
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2010, a IND was filed with the U.S. Food and Drug Administration (FDA) to start Phase III of TK in the
U.S.

In the nine months of 2010, long-term monitoring data of the Phase II trial TK007 were presented at
the annual meeting of the American Association of Clinical Oncology (ASCO). These data give
evidence of the direct role played by TK cells in fighting leukaemia relapse, and of their important
contribution in immune-reconstitution through restoration of the functionality of the thymus gland.
The ASCO poster is available in the section “Pipeline/TK” of MolMed’s website (www.molmed.com).
Concerning TK manufacturing, in the first half-year nine months of 2010 MolMed started the project
for the development of an automated process, whose investment is graduated following the progress
of Phase III trial TK008. The project obtained a non-refundable grant of approximately Euro 1.4
million by Regione Lombardia that will partially cover the R&D costs incurred for a period of 36
months. The project is carried on in collaboration with Areta International S.r.l. and Datamed S.r.l:
Datamed will carry out design and optimisation of the system modules and related engineering work,
while Areta will develop and implement an optimised production and purification process for the
monoclonal antibody used for the selection of engineered cells.
Abstracts of the key publications concerning TK are available at                        MolMed’s   website
(www.molmed.com), in the section “Pipeline/Main publications and abstracts”.


4.2    NGR-hTNF - A biological drug targeting tumour blood vessels for the
       treatment of solid tumours
NGR-hTNF is a selective vascular targeting agent characterised by a unique mode of action, and is
first-in-class in the class of peptide-cytokine complexes targeting tumour blood vessels. It is a
homotrimeric protein, where each of the three subunits is formed by combining a tumour homing
peptide (NGR) with the human cytokine Tumour Necrosis Factor (hTNF). NGR targets a particular
receptor, tvCD13, selectively expressed by endothelial cells of human tumour vessels.




                                                                       Human TNF (hTNF):
                                                                          powerful antitumour activity
                                                                          Approved only for loco-
                                                                          regional treatment – systemic
                                                                          use hampered by toxicity
                                                                          Destroys blood vessel
  Cyclic CNGRCG peptide:                                                  functions
  selectively binds receptor CD13,
  expressed on the surface of
  newly formed tumour blood vessels



 Figure 4. Structure of a monomer of the NGR-hTNF molecule, and properties of its moieties

NGR-hTNF acts specifically on blood vessels feeding the tumour mass, inducing an anti-vascular effect
that allows, inter alia, an improved penetration into the tumour tissue of other anticancer drugs
administered in combination, thereby enhancing their therapeutic efficacy. Therefore, NGR-hTNF can
be used both as new single-agent therapeutic option, and in synergistic combinations with most
cytotoxic regimens currently available.

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Unlike all other drugs commonly clasified as vascular targeting/disrupting agents (VTAs/VDAs), NGR-
hTNF appears to exert its antivascular and antitumour activity without inducing harmful counter-
regulatory mechanisms: neither increase at the tumour site of bone marrow-derived cell infiltrates
nor increase in circulating growth factors are induced, i.e. two phenomena that stimulate
angiogenesis, post-therapy tumour re-growth and metastasis.
The clinical development of NGR-hTNF includes clinical trials both as single agent and in combination
therapy with different chemotherapeutic regimens, in a total of six indications: colorectal, liver,
small-cell lung, non-small-cell lung and ovarian carcinomas, and malignant pleural mesothelioma. For
mesothelioma and liver cancer, NGR-hTNF has received Orphan Drug designation both in the U.S. and
in the European Union, where it is now listed in the Register of orphan medicines for human use
under the code EU/3/08/549 for malignant mesothelioma, and under the code EU/3/09/686 for
primary liver cancer.
In April 2010, a pivotal international multicentre Phase III trial (NGR015) in malignant pleural
mesothelioma was started in Italy. NGR015 is a randomised, double-blind, placebo-controlled trial,
expecting to enrol 400 adult patients affected by malignant pleural mesothelioma with disease
progressing after a pemetrexed-based chemotherapy, the only approved therapy currently available.
The trial investigates the administration of NGR-hTNF plus best investigator’s choice (BIC) versus
placebo plus BIC, where BIC includes either supportive care alone or combined with one
chemotherapeutic agent (either doxorubicin, or gemcitabine, or vinorelbine). Randomisation ratio
will be 1:1 between NGR-hTNF and placebo. Before randomisation, investigators decide for each
patient if BIC will be either supportive care alone or combined with chemotherapy; patients are then
randomly assigned to either of the two treatment arms by specific stratification factors. NGR-hTNF is
given intravenously as 1-hour infusion at 0.8 µg/m2 once a week, until disease progression; placebo
follows the same administration schedule in the control arm. The primary endpoint of the trial is
overall survival; secondary endpoints include progression-free survival, disease control rate, safety
profile and patient quality of life. In May 2010, MolMed received clearance from the U.S. Food and
Drug Administration (FDA) for the IND filed to initiate Phase III trial NGR015 in the United States.
Involvement of other clinical centres in the European Union is also planned.
Between May and September 2010, the clinical results of four completed Phase II trials, three trials
of NGR-hTNF as monotherapy - in colorectal cancer (NGR006), primary liver cancer (NGR008), and
malignant pleural mesothelioma (NGR010) - and one trial in colorectal cancer in combination therapy
with Xelox (NGR005), were published as full papers in major international medical oncoloy journals:
• Trial NGR010 in malignant pleural mesothelioma - whose positive outcome provided the rationale
  for the start of a Phase III trial in this indication - was published by the Journal of Clinical
  Oncology3. The outcome of the trial, conducted on 57 patients affected by advanced disease and
  pre-treated with standard chemotherapy, showed an overall disease control rate of 46% with a
  median duration of 4.7 months. A clear advantage of the treatment frequency intensification,
  from once ervery three weeks to once a week, is highlighted in terms of disease control duration
  (9.1 vs 4.4 months). The clinical benefit resulted into a prolongation of overall survival, which is
  doubled in patients achieving initial disease control.
• Trial NGR006 in colorectal cancer was published by the European Journal of Cancer4. The outcome
  of the trial, conducted on 46 heavily pre-treated patients affected by advanced disease showed a
  doubled median overall survival duration compared to historical controls, a result with particular
  clinical relevance. Indeed, although the progression-free survival rate has not been statistically
  met, overall data show a tumour progression-delaying effect induced by NGR-hTNF, with disease




3
    Gregorc V, Zucali PA, Santoro A, Ceresoli G.L., Citterio G., De Pas TM, Zilenmbo N, De Vincenzo F, Simonelli
    M, Rossoni G, Spreafico A, Viganò MG, Fontana F, De Braud FG, Bajetta E., Caligaris-Cappio F, Bruzzi P,
    Lambiase A, Bordignon C., “Phase II Study of Asparagine-Glycine-Arginine- Human Tumor Necrosis factor alpha,
    a selective vascular targeting agent, in priviously treated patients with malignant pleural mesothelioma”,
    Journal of Clinical Oncology (2010), Vol 28, n. 15:2604-2611
4
    Santoro A, Rimassa L, Sobrero A, Citterio G, Sclafani F, Carnaghi C, Pessino A, Caprioni F, Andretta V,
    Tronconi MC, Finocchiaro G, Rossoni G, Zanoni A, Miggiano C, Rizzardi GP, Traversari C, Caligaris-Cappio F,
    Lambiase A, Bordignon C, : “Phase II study of NGR-hTNF, a selective vascular targeting agent, in patients with
    metastatic colorectal cancer after failure of standard therapy”, European Journal of Cancer, 46 (15): 2746-
    2752, ottobre 2010 (e-publication ahead of print on 16 August 2010)
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     control rate of 39% for a median time of 3.8 months, and a median overall survival time of over
     one year (13.1 months), i.e. more than doubled compared to historical controls, both for best
     supportive care and for single-agent biological therapies targeting the epidermal growth factor
     receptor pathway and registered in this setting. Moreover, in patients treated with NGR-hTNF, the
     median overall survival duration is further doubled in the subset of patients previously untreated
     with biological agents (22.9 months) as compared to patients previously treated with this class of
     drugs (10.9 months).
• Trial NGR008 in liver cancer was published by the British Journal of Cancer5. The outcome of the
  trial, conducted on 40 patients affected by advanced disease and refractory to loco-regional or
  systemic treatments, showed a clear evidence of anti-tumour activity of NGR-hTNF. Overall data
  show a disease control rate of 30% for a median time of 4.3 months, and a median overall survival
  duration of nearly nine (8.9) months, compared to 6 months if untreated. Importantly, a patient
  refractory to sorafenib (the only targeted drug registered for liver cancer) achieved a complete
  durable tumour eradication, ongoing for more than 2 years, and a previously
  untreated patient with impaired liver function achieved a partial response of 78%. The confirmed
  response rate of 7% registered in this study is encouraging and compares favourably with response
  rates reported in Phase II trials of targeted therapies and in Phase III trials of sorafenib for liver
  cancer. Moreover, NGR-hTNF was extremely well tolerated, without high grade treatment-related
  toxicities observed in this hard-to-treat patient population due to common underlying cirrhosis.
• Trial NGR005, that tested NGR-hTNF in combination with Xelox regimen for the treatment of
  colorectal cancer, was published by the Annals of Oncology6. The trial, conducted on 24 patients
  affected by advanced disease, investigated the administration of two different doses of NGR-hTNF
  in combination with a fixed dose of Xelox (capecitabine+oxaliplatin): 12 patients received the
  optimal biological low dose of NGR-hTNF (0.8 μg/m2) used in all other ongoing or completed Phase
  III and Phase II trials, while 12 patients received the maximum tolerated dose (45 μg/m2). The
  main objectives of the trial were safety and antitumour activity. Results obtained further confirm
  the very favourable safety profile of NGR-hTNF, showing that the combination with Xelox is well
  tolerated at both doses, with no apparent worsening of chemo-associated toxicity. Unambiguous
  antitumour activity was apparent in the cohort of patients treated with low-dose NGR-hTNF, with
  half of these patients achieving disease control (including one partial response) for a median time
  of five months and, more interestingly, with one quarter of patients displaying progression-free
  time longer than that reported for the previous treatment, which denotes a delaying effect on the
  disease natural history of these patients.
In the first nine months of 2010, patient recruitment was completed in two Phase II trials in
combination therapy with doxorubicin, for the treatment of small-cell lung cancer (NGR007) and of
ovarian cancer (NGR012). The initially planned recruitment in a Phase I trial (NGR013) for the
assessment of safety and clinical benefit of NGR-hTNF at increasing doses in the high dose-range was
also completed: the trial will be continued and will enrol additional patients to explore further
escalating doses.
Recruitment progressed in a randomised Phase II trial of NGR-hTNF in combination with cisplatin-
based regimens as first-line treatment for non-small cell lung cancer (NGR014).
In the first nine months of 2010, MolMed also continued the pharmaceutical development of NGR-
hTNF, in order to set up a manufacturing process meeting market requirements. In particular,
MolMed completed the production needed to cover drug supply for ongoing and future Phase III trials,
consisting of two batches of bulk drug substance (i.e., the active pharmaceutical ingredient, or




5
    Santoro A, Pressiani T, Citterio G, Rossoni G, Donadoni G, Pozzi F, Rimassa L, Peroneni N, Bozzarelli S, Rossoni
    G, Colombi S, De Braud FG, Caligaris-Cappio F, Lambiase A, Bordignon C, : “Activity and safety of NGR-hTNF, a
    selective vascular-targeting agent, in previously treated patients with advanced hepatocellular carcinoma”,
    British Journal of Cancer (2010) 103, 837–844. doi:10.1038/sj.bjc.6605858 (e-publication ahead of print on 17
    August 2010)
6
    Mammoliti S, Andretta V, Bennicelli E, Caprioni F, Comandini D, Fornarini G, Guglielmi A, Pessino A, Sciallero
    S, Sobrero AF, Mazzola G, Lambiase A, Bordignon C: “Two doses of NGR-hTNF in combination with
    capecitabine plus oxaliplatin in colorectal cancer patients failing standard therapies”, Annals of Oncology
    2010; doi: 10.1093/annonc/mdq436 (e-publication ahead of print on 20 September 2010)
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“API”) from which two GMP batches of final drug product (the API in its final formulation) have been
obtained.
Abstracts of the key publications concerning NGR-hTNF are available at MolMed’s website
(www.molmed.com), in the section “Pipeline/Main publications and abstracts”. Posters and
presentations of the results of NGR-hTNF clinical trials are available in the section “Pipeline/NGR-
hTNF” of the website.


4.3    Research activities: Vascular/tumour targeting programme

NGR-IFNγ
NGR-hTNF is the first molecule resulting from MolMed’s vascular/tumour targeting programme. A
second compound issued from this programme, again formed by the combination of the NGR peptide
with a cytokine, is NGR-IFNγ, associating NGR with the cytokine interferon-γ, now in preclinical
development.
Similarly to NGR-hTNF, NGR-IFNγ shows a targeted location on newly formed tumour blood vessels,
mediated by interactions between the two moieties of the molecule - the NGR peptide and IFNγ - and
both their receptors, CD13 and IFN-R, while no location on healthy tissues has been observed. In
animal models, antitumor activity was observed in the absence of significant toxic effects, and
especially an antitumour activity at low dose in mouse models of lymphoma, colon cancer and
prostate cancer: in the latter, a prolonged survival was observed following multiple injections of
NGR-IFNγ.

New molecules
In view of feeding MolMed’s anticancer pipeline, the programme is currently carrying on the
exploration of other possible targeting molecules, either to tumour blood vessels or to other tumour
targets including cancer cells, and of effector molecules with strong anti-tumour activity. The
programme plans to identify and validate targeting moieties and appropriate effector moieties to be
conjugated or used in combination. So far, three new targeting molecules (targeting peptides) have
been identified, characterised by specificity for vascular or tumour targets and high stability;
moreover, some molecules with anti-tumour properties have been selected, including a class of
kinase inhibitors.




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5.      DEVELOPMENT AND GMP PRODUCTION ACTIVITIES

5.1     Development

Development activities, conducted by staff with high experience in the fields of cell biology,
molecular biology and virology, involve design and optimisation of processes and analytical methods
in order to transfer methods from the lab to GMP production. In this context, development projects
currently include implementing a technology platform for semi-stable and stable large-scale
production of lentiviral vectors.
In the first nine months of 2010, activities carried on were mainly focused on:
• development of a stable packaging cell line prototype for the production of third-generation
  lentiviral vectors;
• completion of development activities related to the production of lentiviral vectors to be used in
  clinical trials of gene therapy for two orphan genetic diseases - metachromatic leucodystrophy
  (MLD) and Wiskott-Aldrich syndrome (WAS), and support to their GMP validation, under an
  agreement with the Telethon Foundation;
• scale-up of mesangioblast cell cultures for the subsequent GMP production phase, under the EU-
  FP7 co-funded project OPTISTEM;
• development and optimisation of the production process concerning lentiviral vectors for in vivo
  preclinical studies, under the EU-FP7 co-funded project PERSIST.


5.2     GMP production

MolMed has been granted the status of Drug Company by the Italian healthcare authority AIFA
(Agenzia Italiana del Farmaco), and runs a in-house GMP facility formally authorised for the
production of cell-based medicinal products used in clinical trials, and qualified to support all stages
of drug development of cell-based therapies, including pivotal clinical trials.
The facility - which encompasses six aseptic rooms, five production rooms, one quality control room,
separate areas dedicated to fermentation and purification processes, and to research laboratories,
having a total surface area of approximately 1,400 square meters - satisfies EMA and FDA
requirements for the production of clinical-grade medicines.
Besides manufacturing the TK cell therapy for its own Phase III trial, MolMed’s GMP facility also
provides gene and cell therapy services to selected customers and strategic partners, representing a
source of revenues.
Provision of GMP production services is regulated by dedicated contracts, that often include also the
relevant regulatory support activities. Altogether, these service activities allow MolMed to optimise
the use of its GMP facility, as well as building and maintaining stategic collaborations in cell and gene
therapy.
In the first nine months of 2010, the facility was succesfully audited by the Italian regulatory
authority (AIFA), and was given confirmation of its full GMP compliance.
In the first nine months of 2010, the following GMP service activities were continued, ongoing since
year 2009:
• production and validation of lentiviral vectors to be used in clinical trials of gene therapy for MLD
  and WAS, under the same agreement with the Telethon Foundation mentioned above in
  “Developemnt activities” (paragraph 5.1);
• production of patient-specific transduced cells using lentiviral vectors for the treatment of MLD
  and WAS, again under the just mentioned agreement with the Telethon Foundation;
• service activites provided under several different agreements with the San Raffaele Foundation,
  including:
  - manufacturing and release of clinical-grade lots of genetically modified patient-specific cells for
     use in cell- or gene therapy trials of rare diseases;

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  - manufacturing and release of retroviral supernatants, peptides and dendritic cells;
  - cell selection and/or cell manipulation services.


6.      RESEARCH AND DEVELOPMET GRANTS & OTHER FINANCIAL SUPPORT

As a R&D-based company, MolMed enjoys some benefits derived from funding schemes and other
financial measures - at European, National or local level - aimed at supporting and promoting
innovation.
MolMed is a strategic partner in four projects, presented together with different international
research institutions, that successfully applied for co-funding under EU FP-7, i.e. the Seventh
Framework Programme of Research and Development of the European Union. The projects, named
“PERSIST”, “OPTISTEM”, “ATTRACT” and “CELL-PID”, do involve MolMed for some development and
manufacturing activities related to highly innovative investigational therapies, as well as for
education, training and exchange activities involving highly qualified staff. Activities within the
projects mentioned will be carried out throughout the forthcoming years. The funding granted will be
from 50% to 75% of incurred costs, for a total amount of Euro 2.508 million.
At National level, the Italian Financial Bill 2010 provided for the same tax credit proportional to R&D
costs incurred that was introduced for the period 2007-2009. However, in this interim financial report
no effect of this benefit has been considered, since no provisions for implementing the tax benefit
have been issued to date.
MolMed has applied, together with industrial and academic partners, for a grant from the Italian
Ministry of Research under the “National Research Programme (PNR) Project Ideas 2005-2007” in the
context of the “Major Strategic Projects”, with a project focused on “identification of innovative
anticancer treatments, from genomics to therapy” (project GPS DM28936). The project started in
2007 and ended on June 30, 2009: funding granted, as far as MolMed’s share is concerned, consist of
a low-interest rate loan of Euro 668 thousand, plus a market-interest rate loan of Euro 74 thousand,
and a non-refundable grant of Euro 131 thousand.
Still under the initiative “Project ideas” of the Italian Ministry of Research, MolMed has participated
to a project for “Study and treatment of cancer and of degenerative pathologies through novel
approaches derived from knowledge of the human genome” (project GPS DM24528), that should
receive a non-refundable grant of Euro 185 thousand, inclusive of a contribution of Euro 90 thousand
devoted to young researchers.
At local level, in 2009 MolMed applied with two industrial partners for a grant from the regional
authority Regione Lombardia under a “Call for industrial research and experimental development
activities in the priority thematic areas”, for a project devoted to the development of an innovative
automated manufacturing process for MolMed’s cell-based therapy product TK (see also Chapter 4.1).
On June 7, 2010, the project was approved and included among those eligible for funding, obtaining
a non-refundable grant of Euro 1.430 million that will partially cover the R&D costs incurred for a
period of 36 months: MolMed’s share of the grant amounts to Euro 499 thousand.




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7.     KEY HIGHLIGHTS OF FIRST NINE MONTHS OF 2010

R&D activities
During the first nine months of 2010, MolMed’s activities were focused on the development of its
investigational anticancer products, NGR-hTNF for the treatment of different types of solid tumours,
and TK for the treatment of high-risk leukaemia. In particular, MolMed reached a milestone with the
start of a Phase III trial of NGR-hTNF for the treatment of malignant pleural mesothelioma.
Substantial progress achieved in the development of NGR-hTNF included:
• Start of an international multicentre randomised Phase III trial in malignant pleural mesothelioma,
   expected to enrol approximately 400 adult patients with disease progressing after a pemetrexed-
   based chemotherapy. The primary endpoint of the trial is overall survival, and secondary
   endpoints include progression-free survival, disease control rates, safety profile and patient
   quality of life. MolMed also obtained clearance from the U.S. Food and Drug Administration (FDA)
   to start Phase III clinical development of NGR-hTNF for the treatment of malignant pleural
   mesothelioma in the United States.
• Completion of patient recruitment in two Phase II trials of NGR-hTNF in combination with
   doxorubicin, in non-small-cell lung carcinoma and in ovarian cancer. Progress of patient
   recruitment in a randomised Phase II trial in combination therapy with cisplatin-based regimens as
   first-line treatment for non-small-cell lung cancer.
• Description of the antitumour activity of NGR-hTNF in four full papers related to four completed
   Phase II trials - three trials as monotherapy in malignant pleural mesothelioma, in colorectal
   cancer and in liver cancer, and one trial in colorectal cancer in combination therapy with Xelox –
   published in major international clinical oncology journals: the Journal of Clinical Oncology, the
   European Journal of Cancer, the British Journal of Cancer and Annals of Oncology, respectively.

Progress made with TK included:
• Presentation at the annual meeting of the American Society of Clinical Oncology (ASCO) of data
   giving insight into the mechanism of action of TK cells, responsible for increased survival and
   reduced transplant-related mortality in adult patients affected by high-risk leukaemia described
   in the paper published by The Lancet Oncology (Ciceri, Bonini et al, 2009).
• Continuation of activities aimed at implementing the international expansion of Phase III trial
  (TK008), including filing an IND with the U.S. Food and Drug Administration (FDA) to initiate a
  Phase III clinical trial of TK in the U.S.
• Start of the development project of an automated manufacturing process, that obtained a non-
  refundable grant of Euro 1.4 million by Regione Lombardia to partially cover the R&D costs
  incurred for a period of 36 months. The project is in collaboration with Areta International S.r.l.
  and Datamed S.r.l.

Share capital increase
During the first half of year 2010, MolMed implemented and succesfully completed a share capital
increase with pre-emptive rights. The transaction was concluded in August 2010 with the subscription
of all 105,207,808 newly issued ordinary shares offered, corresponding to 50% of the new share
capital, for an aggregate value of Euro 57,864,294.40 gross of fees and charges linked to the
transaction.
MolMed’s new share capital is currently equal to Euro 43,582,874.14, represented by 210,415,616
ordinary shares with no par value.
Here below are reported the main steps of the operation taking place in the first nine months of
2010.
MolMed’s Board of Directors submitted to the Shareholders’ Meeting, held on April 26, 2010, the
proposal of a share capital increase with pre-emptive option rights for existing shareholders,
pursuant to to Article 2441 of the Italian Civil Code, upon payment and in a divisible manner, up to a
maximum amount of Euro 70 million, by the issuance of new ordinary shares. The proposal was
approved by the Shareholders’ Meeting in the same terms.


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On June 23, 2010, the Board of Directors, under the powers conferred by the Shareholders’ Meeting,
approved the terms and conditions of the share capital increase with pre-emptive option rights for
existing shareholders, and resolved to issue a maximum of 105,207,808 ordinary shares at the price of
Euro 0.55 per share (of which Euro 0.3429 by way of share premium), in the ratio of one newly issued
share for each ordinary share held.
The major shareholder of MolMed, Fininvest S.p.A., and the shareholder H-Equity S.r.l. undertook an
underwriting commitment for the full quota of their pre-emptive rights, corresponding to 23.956%
and 8.128% of the share capital increase, respectively.
The share capital increase was also supported by a stand-by underwriting agreement by Jefferies
International Ltd and Banca IMI S.p.A. for the quota of new shares unsubscribed within the share
capital increase transaction; Jefferies International Ltd and Banca IMI S.p.A. acted as Joint Global
Coordinators and Joint Bookrunners of the transaction.
The transaction was carried out according to the following timetable:
• 28 June-16 July 2010: exercise of option rights by shareholders (subscription period);
• 28 June-9 July 2010: trading of option rights on the MTA of Borsa Italiana;
• 22-28 July 2010: auction on the MTA of Borsa Italiana of the unexercised rights.
During the subscription period, 103,131,214 option rights were exercised for the subscription of an
equal number of newly issued MolMed ordinary shares, corresponding to 98.026% of the total number
of new shares offered, for an aggregate countervalue of Euro 56,722,167.70.
Following the undertaken underwriting commitment mentioned above, the shareholder Fininvest
S.p.A. fully subscribed its quota of 25,203,408 new shares, while the 8,551,695 new shares
corresponding to the quota of the shareholder H-Equity S.r.l. were fully subscribed by H-Invest S.p.A.
(a Company under shared control with H-Equity S.r.l.).
Following the stand-by underwriting agreement with MolMed to ensure the successful completion of
the share capital increase, Jefferies International Ltd and Banca IMI S.p.A. subscribed a total of
41,243,070 newly issued shares (corresponding to 39.201% of the new shares offered within the share
capital increase). Jefferies International Ltd and Banca IMI S.p.A. then announced the results of an
accelerated bookbuilding transaction by which they placed 2,750,000 shares of the Company
(corresponding to 2.614% of the new shares offered within the share capital increase) before the
rights auction on the MTA of Borsa Italiana.
At the end of the subscription period, 2,076,594 option rights remained unexercised, valid for the
subscription of an equal number of newly issued MolMed shares, corresponding 1.974% of the new
shares offered, for a countervalue of Euro 1,142,126.70.
These unexercised rights were offered by Banca I.M.I. S.p.A. on behalf of MolMed on the Milan Stock
Exchange, through an auction on the MTA of Borsa italiana on the trading days of July 22, 23, 26, 27
and 28, 2010. The auction was concluded with the sale of all 2,076,594 unexercised pre-emptive
subscription rights, and with the subscription of 282,275 newly issued MolMed ordinary shares,
corresponding to 0.268% of the total new shares offered, for an aggregate price of Euro 155,251.25.
The 1,794,319 newly issued shares that were not subscribed at the end of the auction (corresponding
to 1.706% of the total new shares offered, for an aggregate price of Euro 986,875.45) have been
subscribed on August 5, 2010, by Jefferies International Ltd and Banca IMI S.p.A., according to the
stand-by underwriting agreement.




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Comments on income and financial results

(amounts in thousands of Euro)   3rd quarter      3rd quarter      1.1.2010 -     1.1.2009 -
                                                                                                 Change
                                        2010              2009     30.9.2010      30.9.2009
                                                                          (a)            (b)   (a-b)      %
Operating revenues                       420             1,001         1,598          3,880 (2,282) (58.8%)
Operating costs                       (5,038)            (6,001)     (14,722)       (17,055)   2,333 (13.7%)
Operating profit (loss)               (4,618)            (5,000)     (13,124)       (13,175)     51    (0.4%)
Net financial income (charges)           264               115           127            502    (375) (74.7%)
Profit (loss) for the period          (4,354)            (4,885)     (12,997)       (12,673)   (324)    2.6%

MolMed’s financials are peculiar to the business model of biotech companies developing new
therapeutic products and having no products on the market. At this stage high costs must be
sustained, linked to the clinical and pharmaceutical development of investigational new drugs, and
return is expected in forthcoming years. In addition, given the Company’s operating activities and the
characteristics of trials conducted, research and development costs are fully recorded in the year
they are incurred.

First nine months of 2010
MolMed’s peculiar revenues, represented by revenues from services to third parties, amount to Euro
1,123 thousand in the first nine months of 2010, down from the same period in 2009 because the kind
of service activities delivered to third parties is not regular and constant over time.
The overall decrease in revenues is also due to the recording in the first nine months of 2009 of a
higher level of “other income”, amounting to Euro 1,590 thousand, because of the award of a fiscal
benefit in the form of a tax credit for R&D expenses incurred in 2008 and in the first nine months of
2009.
Operating costs in the first nine months of 2010 amount to Euro 14,722 thousand, down by 13.7%
compared to the same period of 2009. The decrease in operating costs is due to the fact that the
production of NGR-hTNF drug substance batches was carried on in the first nine months of 2009, and
not repeated in 2010. The reduction in operating costs is also due to lower costs for services, mainly
related to development activities for the industrialisation of the NGR-hTNF production process,
carried out mainly in 2009. This decrease is partly offset by an increase in costs related to clinical
trials.
In the first nine months of 2010, the operating result shows a loss of Euro 13,124 thousand, in line
with the same period of 2009 (Euro 13,175 thousand).
The positive financial result, with net financial income down from Euro 502 thousand in the first nine
months of 2009 to Euro 127 thousand in the first nine months of 2010, stems from the management of
corporate financial resources through temporary, low-risk investments. The reduction is linked to the
gradual decrease in financial resources because of liquidity absorption by ordinary operations,
partially offset by the management of the financial resources obtained with the share capital
increase concluded on August 5, 2010.
The bottom-line result in the nine months up to September 30, 2010 shows a loss of Euro 12,997
thousand, compared to a loss of Euro 12,673 thousand in the prior-year period.
The net financial position at September 30, 2010 amounts to Euro 63,800 thousand. It includes cash
and cash equivalents for Euro 44,888 thousand, and other current financial assets for Euro 19,268
thousand, net of Euro 356 thousand for finance lease payables connected with the accounting
treatment of lease contracts for laboratory equipment. The sharp increase reported is a direct
consequence of the share capital increase.

Third quarter of 2010
In the third quarter of 2010, operating revenues amount to Euro 420 thousand, compared to Euro
1,001 thousand in the third quarter of 2009. The decrease is due to the variability of revenues
generated from service activities to third parties, which are not regular and constant over time.

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In the third quarter of 2010, operating costs amount to Euro 5,038 thousand, down by 16% compared
to Euro 6,001 thousand in the third quarter of 2009. This decrease is mainly due to the reduction in
costs for services.
The operating result of the third quarter of 2010 shows a loss of Euro 4,618 thousand, compared to a
loss of Euro 5,000 thousand in the third quarter of 2009. The reduced loss is due to the reduction in
operating costs, that largely compensated the decline in operating revenues.
In the third quarter of 2010, the net financial income amounts to Euro 264 thousand, compared to
Euro 115 thousand in the same period of 2009. This increase is linked to the management of financial
resources obtained following the share capital increase completed on 5 August 2010.
The bottom-line result for the third quarter 2010 shows a loss of Euro 4,354 thousand, compared with
a loss of Euro 4,885 thousand in the same period of 2009.




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8.         HIGHLIGHTS

8.1        Financial statements

Income Statement

(amounts in thousands of Euro)               3rd quarter   3rd quarter   1.1.2010 -    1.1.2009 -
                                     Notes                                                             Change
                                                   2010          2009    30.9.2010     30.9.2009
                                                                                (a)           (b)     (a-b)        %
      Revenues                                      171           714        1,123         1,882      (759)    (40.3%)
      Other income                                  249           287          475         1,998    (1,523)    (76.2%)
Total operating revenues              1            420         1,001        1,598         3,880     (2,282)   (58.8%)

      Purchases of raw materials
      and consumables                 2            (336)         (462)      (1,003)       (1,594)      591     (37.1%)
      Costs for services              3          (2,418)       (2,990)      (6,517)       (7,332)      815     (11.1%)
      Costs for use of third-party
      assets                          4            (243)         (339)        (744)       (1,007)      263     (26.1%)
      Personnel costs                 5          (1,707)       (1,739)      (5,445)       (5,634)      189       (3.4%)
      Other operating costs           6             (28)          (24)        (106)         (166)       60     (36.1%)
      Amortization, depreciation
      and write-downs                 7            (306)         (447)        (907)       (1,322)      415     (31.4%)
Total operating costs                           (5,038)       (6,001)     (14,722)      (17,055)    2,333     (13.7%)
Operating income (loss)                         (4,618)       (5,000)     (13,124)      (13,175)        51     (0.4%)
      Financial income                              278           148          415           633      (218)    (34.4%)
      Financial charges                             (14)          (33)        (288)         (131)     (157)     119.8%
Net financial income (charges)        8            264           115          127           502      (375)    (74.7%)
Pre-tax profit (loss)                           (4,354)       (4,885)     (12,997)      (12,673)     (324)        2.6%
      Income taxes                                    -             -            -             -         -             -
Profit (loss) for the period                    (4,354)       (4,885)     (12,997)      (12,673)     (324)        2.6%


Statement of Comprehensive Income

(amounts in thousands of Euro)               3rd quarter   3rd quarter   1.1.2010 -    1.1.2009 -
                                                                                                        Change
                                                   2010          2009    30.9.2010     30.9.2009
                                                                                (a)           (b)     (a-b)       %
Profit (loss) for the period                    (4,354)        (4,885)     (12,997)      (12,673)     (324)      2.6%

Other comprehensive income

      Net change in fair value of
      available-for-sale assets                     (15)          (55)         147           (58)      205    (100.0%)
      Tax effect relating to
      components of other
      comprehensive income (loss)                     -             -             -             -        -        0.0%

Other comprehensive income,
net of taxes
                                                    (15)          (55)         147           (58)     205 (100.0%)
Total comprehensive income
(loss) for the period                           (4,369)        (4,940)     (12,850)      (12,731)     (119)      0.9%




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Net Financial Position

(amounts in thousands of Euro)                                30.09.2010    31.12.2009


Cash on hand                                                           8               8
Other cash                                                        44,880           4,300
Cash equivalents                                                      -               -
A. Total cash and cash equivalents                               44,888           4,308
B. Current financial receivables and other financial assets      19,268          15,679
Finance lease payables                                              (95)            (87)
C. Current financial debt                                           (95)            (87)
D. Net current financial position (A+B+C)                        64,061          19,900
Finance lease payables                                             (261)           (333)
E. Non-current financial debt                                      (261)          (333)
F. Net financial position (D+E)                                  63,800          19,567




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8.2    Notes

ACCOUNTING STANDARDS
The Interim Financial Report as of September 30, 2010 have been prepared in accordance with the
International Accounting Standards (“IFRS”) issued by the International Accounting Standards Board
(“IASB”) and approved by the European Union and pursuant to Italian Legislative Decree 58/1998 and
subsequent amendments.
These Interim Financial Report have also been prepared in compliance with the Issuers’ Regulation
issued by CONSOB and with its subsequently issued communications.
Accounting policies applied are the same as those used to prepare the Statutory Financial Statements
at December 31, 2009.
The income figures relate to the quarter that ended on September 30, 2010 and to the period
between the start of the financial year and September 30, 2010, i.e. the first nine months of the
financial year that will end on December 31, 2010.
These figures are compared with those for the same periods in the previous year. Figures relating to
the statement of financial position and to the net financial position are shown at September 30, 2010
and compared with figures at the end of the previous quarter and at the end of the year that ended
on December 31, 2009.
Unless otherwise indicated, the amounts shown in these interim financial statements are in thousands
of Euro. The Euro is the Company’s functional currency.
These Interim Financial Statements have not been audited.

Note 1 – Operating revenues
Operating revenues totaled 1,598 thousand Euro in the nine months up to September 30, 2010, down
by 58.8% compared to the same period of 2009. This decrease was mainly due to the fact that in 2009
“other income” included 1,590 thousand Euro for revenues relating to a benefit in the form of tax
credit for R&D costs incurred in 2008 and 2009.
The fall in operating revenues was also partly connected to the trend in revenues from services to
third parties. Because of the nature of the services provided, the trend of these activities was not
regular and constant over time.

Note 2 – Purchases of raw materials and consumables
The fall in the costs of raw materials and consumables, which largely concerns materials and
reagents used in research and development activities, was due to the fact that in the first nine
months of 2009 batches of the active principle of NGR-hTNF were produced leading to a higher
consumption of materials than that recorded in the first nine months of 2010, when such production
did not take place. In the first nine months of 2010 these costs totaled 1,003 thousand Euro, down by
37.1% compared with the prior-year period.

Note 3 – Costs for services
In the first nine months of 2010 costs for services amounted to 6,517 thousand Euro, down by 11.1%
compared to the prior-year period. This reduction was mainly due to the decrease of the costs of
outsourced development activities, of consulting and technical services relating to the
industrialization process of NGR-hTNF, which in 2009 were particularly high. This decrease was partly
offset by the increase in costs relating to clinical trials.




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(amounts in thousands of Euro)                                    1.1.2010 -       1.1.2009 -   Change         % change
                                                                  30.9.2010        30.9.2009
Outsourced development costs                                          3,163            3,896        (733)           (18.8%)
Option rights                                                           387              387         -                 0.0%
Consultancy and technical fees                                          171              447        (276)           (61.7%)
License fees                                                             59               90         (31)           (34.4%)
Patent and consultancy fees                                             210              277         (67)           (24.2%)
Maintenance                                                             224              211           13              6.2%
Transport and storage of laboratory materials                            97               77           20             26.0%
Utilities                                                               281              281            0              0.0%
Directors and statutory auditors' fees                                  282              246           36             14.6%
Tax consultancy and administrative fees                                 188              118           70             59.3%
Legal and managerial fees                                               216              301         (85)           (28.2%)
Listing consultancy fees and other listing costs                         92               79           13             16.5%
Supervisory board fees                                                  100               74           26             35.1%
Communications agency fees                                              104               67           37             55.2%
IT assistance and other IT costs                                        320              191         129              67.5%
Other general and administrative costs                                  213              212            1              0.5%
Other personnel costs                                                   123              120            3              2.5%
Travel expenses                                                         239              208           31             14.9%
Participation at conventions and meetings                                31               36           (5)          (13.9%)
Staff training                                                           17               14            3             21.4%
Total costs for services                                              6,517            7,332       (815)           (11.1%)



The fall in costs for services was also caused by lower patent and consultancy fees following the
bringing in-house of some activities which were previously managed through consultancies, and by
the fall in legal and managerial costs, largely connected to the progress in the work to supplement
and implement the Model of Organization, Management and Control envisaged by Legislative Decree
no. 231/2001.
In the first nine months of 2010 there was also an increase in support costs and other IT expenses
mainly related to the implementation of the new IT operating system.
The increase in fees paid to directors and statutory auditors reflects the particularly intense work of
the Boards in the first half of 2010 in preparation for the share capital increase.

Note 4 – Costs for use of third-party assets
The costs for the use of third-party assets, 744 thousand Euro in the first nine months of 2010
compared to 1,007 thousand Euro in the prior-year period, fell due to the renegotiation of the lease
on the premises in Milan, Via Olgettina 58, where the Company has its headquarters.

Note 5 – Personnel costs
Personnel costs fell by 3.4%, from 5,634 thousand Euro in the first nine months of 2009 to 5,445
thousand Euro in the first nine months of 2010. This decrease was largely linked to a fall in the
number of employees.
The trend in the number of employees at the end of the period is shown below:

                                                    September 30, 2010         June 30, 2010     December 31, 2009


Number of employees                                          86                     85                        84




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Note 6 – Other operating costs
The decrease in other operating costs, down from 166 thousand Euro in the first nine months of 2009
to 106 thousand Euro in the first nine months of 2010, was mainly due to the fact that in 2009 this
item included recognition of outlays to fund scholarships. There were no such outlays in the first nine
months of 2010.

Note 7 – Amortization, depreciation and write-downs
In the first nine months of 2010 amortization, depreciation and write-downs amounted to 907
thousand Euro, decreasing by 415 thousand Euro compared to the prior-year period. This decrease
related to completion, during 2009, of amortization of some intangible assets. Investments in the
period of 269 thousand Euro mainly related to the purchase of laboratory equipment and
implementation of the new IT operating system.

Note 8 – Financial income and charges
The financial result reflects the impact of the management of the Company’s cash assets through
temporary low-risk investments.
The reduction recorded in the year is linked, on the one hand, to the gradual decrease in financial
resources due to the liquidity absorbed by ordinary operations, while, on the other, to the sharp fall
in market rates connected to the ongoing macroeconomic trends. This trend was only partly offset by
the management of the financial resources obtained with the recent capital increase concluded on
August 5, 2010.
The trend in financial charges reflects the transfer to the Income Statement of 156 thousand Euro
from the fair value valuation reserve recorded at December 31, 2009, following the maturity and sale
of some securities.

Note 9 – Net financial position
The trend in the net financial position, which rose from 19,567 thousand Euro at December 31, 2009
to 63,800 thousand Euro at September 30, 2010, reflects on the one hand, the financial resources
absorbed by the Company’s ordinary operations and on the other, the resources available following
the capital increase concluded in August 2010.

The net financial position as of 30 September 2010 included cash and cash equivalents of 44,888
thousand Euro and other current financial assets of 19,268 thousand Euro, net of 356 thousand Euro
for lease payables connected with two lease contracts for laboratory equipment.

Note 10 – Changes in shareholders’ equity
The changes that occurred in the shareholders’ equity of the Company in the first nine months of
2010 reflect the effects of the capital increase concluded on August 5, 2010 and are shown in the
table below.




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(amounts in thousands of Euro                                   Stock     Actuarial    Fair     Retained   Profit
                                            Share  Other                                                                Total
                                Share                          option     valuatio    value     earnings (loss) for
                                          premium reserve                                                           shareholders'
                                capital                         plan         n      valuation (accumulat    the
                                           reserve   s                                                                 equity
                                                              reserve     reserve reserve ed losses)       period

Balance at January 1, 2010      21,679    21,815     -          2,257              21   (156)           194 (17,169)          28,640

Allocation of prior-year loss      -      (17,169)   -              -          -         -                    17,169             -

Share capital increase          21,792      36,073       19         -          -         -              -         -           57,884

Deduction of share capital
                                   -       (3,590)   -              -          -         -              -         -           (3,590)
increase costs
Subscription of stock options      112         320   -           (525)         -         -              525       -              432

Personnel costs for stock
                                   -          -      -              441        -         -              -         -              441
options
Profit (loss) for the period       -          -      -              -          -          147           -     (12,997)       (12,850)
Balance at September 30, 20 43,583         37,448        19     2,173              21        (9)        719 (12,997)          70,957



Note 11 – Transactions with related parties
MolMed has adopted a “Code for undertaking significant or relevant corporate transactions with
related parties”, which aims to identify the procedure to be followed to approve and implement
transactions with related parties which are undertaken by the Company. The principles set out in this
document aim to ensure real transparency in carrying out such transactions and compliance with the
criteria for substantial and procedural integrity, in compliance with the provisions of the law in force
and the recommendations contained in the Corporate Governance Code prepared by the Corporate
Governance Committee of listed companies. The text of this document is published on the Company
website (www.molmed.com), in the section Investors/Corporate Governance/Transactions with
related parties.
The transactions carried out with related parties are neither unusual nor atypical, but are part of the
Company’s regular business. These transactions are regulated at market conditions, taking account of
the features of the goods and services provided.
Finally, in light of the new Regulation on transactions with related parties, as set out in CONSOB
Resolution no. 17221 of March 12, 2010 and subsequent amendments, as set out in Consob Resolution
no. 17389 of June 23, 2010, the Company will adopt, within the set timeframe, suitable provisions to
adjust to and implement the contents of the aforementioned Regulation.

Note 12 – Share-based payments
The following table details stock options granted and held at September 30, 2010:




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                                                                                                Options      Options       Options
                                                                                                granted     exercised     expired        Options held at September 30,
                                                        Options held at January 1, 2010
                                                                                               during the during the     during the                  2010
                                                                                                period       period        period

                                                          (1)           (2)         (3)           (4)          (5)           (6)       (7)=1+4-5-6    (8)        (9)

                                                                                                                                                     Average   Average
    Name and                                           Number of      Average     Average      Number of Number of       Number of     Number of
                               Position held                                                                                                         strike    expiry
     surname                                            options     strike price expiry date    options      options      options        options
                                                                                                                                                     price      date

Claudio Bordignon   Board Chairman, Chief              2,933,100         1.184       (*)                -            -             -    2,933,100      1.184   (*) (A)
                    Executive Officer
Marina Del Bue      Director, General Director         1,614,439         1.174       (*)                -     540,000              -    1,074,439      1.431   (*) (B)

Enrico Cappelli     Chief Financial Officer              290,000         2.150       (*)                -            -             -      290,000      2.150     (*)

Holger Neecke       Director of Business                 240,000         2.150       (*)                -            -             -      240,000      2.150     (*)
                    Development
Marco Dieci         Director of Quality and              130,000         2.150       (*)                -            -             -      130,000      2.150     (*)
                    Regulatory Compliance
Antonio Lambiase    Director of Clinical                 150,000         2.150       (*)                -            -             -      150,000      2.150     (*)
                    Department
Paolo Rizzardi      Director of Research                 130,000         2.150       (*)                -            -             -      130,000      2.150     (*)

Daniele Pieraccioli Director of Intellectual             100,000         2.150       (*)                -            -             -      100,000      2.150     (*)
                    Property
Cynthia Giuliani    Director of Human Resources           70,000         2.150       (*)                -            -             -       70,000      2.150     (*)
Catia Traversari    Tumor Therapy Research                90,000         2.150       (*)                -            -             -       90,000      2.150     (*)
                    Manager
                                               Total    5,747,539                                       -     540,000              -     5,207,539
(*) For information related to the average expiry date of the options, reference should be made to stock option plans as described in these Notes
(A) of which 2,183,100 options with average strike price of 0.852 Euro and average expiry date of 12/31/2011 - The expiry was changed by the Extraordinary
Shareholders' Meeting of April 14, 2009
(B) of which 624,439 options with average strike price of 0.914 Euro and average expiry date of 12/31/2011 - The expiry was changed by the Extraordinary Shareholders'
Meeting of April 14, 2009

It should be noted that – following the capital increase better described earlier on – on October 11,
2010 MolMed’s Board of Directors resolved to change the regulations of the Stock Option Plans
currently in force, with the aim of assuring, as envisaged by those same regulations, maintenance of
the Options’ value.
More specifically, the strike price of Options not yet exercised was adjusted, using the same
adjustment factor established by Borsa Italiana to adjust the value of shares on the market when
capital-increase figures were issued.


Adjusted strike prices are as follows:

                                                         Strike price
                                                                                           K adjustment
                                                         before capital                                                  Strike price (€)
                                                                                           factor
                                                         increase (€)

         2001 options                                             0.94253                      0.68825301                              0.64870
         2002 options                                             0.80000                      0.68825301                              0.55060
         2007 options                                             2.15000                      0.68825301                              1.47974

All other conditions, procedures and agreements indicated in the Regulations for the Stock Option
Plans as subsequently amended are still valid.

Information concerning share-based payments is provided in the Notes to Statutory Financial
Statements at December 31, 2009 and at March 31, 2010, to which reference should be made.




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9.     SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD AND BUSINESS
       OUTLOOK

Taking account of the current economic and financial situation, in 2010 MolMed will maintain its
commitment to increase the focus on its experimental products NGR-hTNF and TK, which are at an
advanced stage of clinical testing, and to maximize, also through cooperation agreements, the value
of its product portfolio.



Milan, 11 November 2010




Claudio Bordignon
Chairman of the Board of Directors
Chief Executive Officer




10.    CERTIFICATION PURSUANT TO THE PROVISIONS OF ARTICLE 154-BIS,
       PARAGRAPH 2, OF ITALIAN LEGISLATIVE DECREE 58/1958

In compliance with the provisions of the second paragraph of Article 154-bis, Part IV, Title III, Head
II, Section V-bis, of Italian Legislative Decree no. 58 of February 24, 1998, the Executive Officer
responsible for preparing company financial reports herewith declares that the economic and
financial information contained in this document is consistent with corporate books and accounting
records.




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