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. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/04/22/19990422BIT00520/bit0001.doc http://www.bit.se/bitonline/1999/04/22/19990422BIT00520/bit0002.pdf http://www.bit.se/bitonline/1999/04/22/19990422BIT00520/bit0003.xl Tables