Statement by the Board of Directors of Karessa Pharma in relation to the Merger with Klaria Pharma

The Board of Directors of Karessa Pharma unanimously recommends that the shareholders of Karessa Pharma vote in favour of the Merger. [1]

Background

This statement is made by the Board of Directors (the "Board") of Karessa Pharma Holding AB (publ) ("Karessa") pursuant to Section II.19 of the Swedish Corporate Governance Board’s Takeover Rules for certain trading platforms (the "Takeover Rules").

Today, on 5 November 2019, Klaria Pharma Holding AB (publ) ("Klaria") and Karessa jointly announced that the board of Klaria and the board of Karessa have agreed on a statutory merger between Klaria and Karessa in accordance with the Swedish Companies Act (Sw. Aktiebolagslagen) (the "Merger") and the formation of a market leading player in the development of drug candidates based on innovative drug delivery systems with solid competitive advantages in each therapy area, called "New Klaria Pharma". The Merger will be implemented by Karessa being absorbed by Klaria.

One (1) share in Karessa entitles the holder to receive 0.6032 new shares in Klaria (the "Merger Consideration"). The shareholders in Karessa will thus receive an economic ownership of approximately 17.13 per cent in New Klaria Pharma (based on 11,000,000 outstanding Karessa shares as at the day of this announcement).

Thus, based on the volume weighted average price during the last sixty days of trading in Klaria's share, Karessa's share is, within the framework of the offer, valued at SEK 4.47 per share, meaning no premium or discount compared with the volume weighted average price during the last sixty days of trading, but a discount of about 25 per cent compared to the closing price on 4 November 2019 (the day before the announcement of the Merger) of SEK 5.95.

The completion of the Merger is conditional upon, amongst other things, that Karessa’s and Klaria’s shareholders, at the extraordinary general meeting of each company, approve the merger plan and resolve upon the issue of new shares which constitutes the Merger Consideration, that Nasdaq Stockholm has admitted the shares that constitute the Merger Consideration to trading on Nasdaq First North Growth Market, that all permits and approvals of the competition authorities that are necessary for the Merger have been obtained on terms containing no remedies, in each case on terms which, in the companies’ opinion, are acceptable. The boards of directors of Karessa and Klaria have reserved the right to waive these and other conditions in accordance with the terms of the Merger.

Shareholders in Klaria representing more than 37 percent of the votes and shares in Klaria and shareholders in Karessa representing more than 47 percent of the votes and shares in Karessa have undertaken or declared their intention to vote in favour of the merger at the forthcoming extraordi-nary general meetings.

The Board members Fredrik Hübinette and Scott Boyer are considered conflicted due to their roles as major owner and board member, respectively, in Klaria and have therefore not participated in the Board’s handling of matters relating to the Merger.

Karessa has retained Hamilton Advokatbyrå as legal adviser in relation to the Merger.

At the request of the Board, Skarpa AB has provided a valuation opinion (a so-called fairness opinion) according to which the Merger Consideration, in Skarpa AB’s opinion, is fair to Karessa’s shareholders from a financial point of view. The opinion is attached to this statement and is subject to the assumptions and considerations set out therein.

Skarpa AB will receive a fixed fee for the assignment regarding the valuation opinion, which are not contingent upon the size of the Merger Consideration or whether the Merger is completed.

The Board’s assessment of the Merger

The Board’s opinion of the Merger is based on an assessment of a number of factors that the Board has considered relevant to the evaluation of the Merger. These factors include, but are not limited to, the Merger’s strategic benefits, expected synergies, Karessa’s present position and the potential upside in the Merger Consideration attributable to Karessa’s shareholders.

The Board considers that the Merger with Klaria brings Karessa a number of strategic benefits. The strategy of New Klaria Pharma involves developing drug delivery technologies and drug candidates with a strategic positioning that meets the following three criteria: (1) products where current formulations and treatments are not satisfactory for treating the medical condition and resulting in a large so-called "unmet medical need", (2) where the patented drug delivery technology can implicate advantages compared to other existing formulations, such as rectal, nasal and oral formulations, and (3) products with an attractive commercial base, i.e. where there is a international market and an extensive potential market share for New Klaria Pharma, as well as opportunity for high price determination that justifies the higher cost of production.

The Board has assessed the synergies that the Merger is expected to entail and whether the Merger is creating value for all stakeholders of Karessa. Klaria and Karessa have to a certain extent overlapping, but also complementary, business areas and utilise the same drug delivery technology platform. As a consequence thereof, the Board considers that there are major synergies to be gained through a consolidation of the two companies:

• New Klaria Pharma will have a stronger market position towards potential customers and business partners as the companies will become stronger and steadier with a higher ability to deliver as a unified unit.
• As Klaria and Karessa currently are using the same CMO (Contract Manufacturing Organisation) and the manufacturing procedures are very similar, the synergies in manufacturing are evident.
• Within business development, the companies have the same potential customers among pharmaceutical companies, and the companies’ joint opportunities to approach relevant pharmaceutical companies are better than if the companies act separately.
• As both companies rely on the same technology-platform, while the companies’ research areas complement each other, there are synergies to be gained by integrating the two companies’ research activities and gathering the know-how within one organisation.
• New Klaria Pharma has an expanded project portfolio, which means that it is more likely that one or more projects will be effectively introduced on the market.
• New Klaria Pharma will have greater ability to raise capital than the companies’ ability separately.
• Klaria and Karessa have overlapping organisations and through the Merger, New Klaria Pharma creates a clearer, more cost-effective and focused organisation, not at least through combined expertise.

The Board has also considered the valuation opinion from Skarpa AB, according to which the Merger Consideration, in Skarpa AB's opinion, is fair to Karessa’s shareholders from a financial point of view (subject to the assumptions and considerations set out in the valuation opinion).

On the basis of the above, the Board unanimously recommends the shareholders in Karessa to vote in favour of the Merger.[1]

As regards the management and other employees of Karessa, Karessa and Klaria stated the following in the joint announcement of the Merger:

”Upon completion of the Merger, Björn Littorin, Anders Ardstål and Scott Boyer are ex-pected to be board members of New Klaria Pharma, and Scott Boyer to be New Klaria Pharma’s CEO.

Apart from the above, there are currently no decisions on significant changes to Klaria’s nor Karessa's employees or to their current organisation and operations, including the terms of employment and the locations where the Companies conduct their operations.”

The Board confirms that it is too early to assess the effects on Karessa’s operations and employees. The Board looks forward to further develop the strategic plans for New Klaria Pharma.

__________

Stockholm on 5 November 2019

Karessa Pharma Holding AB (publ)

The Board of Directors

For further information, please contact:

Mats Nilsson, CEO

Telephone: 08-768 22 33

E-mail: mats.nilsson@karessa.se

This is information that Karessa Pharma Holding AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out above, at 09:35 CET on 5 November 2019.

About Karessa Pharma Holding AB (publ)

Karessa is a Swedish pharmaceutical company with the vision of developing products based on a patented drug delivery platform with direct absorption of active substances to the bloodstream from the oral cavity. For further information, see karessa.se. Karessa’s shares are listed on Nasdaq First North Growth Market. Certified Advisor: FNCA Sweden AB, info@fnca.se, +46‑8‑528 00 399.

[1] The Board members Scott Boyer and Fredrik Hübinette have not participated in the handling of or resolutions in connection with the Merger as they are not considered independent in relation to Klaria.