Interim Report 1 January – 31 March 1999

INTERIM REPORT 1 JANUARY – 31 MARCH 1999

In the Bristol-Myers Squibb collaboration, compounds have been developed that
in animal trials lower cholesterol levels and body weight without adverse
effects on the heart.
The collaborative project with Merck & Co generates new compounds that are
being tested in different animal models.
Additional animal trials recently carried out, including pharmacokinetic and
toxicology, support the use of Karo Bio’s compounds for treatment of type 2
diabetes. New compound classes have been developed to optimize efficacy.
Net sales for the period amounted to SEK 15,3 million (15,3).
Net loss after financial items for the period amounted to SEK -9,9 million (-
3,9).
Liquid funds and short-term investments as of 31 March amounted to SEK 198,3
million, compared with SEK 209,1 million as of 31 December 1998.

OPERATIONS
Karo Bio is a drug discovery company working with the development of receptor
and tissue-selective drugs for the treatment of widespread diseases that are
responsive to nuclear receptors. Operations are conducted in collaboration
with international pharmaceutical companies and leading academic institutions
in Sweden and in other countries.
The company is engaged in four different research programmes:
Estrogen receptors (ER):
Within the field of women’s health care, e.g., menopausal symptoms,
osteoporosis, cardiovascular disease and cancer.
Thyroid hormone receptors (THR):
Cardiac arrhythmia, metabolic disorders, glaucoma and skin disorders.
Glucocorticoid receptors (GR):
Type 2 diabetes and inflammatory diseases.
Orphan receptors:
Discovery and characterization of new nuclear receptors as targets for
development of new pharmaceuticals.

COLLABORATIVE PROJECTS
Merck & Co – Estrogen receptors
The project continues to generate compounds and biological information related
to estrogen receptors. Of particular importance are ongoing animal studies in
different diesease models with selective compounds.

Bristol-Myers Squibb – Metabolic disorders (THR)
Important findings have been made in different animal models. For example,
compounds which lower cholesterol levels and body weight without adverse
effects on the heart have been developed. Currently, the most suitable
development candidates are being selected.
INTERNAL PROJECTS

Cardiac arrhythmia – THR
The suitability of the pharmaceutical compound KB 130015 for treatment of
cardiac arrhythmia has been studied in animal trials with favorable results,
including the absence of proarrhythmic effect. These studies and the
assessment of the Company’s new compounds constitute the basis of decision
regarding which compounds shall be further developed. Karo Bio is presently
evaluating the suitability of this compound group for treatment of atrial
fibrillation, which may constitute the major area of application.

Skin disorders -THR
Karo Bio has previously shown in various animal models that compounds which
activate the thyroid hormone receptor have a positive effect on the skin. This
can be highly significant for the treatment of several different skin
disorders. As primary indication area, thinning of the skin (atrophy) has been
prioritized, which is a serious problem at steroid treatment. A trial with
healthy volounteers was recently carried out at a dermatological research
institute in Germany. The results of the study will be ready in May.

Glaucoma – THR
The established treatment principle for glaucoma is to lower pressure in the
chamber of the eye. During the period, an animal trial was carried out which

confirmed that compounds that activate the thyroid hormone receptor lower
pressure in the eye, which reinforces Karo Bio’s concept.

Type 2 diabetes – GR
Further animal studies have been carried out with Karo Bio’s liver-selective
glucocorticoid antagonists with continued favorable results with respect to
lowering of blood glucose levels and side-effects. In addition, new compound
classes have been developed, which are currently being tested in animal
models.

Other research and development
Characterization of a number of orphan receptors is in progress, aimed at
starting new research programmes. Prerequisites for obtaining patents on the
common receptor OR-1 have been strengthened. Additional orphan receptors have
been identified and cloning is in progress.

The Company’s collaborative partnerships with Karolinska Institutet and other
academic institutions, the objective of which is to further survey the
function of both estrogen receptors in various tissues, have yielded
interesting and patentable results.

Additional researchers, primarily chemists, were recruited during the period.
The total number of employees as of 31 March was 78, compared with 74 at year-
end 1998 and 64 as of 31 March 1998. Of the Company’s employees, 70 are
engaged in research.

INCOME AND PROFIT/LOSS

Net sales for the Group and the Parent Company during the period amounted to
SEK 15,3 (15,3) million. Group costs increased according to plan to SEK 27,4
(20,7) million following the increases in personnel since the first quarter of
1998. The new employees are engaged primarily with the internal projects.
Other items which contributed to the cost increases are preclinical studies
and other external research projects.
Net results for the Group were consequently amounted to SEK – 9,9 (-3,9)
million. The Parent Company’s net results were SEK – 8,9(-2,7) million. The
difference between the Group and parent Company is primarily made up of
depreciation of goodwill in the amount of SEK 1,3 (1,3) million.
Earnings per share for the period were SEK – 1:08 (-0:49), calculated upon the
average number of shares. Consequent upon the negative results and accumulated
loss deductions for the group of SEK 419 million total, the period’s results
were not subject to tax.

LIQUIDITY AND SHAREHOLDERS’ EQUITY

Liquid funds for the Group, including short-term investments, amounted to SEK
198,3 million as of 31 March 1999 (209.1 as of 31 December 1998). The Group
has no interest-bearing loans and shareholders’ equity as of 31 March 1999 was
SEK 234,3 million (SEK 244.3 million as of 31 December 1998).

The remainder 164,224 Series C shares were converted in February to Series B
pursuant to the agreement with the former owners of Serra Pharmaceuticals Inc.
(Karo Bio Inc.). The Company’s share capital of SEK 45,885,860 was thereafter
divided among 9,177,172 Series B shares.

INVESTMENTS

The Group and Parent Company’s investments in equipment during the period
amounted to SEK 1.2 (3.2) million. The investments were primarily for IT
equipment.

SCHEDULED RELEASES OF FINANCIAL INFORMATION
Semi-Annual Report 12 July 1999
Interim Report, January-September 18 October 1999
Release of unaudited figures for 1999 9 February 2000

This report has not been reviewed by the Company’s auditor.

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https://www.bit.se/bitonline/1999/04/22/19990422BIT00520/bit0001.doc
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https://www.bit.se/bitonline/1999/04/22/19990422BIT00520/bit0003.xl Tables