Interim report

INTERIM REPORT 1 JANUARY - 30 SEPTEMBER 1998 * Operating income increased to SEK 46.6 (20.3) million. * Net loss for the period amounted to SEK -15.7 (-33.2). * Liquid funds and short-term investments amounted to SEK 209 million, compared to SEK 127.0 million on 31 December 1997. * The collaboration projects with Bristol-Myers Squibb (BMS) and Merck & Co (Merck) are advancing positively and according to plan. * Important results in the Company's project for the treatment of type 2 diabetes have been achieved. Additional trials strengthen Karo Bio's project. 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 leader in the field of nuclear receptors, aiming at developing innovative pharmaceutical compounds that interact with the receptors. Research is conducted in close collaboration with international pharmaceutical companies and leading academic institutions. At present, the Company is running four different research programs. Estrogen receptors A number of important disease conditions are related to estrogen receptors, such as osteoporosis, cardiovascular diseases, Alzheimer's disease, urinary incontinence and breast cancer. At the beginning of the year, the x-ray crystal structure of the estrogen receptor Beta was determined, which strengthened Karo Bio's leading position in the field. The Beta-structure and the structure of the estrogen receptor Alpha have shown to be of great importance in the comprehensive chemical design and synthesis work, and a number of structures in complex with new pharmaceutical compounds have been determined. The Company has initiated a new collaboration with the Karolinska Institute in Huddinge in order to further elucidate the function of the various estrogen receptors in different tissues. Thyroid hormone receptors The programs are aimed at the development of drugs for treatment of cardiac arrhythmia, metabolic disorders, skin diseases and glaucoma. The Company has access to x-ray crystal structures for both the Alpha and Beta thyroid hormone receptors and has recently determined additional structures of these receptors complexed to specific pharmaceutical compounds. These accomplishments have directed the design and characterization of selective compounds with relevant pharmacologic properties that have been successfully tested in animal models. There are indications that the compounds could be used also for treatment of other diseases. Glucocorticoid receptors The Glucocorticoid receptor is important for development and treatment of inflammatory disorders such as asthma and rheumatic diseases and for type 2 diabetes. In collaboration with the Karolinska Institute in Solna, Karo Bio is developing a new principle for treatment of type 2 diabetes where the liver is the target. Important results have been achieved through the development of liver selective compounds. The latest results show that low doses of Karo Bio's compounds significantly lower blood glucose levels in animals and that the compounds are effective both in the fasting and fed states which is of great importance for their future use. Orphan receptors Identification and characterization of new nuclear receptors as drug targets is an important research activity, which is being conducted in close collaboration with academic institutions. Interesting discoveries have been made during the year, primarily in relation to the orphan receptor OR-1. Two new chemistry laboratories were completed during the year, and additional chemists have been recruited. The Company had 71 employees at the end of September 1998, compared to 60 at year-end 1998 and 58 in September 1997. COLLABORATIVE PROJECTS Since the autumn of 1997 Karo Bio has been collaborating with Bristol-Myers Squibb within the field of metabolic disorders and with Merck & Co. within the estrogen field. Both projects are proceeding positively and according to plan. Between 1994 and 1997 Karo Bio collaborated with Novo Nordisk A/S within the field of hormone replacement therapy. The collaboration resulted in the identification of a preclinical lead candidate NNC 45-0781 with very promising properties, In addition, Novo Nordisk had a compound - levormeloxifene - in their possession before the collaboration with Karo Bio started, which has been subject for clinical trials. In September, Novo Nordisk announced that further development of levormeloxifene for the treatment of osteoporosis had been discontinued due to an unfavourable therapeutic index for this indication. The consequences for the further development of NNC 45-0781 are being evaluated by Novo Nordisk A/S. INCOME AND PROFIT / LOSS Net sales for the Group during the period amounted to SEK 46.6 (20.3) million, which also applies to the Parent Company. Net sales for the period are made up of income from Bristol-Myers Squibb and Merck & Co. During the corresponding period in 1997, income was derived from Novo Nordisk and the Swedish Industrial Development Fund. The new research collaborations and additional resources to the internal programs have increased the Group's costs by SEK 12.0 million compared to the same period last year. Consolidated loss for the Group during the period improved to SEK -15.7 (-33.2) million, and for the Parent Company to SEK -12.2 (-29.3) million. The difference is primarily attributable to depreciation on goodwill in the amount of SEK 3.9 (3.9) million. Earnings per share were SEK -1:80 (-4:70), calculated on the average number of shares. As a result of the consolidated loss and the accumulated loss carried forward for the Group, for a total of SEK 393 million, the effective tax rate was zero. LIQUIDITY AND EQUITY/ASSETS RATIO The Company's shares were listed on the Stockholm Stock Exchange's O-list on 3 April, 1998, when two new issues of 1,290,000 shares of series B were carried out at a price of SEK 92 per share. SEK 111 million was raised and share capital now totals SEK 45,885,860, which corresponds to 9,177,172 shares. On 30 September 1998, liquid funds for the Group, including short-term investments, amounted to SEK 209.0 million (SEK 127.0 million on 31 December 1997). There are no interest-bearing loans within the Group. Equity was SEK 252.8 million on 30 September 1998 (SEK 157.8 million on 31 December 1997). The equity/assets ratio of the Group was 89% on 30 September. Equity per share was SEK 27.54. The corresponding figures on 31 December 1997 were 84% and SEK 20. INVESTMENTS Group investments in machinery and equipment during the period amounted to SEK 9.5 million (4.2). The largest items are a laboratory for combinatorial chemistry, built within existing facilities, and the new laboratory for medicinal chemistry built on adjoining premises in Novum. NEXT REPORT The unaudited annual figures will be released on 11 February 1999. This report has not been reviewed by the Company's auditor. ------------------------------------------------------------ http://www.bit.se/bitonline/1998/10/20/19981020BIT00200/Interim-_Report.doc http://www.bit.se/bitonline/1998/10/20/19981020BIT00200/Consol_income_statem_SE.xls Charts