Semi-annual report 1 january - 30 june 1999

SEMI-ANNUAL REPORT 1 JANUARY - 30 JUNE 1999 *In the collaboration project with Bristol-Myers Squibb additional animal trials show continuous promising properties for the compounds in development. The objective is to select a compound for entry into clinical trials later this year. *The Merck project boasts several ongoing animal studies in various disease models, using selective compounds. *Recent clinical findings and new animal trials strengthen Karo Bio's project aiming at treatment of type 2 diabetes. *A proof of principle study regarding treatment of skin atrophy with thyroid hormone analogs supports the concept. Planning of a clinical phase I/II study is ongoing. *Net sales for the period amounted to SEK 30.6 million (30.6) *Net loss after financial items for the period amounted to SEK -21.1 million (-9.2). *Liquid funds and short-term investments as of 30 June amounted to SEK 192.3 million, compared with SEK 209.1 million as of 31 December 1998. KARO BIO AB Novum, Hälsovägen 7, 141 57 Huddinge, Sweden Telephone: +46 (0)8-608 60 00; Fax: +46 (0) 8-774 82 61; E-mail: info@karobio.se; website: http://www.karobio.se/ 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 other countries. The company is engaged in four different research programs: * 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 Bristol Myers Squibb - Metabolic disorders (THR) Additional animal trials show continuous promising properties for the compounds in development which lower cholesterol, triglycerides and increase metabolic rate leading to weight loss at doses not having adverse cardiac effects. One of the main objectives is to select a compound for entry into clinical trials later this year. Merck & Co. - Estrogen Receptor (ER) The Merck collaboration is broad, generating compounds and biological information related to estrogen receptor subtypes. The project boasts several ongoing animal studies in various disease models, using selective compounds. INTERNAL PROJECTS Cardiac Arrhythmia - THR Karo Bio has decided to seek a partner for the further development of the pharmaceutical compound KB 130 015 and concentrate in house development to a new generation of compounds. Evaluation of such compounds is on-going with focus on atrial fibrillation, which may constitute the major clinical application. Skin disorders - THR The clinical findings in the proof of principle study regarding skin atrophy support the concept of treatment with thyroid hormone analogs. Planning of a phase I/II study is in progress. Glaucoma - THR Positive animal studies were concluded during spring and are now being followed up by development of a suitable product that can be administered as eye drops. Type 2 Diabetes - GR Several compound classes are now available and new animal data further supports the feasibility of treating type 2 diabetes using Karo Bio's novel concept. The project is aimed at reducing the hepatic glucos production by antagonizing the glucocorticoid receptor in the liver. Recent clinical findings strengthen the method. Other research and development Characterization of different orphan receptors and evaluation of additional clinical indications are in progress, aimed at starting new research programs. Additional orphan receptors have been identified and cloning is ongoing. 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 results that has lead to new patent applications. Additional key competencies have been recruited during the year. The total number of employees as of 30 June was 80, compared with 74 at year-end 1998 and 68 as of 30 June 1998. Of the Company's employees, 72 are engaged in research. INCOME AND PROFIT/LOSS Net sales for the Group and the Parent Company during the period amounted to SEK 30.6 (30.6) million. Group costs increased according to plan to SEK 56.2 (44.6) million following the increases in personnel since the first quarter of 1998, new academic research projects and pre-clinical studies. The new employees are engaged primarily with internal projects. Net results for the Group amounted to SEK - 21.1 (-9.7) million. The Parent Company's net result was SEK - 18.5 (-7.4) million. The difference between the Group and parent Company is made up of depreciation of goodwill in the amount of SEK 2.6 (2.6) million. Earnings per share for the period were SEK - 2:30 (-1:14), calculated upon the average number of shares. Owing to the negative results and losses carried forward of SEK 419 million for the Group, 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 192.3 million as of 30 June 1999 (209.1 as of 31 December 1998). The Group has no interest-bearing loans. Shareholders' equity as of 30 June 1999 was SEK 223.2 million (SEK 244.3 million as of 31 December 1998). The remaining 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. Since all shares were in Series B, the Annual General Meeting on 22 April decided to amend the articles of association and thereby convert all B-shares to Shares. INVESTMENTS The Group and Parent Company's investments in equipment during the period amounted to SEK 2.1 (7.2) million. The investments were primarily in IT equipment for crystallography and a consequence of the expansion. SCHEDULED RELEASES OF FINANCIAL INFORMATION Interim Report, January-September 18 October 1999 Release of unaudited figures for 1999 9 February 2000 The Company's auditor has not reviewed this report. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/07/12/19990712BIT00110/bit0001.doc http://www.bit.se/bitonline/1999/07/12/19990712BIT00110/bit0002.pdf http://www.bit.se/bitonline/1999/07/12/19990712BIT00110/bit0003.xls Consol Income Statement

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Karo Pharma is a specialty pharma company that develops and markets products to pharmacies and directly to healthcare providers. The share is listed on Nasdaq Stockholm in the Mid Cap segment.